modern real estate practice in illinois 7th edition

Modern Real Estate Practice in Illinois Tenth Edition

Unit 4: Real Estate Agency

Agency Law

• Agency describes the special relationship between real estate licensees and the people they represent.

• Fiduciary – a relationship of trust between agent and principal.

– Duty of loyalty above personal interests of the agent.

• Agency is defined in Article 15 of the Real Estate License Act of 2000

Statutory Definitions

• Agency– a relationship in which a real estate broker or licensee, whether

directly or through an affiliated licensee, represents a consumer by the consumer’s consent, whether express or implied, in a real property transaction.

• Agent– the individual who is authorized and consents to represent the

interests of another person. In the real estate business, a firm’s sponsoring broker is the agent and shares this responsibility with the licensees who work for him.


• Brokerage agreement

– an agreement, written or oral, between a sponsoring broker and a consumer for licensed activities to be provided to a consumer in return for compensation or the right to receive compensation from another. In Illinois, any exclusive brokerage agreement must be in writing.


• Consumer

– person or entity seeking or receiving licensed activities

• Client

– person who is being represented by a licensee

• Customer

– consumer who is not being represented by a licensee

• Compensation

– valuable consideration given by one person or entity to another in exchange for the performance of some activity or service


Confidential information

– information obtained by a licensee from a client during the term of a brokerage agreement that was made confidential by the written request or instruction of the client, deals with the negotiating position of the client, or is information that could materially harm the negotiating position of the client if disclosed unless the client permits the disclosure, it is required by law, or the information becomes public from a source other than the licensee

Fiduciary Responsibilities

• Care

• Obedience

• Loyalty

• Disclosure

• Accounting

• Confidentiality


• Care

– agent should know all facts pertinent to the principal’s affairs

• Obedience

– agent must always act in good faith, obeying the principal’s instructions in accordance with the contract


• Loyalty

– requires the agent to place the principal’s interests above those of all others


• Disclosure

– agent’s duty to keep the principal informed of all facts or information that could affect a transaction. The agent may be held liable for damages for failing to disclose facts that a reasonable person would feel are important in choosing to go forward with a transaction


• Accounting

– Illinois license law requires agents to report the status of all funds or property received, give accurate copies of all documents to all parties, and keep copies on file.


• Confidentiality

– agents may not disclose personal and confidential information about their principals, though material facts about a property’s physical condition must always be disclosed

• Material Facts

– fact that, if known, might reasonably be expected to affect the course of events

• Illinois Residential Property Disclosure form

Fiduciary Responsibilities- Illinois

The common law fiduciary obligations are general in nature and based on common practice and court decision and can lead to confusion and misunderstanding.

Fiduciary Responsibilities- Illinois

Article 15 – Illinois Real Estate License Act

Legislative Intent

“… it is in the best interest of the public to provide codification of the relationships by consumers, real estate brokers and consumers of real estate brokerage services in order to prevent detrimental misunderstandings and misinterpretations of the relationships by consumers, managing brokers, and brokers and thus promote and provide stability in the real estate market.”

Fiduciary Responsibilities-IllinoisDuties of licensees representing clients

• Perform the terms of the brokerage agreement between a broker and the client

• Promote the best interest of the client by:

– Seeking a transaction at the price and terms acceptable to the client.

– Timely presenting all offers to and from the client, unless the client has waived this duty.

– Disclosing to the client material facts concerning the transaction of which the licensee has actual knowledge, unless that information is confidential information.

Fiduciary Responsibilities- Illinois– Accounting for all money and property received in which the client has an

interest.

– Obeying specific lawful directions of the client.

– Acting in a manner consistent with promoting the client's best interests as opposed to a licensee's or any other person's self-interest.

– Exercise reasonable skill and care.

– Keep confidential all confidential information received from the client.

– Comply with requirements of this Act and all statutes and regulations, including fair housing and civil rights statutes.

Opinion v. Fact

• Statements of opinion are permissible only if they are offered as opinions and without any intention to deceive

• Statements of fact must be accurate

• Exaggeration of a property’s benefits is called puffing. While puffing is legal, licensees must ensure that none of their statements can be interpreted as fraudulent

Opinion v. Fact

• Fraud is the intentional misrepresentation of a material fact in such a way as to harm or take advantage of another person, including making false statements or intentionally concealing or failing to disclose important facts

• Negligence

– broker should have known statement about a material fact was false


• Latent Defects

– hidden structural defect that would not be discovered by ordinary inspection

– seller must disclose any that threaten structural soundness or personal safety


• Stigmatized Properties

– properties that society has branded undesirable because of events that occurred there (e.g., homicide, illegal drug manufacturing, gang-related activities, tragedies, etc.)

– because of potential liability to a licensee for inadequate research and disclosure of material facts concerning a property’s condition, licensees should seek competent counsel when dealing with stigmatized property


• In Illinois

– Under Article 15 of the Real Estate License Act, “No cause of action shall arise against a licensee for the failure to disclose than an occupant of the property was afflicted with HIV or any other medical condition or that the property was the site of an act of occurrence which had no effect of the physical condition of the property or its environment or the structures located thereon”


• In Illinois

– under Article 15 of the Real Estate License Act, “no cause of action shall arise against a licensee for the failure to disclose…fact situations on property that is not the subject of transaction…”

– listing agents have no legal duty to disclose that a known sex offender resides in a property near a listed home, but skilled buyer’s agents should be watchful of signals of hard-to-identify issues

Client v. Customer Services

The client is the principal to whom the agent gives advice and counsel. The agent is entrusted with certain confidential information and has fiduciary responsibilities. The agent is an advocate for the principal, not for the customer.

Client v. Customer Services

• The customer is entitled to information and fair and honest dealings as a consumer but does not receive advice and counsel or confidential information about the principal.

• The agent works for the client (principal) and with the customer.

Creation of Agency

• Express agency – written or oral

– intention is specific

• Implied agency

– created by actions

• Compensation

– The source of compensation does not determine agency in Illinois

Creation of Agency

In Illinois

Under Article 15 of the Real Estate License Act, the licensee is presumed to be the agent of the consumer with whom the licensee is working, and all required discloses are to be made according to the provisions of the Act.

Creation of Agency

• In Illinois

– Agency is created by written disclosure

– The written disclosure may be incorporated into brokerage agreements

– The Real Estate License Act of 2000 requires all exclusive brokerage agreements must be in writing.

Termination of Agency

• Death or incapacity of either the client or the sponsoring broker (Signatories)

• Destruction of condemnation of the property

• Expiration of the terms of the agency

• Mutual agreement by all parties to the contract

• Breach

• By operation of law, as in bankruptcy

• Completion, performance, or fulfillment

Termination of Agency

In Illinois

A definite termination date must be included or the client’s right to terminate the agreement annually by giving no more than 30 days prior written notice. Automatic extension clauses are illegal

Agency Coupled with an Interest

Agency relationship in which the agent has an interest in the property being sold

Types of Agency Relationships

Limitations on an Agent’s Authority

– Universal Agent

• a person empowered through a written power of attorney to do anything the principal could do personally

– General Agent

• may represent the principal in a broad range of matters related to a particular business or activity

• usually, an ongoing aspect to this type of agency, such as a property management function

Types of Agency Relationships

Limitations on an Agent’s Authority

– Special Agent

• authorized to represent the principal in one specific act or business transaction only, under detailed instructions

• real estate brokers are usually special agents

– Designated Agent

• a licensee authorized by the sponsoring broker to act as the agent of a specific principal

Single Agency

• the agent and the entire firm represent only one party in any single transaction

• the agent and the entire firm owe fiduciary and statutory duties exclusively to one principal who may be either:– seller as principal

– buyer as principal

– landlord as principal

– tenant as principal

Dual Agency

• A single licensee represents both buyer and seller or lessor or lessee in the same transaction.

• Licensee must have consent and confirmation in writing from both.

Customer-Level Services

• Honest and fair dealing

• Disclosure of material adverse facts about the physical condition of the property

• Disclosure of agency relationships

Modern Real Estate Practice in Illinois Tenth

EditionUnit 5: Real Estate Brokerage

Broker-Sponsoring Broker Relationship

• Real Estate Broker– any person licensed to perform real estate activities on behalf of a licensed real

estate sponsoring broker

• Sponsoring Broker – fully responsible for the actions performed during the real estate business by all

persons sponsored– all activities performed by a sponsored licensee must be performed in the name

of the sponsoring broker

Designated Managing Brokers

• A managing broker’s license is obtained by taking additional courses and receiving a managing broker license.

• The sponsoring broker designates a managing broker appoints that individual to oversee the office and train and supervise licensees.

• Designated managing broker is responsible for the supervision of all real estate activities performed by affiliated licensees.

• Responsible for earnest money, escrows, contract negotiations, recordkeeping, and maintenance of employment agreements.

Independent Contractors/Employees

Independent Contractor versus Employee

– whether a sponsored licensee is treated as an employee or an independent contractor affects the structure of the sponsored licensee‘s responsibilities and the sponsoring broker’s liability to pay and withhold taxes from the sponsored licensee’s earnings

Independent Contractor/Employee

Independent Contractor versus Employee

– Three requirements must be met to establish an independent contractor status:

• Current real estate license

• Written contract specifying that the licensee will not be treated as an employee for federal tax purposes

• 90% of income based on production, not number of hours worked

Designated Managing Broker Responsibilities

• Managing broker and sponsoring broker may be the same person (sole proprietorships)

• Supervision of all sponsored licensees

• Working with new licensees

• Maintenance of licenses

• Change of business address

• Advertising

Termination of Sponsorship

• Sponsored licensee terminates employment with the sponsoring broker

• Procedure

– Both terminated licensee and sponsored broker inform the Department via the Online Portal.

Policy and Procedures Manual

• Real Estate License Act requires an office policy and procedures manual.– Exception is sole owner with no sponsored licensee

• Topics should include – agency policy – fair housing, nondiscrimination and harassment– confidentiality of client information – advertising – training and supervision of sponsored licensees– required disclosures and use of forms– handling of risk management matters– handling of earnest monies and escrows– licensee safety

Errors and Omissions Insurance

• Protection from claims made by clients, customers, and consumers related to real estate activities

– Mishandling money

– Misrepresentation or fraud

– Undisclosed dual agency

– Unauthorized disclosure of confidential information

Errors and Omissions Insurance

• Covered defense costs

• Exclusions

• Covered persons

• Independent contractors

• Covered territory

• Liability caps

• Deductibles

• Conditions

Technology and Brokerage

• Internet as way to share and gather information

• Website visitors use can watch videos and see virtual tours of properties

• Virtual staging is also used by practitioners

• Social media platform use

• Internet-related advertising rules and regulations

Sponsoring Broker Compensation

• Specified in the contract with the principal

• Amount of a broker’s commission is negotiable in every case

– attempting to impose uniform commission rates is a violation of antitrust laws

– a sponsoring broker may set the minimum rate acceptable for that broker’s firm

Broker’s Compensation

• Procuring Cause – the uninterrupted chain of events, without abandonment or estrangement, that leads to a sale on the seller’s terms.

• Even if the transaction is not consummated, the broker may still be entitled to a commission

Sponsored Licensee’s Compensation

Amount of compensation a sponsored licensee receives is set by mutual agreement between the sponsoring broker and the sponsored licensee

Antitrust Laws

• Price-fixing

• Group boycotting

• Allocation of customers or markets

• Tie-in agreements

Penalties

• Federal Sherman Antitrust Act

– price fixing or allocation of markets: maximum $1 million fine and ten years in prison; for corporations, the penalty may as high as $100 million

– Treble damages are available in civil lawsuits

Phishing and Electronic Media Scams

• Licensees should use caution when sharing confidential information via email or text

• Beware of fraud to protect personal and client information

National Do Not Call Registry

• To avoid penalties, managing brokers must demonstrate that:

– they have written procedures to comply with the do-not-call requirement

– they train personnel in those procedures

– they monitor and enforce compliance with these procedures

– they maintain a company-specific list of phone numbers that they may not call

National Do Not Call Registry (cont’d)

• To avoid penalties, managing brokers must demonstrate that:

– they access the national registry every 31 days before calling any consumer and maintain records documenting this process

– they must show that any call made in violation of the do-not-call rules was the result of an error

National Do Not Call Registry (cont’d)

• Exemptions – Established Business Relationships

– 18 months after payment, purchase, or delivery (client)

– 3 months after applications or inquiry (customer)

The CAN-SPAM Act of 2003

▪ Establishes requirements for sending commercial e-mail▪ Must provide opt-out method

▪ Accurate “FROM” lines

▪ No deceptive subject lines

▪ Valid physical postal address

▪ Spells out penalties for those who don’t comply

▪ Gives consumers the right to have e-mailers stop sending messages to them

The Junk Fax Prevention Act of 2005

Does not legalize unsolicited fax advertisements or solicitations, but it does allow for an established business relationship exception

modern real estate practice in illinois 7th edition

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