Agency and the Use of Agency and the Use of Electronic MediaElectronic Media

June 2011June 2011

Why Real Estate, Why Real Estate, the Internet & Social Media?the Internet & Social Media?

Opportunities to engage the consumer are Opportunities to engage the consumer are greatergreater

Communication tools increaseCommunication tools increase Marketing redefinedMarketing redefined Tell your storyTell your story Build your brand imageBuild your brand image

http://www.azcentral.com/style/hfe/decor/artihttp://www.azcentral.com/style/hfe/decor/articles/2010/08/13/20100813real-estate-using-cles/2010/08/13/20100813real-estate-using-internet-sell.html.internet-sell.html.

http://youtu.be/6ILQrUrEWe8http://youtu.be/6ILQrUrEWe8

Why Real Estate, Why Real Estate, the Internet & Social Media?the Internet & Social Media?

Almost Almost 88%88% of all home searches today use the of all home searches today use the Internet. Internet.

87%87% of home buyers who used the Internet to of home buyers who used the Internet to search for homes purchased through a real search for homes purchased through a real estate agent.estate agent.

32%32% of home buyers surveyed stated that they of home buyers surveyed stated that they FIRST learned of the home that they purchased FIRST learned of the home that they purchased on the Internet.on the Internet.

Turning Web 2.0 into Real Estate 2.0Turning Web 2.0 into Real Estate 2.0

““Real Estate 2.0 really means a Real Estate 2.0 really means a conversation with conversation with the client or the prospective clientthe client or the prospective client, … That , … That sits in opposition to Real Estate 1.0, which was really about sits in opposition to Real Estate 1.0, which was really about one-way communication from the real estate professional one-way communication from the real estate professional or brokerage company about their services, their expertise, or brokerage company about their services, their expertise, their brand.” their brand.”

JOHN N. FRANK, “Welcome to Real Estate 2.0”JOHN N. FRANK, “Welcome to Real Estate 2.0”http://www.realtor.org/archives/featuremar08 http://www.realtor.org/archives/featuremar08

Turning Web 2.0 into Real Estate 2.0Turning Web 2.0 into Real Estate 2.0

Major Real Estate 2.0 tools are:Major Real Estate 2.0 tools are:

BlogsBlogs:: Quickly becoming the most widely used symbol of Real  Quickly becoming the most widely used symbol of Real Estate 2.0, blogs are online diaries or commentaries. Estate 2.0, blogs are online diaries or commentaries.

Social NetworksSocial Networks:: These are Web communities people join —  These are Web communities people join — usually free of charge — through a simple registration process. usually free of charge — through a simple registration process. MySpace and Facebook are the best known of these sites. MySpace and Facebook are the best known of these sites. Activerain.com, which hosts real estate blogs, also has a social networking Activerain.com, which hosts real estate blogs, also has a social networking

component that has more than 61,000 real estate professionals signed upcomponent that has more than 61,000 real estate professionals signed up ..

JOHN N. FRANK, “Welcome to Real Estate 2.0”JOHN N. FRANK, “Welcome to Real Estate 2.0”http://www.realtor.org/archives/featuremar08http://www.realtor.org/archives/featuremar08

Use of Electronic Media In:Use of Electronic Media In:

ProspectingProspecting Creating agent/client relationshipsCreating agent/client relationships Communication during the transaction processCommunication during the transaction process Communication subsequent to the close of the Communication subsequent to the close of the

transactiontransaction

Avoid PitfallsAvoid Pitfalls

The agency relationship establishes the legal The agency relationship establishes the legal framework of duties and responsibilities among framework of duties and responsibilities among brokers, salespeople and consumers.brokers, salespeople and consumers.

It is important to understand agency to reduce It is important to understand agency to reduce risk of:risk of: LitigationLitigation Damage to reputationDamage to reputation Loss of earningsLoss of earnings

Avoid PitfallsAvoid Pitfalls

Agency problems or Agency problems or breach of fiduciary dutybreach of fiduciary duty lawsuits most frequently arise when a problem lawsuits most frequently arise when a problem with a transaction causes one of the parties to with a transaction causes one of the parties to seek legal advice and the lawyer asks, seek legal advice and the lawyer asks, "Well, "Well, who was representing you?“who was representing you?“

LAURIE K. JANIK, NAR General CounselLAURIE K. JANIK, NAR General Counsel

http://www.realtor.org/archives/top10legallauarchive2000marhttp://www.realtor.org/archives/top10legallauarchive2000mar

Avoid PitfallsAvoid Pitfalls

Understand your dutiesUnderstand your duties Know your required disclosuresKnow your required disclosures Act prudently to reduce exposureAct prudently to reduce exposure

Definition of AgencyDefinition of Agency

AgencyAgency: A consensual fiduciary relationship : A consensual fiduciary relationship where one party is representing the interest of where one party is representing the interest of another in a manner that is another in a manner that is fairfair and and honesthonest..

Fiduciary DutyFiduciary Duty: A duty obligating an agent to : A duty obligating an agent to act with loyalty and honesty and in a manner act with loyalty and honesty and in a manner consistent with the best interests of client. consistent with the best interests of client.

Clients, Customers & ProspectsClients, Customers & Prospects

NAR Code of Ethics, Standards of Practice 1-2NAR Code of Ethics, Standards of Practice 1-2 ClientClient: the person or entity with whom the : the person or entity with whom the

REALTOR® has an agency relationship.REALTOR® has an agency relationship. CustomerCustomer: a party to a real estate transaction who : a party to a real estate transaction who

receives information, services, or benefits but has no receives information, services, or benefits but has no contractual relationship with a REALTOR®contractual relationship with a REALTOR®

ProspectProspect: a purchaser, seller, tenant, or landlord who : a purchaser, seller, tenant, or landlord who is not subject to a representation relationship with a is not subject to a representation relationship with a REALTOR® REALTOR®

Fiduciary Duties (R4-28-1101)Fiduciary Duties (R4-28-1101)

CConfidentiality onfidentiality – safeguard secrets / trumped by disclosure– safeguard secrets / trumped by disclosure AAccountability ccountability - account for all funds and property entrusted by the principal - account for all funds and property entrusted by the principal

RReasonable Care easonable Care - diligently use real estate skills and knowledge when - diligently use real estate skills and knowledge when

pursing the principal’s affairspursing the principal’s affairs LLoyalty oyalty - - act in the best interest of the principal and to put those interests above all others. act in the best interest of the principal and to put those interests above all others.

OObedience bedience - - To obey promptly all To obey promptly all lawfullawful instructions of the principal within the instructions of the principal within the scope of real estate. scope of real estate.

AAdvocacy dvocacy – Give opinion, advice and/or counsel to parties you represent– Give opinion, advice and/or counsel to parties you represent

DDisclosure isclosure - - To disclose all known, relevant facts to the principalTo disclose all known, relevant facts to the principal. .

Fiduciary Duties (R4-28-1101)Fiduciary Duties (R4-28-1101)

Responsibility to:Responsibility to: ClientsClients CustomersCustomers CConfidentiality onfidentiality YesYes NoNo AAccountabilityccountability YesYes NoNo RReasonable Careeasonable Care YesYes YesYes LLoyalty oyalty YesYes NoNo OObediencebedience YesYes NoNo AAdvocacy dvocacy YesYes NoNo DDisclosureisclosure YesYes YesYes

DisclosureDisclosure

Disclosure RequirementsDisclosure Requirements Seller or Buyers ability to performSeller or Buyers ability to perform Material defectsMaterial defects Existence of any liens or encumbranceExistence of any liens or encumbrance Dual agencyDual agency

Real Estate Agency Disclosure and ElectionReal Estate Agency Disclosure and Election http://www.aaronline.com/documents/READAE_http://www.aaronline.com/documents/READAE_

New.pdfNew.pdf

Expressed ConsentExpressed Consent

Seller:Seller: Listing Agreement – Exclusive Right to Listing Agreement – Exclusive Right to SellSell

BuyerBuyer: Buyer-Broker Exclusive Employment : Buyer-Broker Exclusive Employment AgreementAgreement

http://www.aaronline.com/ForRealtors/Forms/http://www.aaronline.com/ForRealtors/Forms/Agency.aspxAgency.aspx

Uniform Electronic Transactions Uniform Electronic Transactions Act (1999)Act (1999)

One of the several United States Uniform Acts One of the several United States Uniform Acts proposed by the National Conference of proposed by the National Conference of Commissioners on Uniform State Laws (NCCUSL). Commissioners on Uniform State Laws (NCCUSL).

47 States, the District of Columbia, Puerto Rico, and 47 States, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands have adopted it into their own the U.S. Virgin Islands have adopted it into their own laws. laws.

Its purpose is to bring into line the differing State laws Its purpose is to bring into line the differing State laws over such areas as retention of paper records (checks in over such areas as retention of paper records (checks in particular), and the validity of electronic signatures particular), and the validity of electronic signatures thereby supporting the validity of electronic contracts thereby supporting the validity of electronic contracts as a viable medium of agreement. as a viable medium of agreement.

ESIGN ACT (2000)ESIGN ACT (2000) The Electronic Signatures in Global and National The Electronic Signatures in Global and National

Commerce Act (ESIGN)Commerce Act (ESIGN) facilitate the use of electronic records and signatures in facilitate the use of electronic records and signatures in

interstate and foreign commerce by ensuring the interstate and foreign commerce by ensuring the validity and legal effect of contracts entered into validity and legal effect of contracts entered into electronically.electronically.

The general intent of the ESIGN Act is that a contract The general intent of the ESIGN Act is that a contract or signature “may not be denied legal effect, validity, or or signature “may not be denied legal effect, validity, or enforceability solely because it is in electronic form”. enforceability solely because it is in electronic form”.

Provides that electronic signatures and records are just Provides that electronic signatures and records are just as good as their paper equivalents.as good as their paper equivalents.

Arizona Electronic Transactions Arizona Electronic Transactions Act Act (ARS § 44-7001 et. seq.)(ARS § 44-7001 et. seq.)

Electronic SignatureElectronic Signature

"an electronic sound, symbol, or process, "an electronic sound, symbol, or process, attached to or logically associated with a contract attached to or logically associated with a contract or other record and executed or adopted by a or other record and executed or adopted by a person with the intent to sign the record." person with the intent to sign the record."

ADRE Substantive Policy ADRE Substantive Policy Statement No. 2005.10, Electronic Statement No. 2005.10, Electronic

SignaturesSignatureshttp://www.re.state.az.us/LawBook/Documents/http://www.re.state.az.us/LawBook/Documents/

SPS_Documents/SPS_2005.10_Electronic_SignSPS_Documents/SPS_2005.10_Electronic_Signatures.pdfatures.pdf

Page 144 in AZ Real Estate Law BookPage 144 in AZ Real Estate Law Book

Implied AgencyImplied Agency

An actual agency created by acts of a principal An actual agency created by acts of a principal that reasonably imply an intention to create an that reasonably imply an intention to create an agency relationship.agency relationship.

It may be implied by the conduct of the parties It may be implied by the conduct of the parties and no formal agreement is necessary.and no formal agreement is necessary.

Created by mutual assent … Created by mutual assent …

Implied AgencyImplied Agency

The existence of an agency relationship is the The existence of an agency relationship is the determination of a court makes after considering determination of a court makes after considering all of the circumstances.all of the circumstances.

Hayward v. Graham, 104 Ariz. 103, Hayward v. Graham, 104 Ariz. 103, 449 p. 2d 31 (1968)449 p. 2d 31 (1968)

““An implied agency must be based on facts such An implied agency must be based on facts such as to imply an intention to create the agency, and as to imply an intention to create the agency, and the implication must arise from a natural and the implication must arise from a natural and reasonable, and not from a forced, strained, or reasonable, and not from a forced, strained, or distorted, construction of them. They must lead distorted, construction of them. They must lead to the reasonable conclusion that mutual assent to the reasonable conclusion that mutual assent exists, and be such as naturally lead another to exists, and be such as naturally lead another to believe in and to rely on the agency.” believe in and to rely on the agency.”

Agency by Estoppel Agency by Estoppel Presumption of AgencyPresumption of Agency

An agency that is not created as an actual agency by a principal An agency that is not created as an actual agency by a principal and an agent but that is imposed by law when a principal acts in and an agent but that is imposed by law when a principal acts in such a way as to lead a third party to reasonably believe that such a way as to lead a third party to reasonably believe that another is the principal's agent and the third party is injured by another is the principal's agent and the third party is injured by relying on and acting in accordance with that belief.relying on and acting in accordance with that belief.

A principal has a duty to correct a third party's mistaken belief in A principal has a duty to correct a third party's mistaken belief in an agent's authority to act on the principal's behalf. If the an agent's authority to act on the principal's behalf. If the principal could have corrected the misunderstanding but failed to principal could have corrected the misunderstanding but failed to do so, he or she is estopped from denying the existence of the do so, he or she is estopped from denying the existence of the agency and is bound by the agent's acts in dealing with the third agency and is bound by the agent's acts in dealing with the third party. party.

Categories of RiskCategories of Risk Compliance RiskCompliance Risk Compliance risk is the risk to earnings or capital arising from violations of, or Compliance risk is the risk to earnings or capital arising from violations of, or

non-conformance with, law, rules, regulations, prescribed practices, or ethical non-conformance with, law, rules, regulations, prescribed practices, or ethical standards. Compliance risk also arises in situations where the laws or rules standards. Compliance risk also arises in situations where the laws or rules governing certain activities or clients may be ambiguous or untested. governing certain activities or clients may be ambiguous or untested. Compliance risk exposes the institution to fines, civil money penalties, Compliance risk exposes the institution to fines, civil money penalties, payment of damages, and the voiding of contracts. Compliance risk can lead payment of damages, and the voiding of contracts. Compliance risk can lead to a diminished reputation, reduced franchise value, limited business to a diminished reputation, reduced franchise value, limited business opportunities, lessened expansion potential, and lack of contract opportunities, lessened expansion potential, and lack of contract enforceability.enforceability.

Compliance risk is often overlooked as it blends into operational risk and Compliance risk is often overlooked as it blends into operational risk and transaction processing. A portion of this risk is sometimes referred to as legal transaction processing. A portion of this risk is sometimes referred to as legal risk. This is not limited solely to risk from failure to comply with consumer risk. This is not limited solely to risk from failure to comply with consumer protection laws; it encompasses all laws as well as prudent ethical standards protection laws; it encompasses all laws as well as prudent ethical standards and contractual obligations. and contractual obligations.

Categories of RiskCategories of Risk Reputation RiskReputation Risk Reputation risk is the risk to earnings or capital arising from Reputation risk is the risk to earnings or capital arising from

negative public opinion. This affects the company’s ability to negative public opinion. This affects the company’s ability to establish new relationships or services, or continue servicing establish new relationships or services, or continue servicing existing relationships. This risk can expose the company to existing relationships. This risk can expose the company to litigation, financial loss, or damage to its reputation. Reputation litigation, financial loss, or damage to its reputation. Reputation risk exposure is present throughout the organization and is why risk exposure is present throughout the organization and is why companies have the responsibility to exercise an abundance of companies have the responsibility to exercise an abundance of caution in dealing with their customers and community. This caution in dealing with their customers and community. This risk is present in activities such as asset management and agency risk is present in activities such as asset management and agency transactions.transactions.

The assessment of reputation risk recognizes the potential The assessment of reputation risk recognizes the potential impact of the public’s opinion on a company’s value. This risk is impact of the public’s opinion on a company’s value. This risk is inherent in all activities. inherent in all activities.