Agency relationships and authority

Agency is a legal relationship in which one person acts for another in dealings with third persons. The principal authorizes the representation; the agent undertakes it. In a typical listing, the seller is the principal and the brokerage is the seller's agent. The buyer is a third party to that relationship even though the listing salesperson answers the buyer's questions or unlocks the house.

The word customer is useful shorthand for someone receiving services without being the brokerage's represented client. A customer is still owed important duties. The distinction identifies who receives fiduciary loyalty; it never creates permission to mislead an unrepresented person.

In everyday speech, people call a salesperson their agent. For California licensing purposes, the salesperson performs licensed activities under a responsible broker. The broker is the contracting brokerage and may act through affiliated salespersons and broker associates. Follow that chain when a question describes several people in one office. Different salespersons working with opposing sides can place the same brokerage in a dual agency relationship.

Before classifying an appointment, draw the relationship in words. Write "owner to brokerage" for the employment relationship, "brokerage to salesperson" for supervised performance, and "owner to buyer" for the proposed sale. This prevents a common mistake: assuming that because the salesperson participates in all three conversations, the salesperson has become a contracting principal in all three relationships.

Agency can also exist outside a purchase. A landlord may employ a property manager; a borrower may retain a mortgage broker; a business owner may hire a broker to sell a business opportunity. In each case, identify the person whose interests the professional undertakes to represent. The property type does not supply the answer. A warehouse broker can represent a tenant, landlord, purchaser, or seller depending on the engagement.

For example, an investor asks a broker for an estimate of rent for a building the investor might buy. A casual preliminary discussion differs from an undertaking to locate properties, evaluate terms, and negotiate for the investor. The more the broker undertakes to act on the investor's behalf, the less useful a casual label becomes. Required agreements and disclosures should be addressed when the relationship develops, rather than postponed because the parties have not yet chosen a property.

A special agent has authority for a particular transaction or purpose. A broker retained to market one property is the classic example. A general agent handles an ongoing category of business. A property manager who collects rents, arranges authorized repairs, and administers leases under a management agreement illustrates general agency within specified limits.

A universal agent has unusually broad delegated authority. It is a textbook category, not the ordinary consequence of hiring a real estate broker. Even broad authority remains subject to the governing instrument and acts the law permits someone to delegate.

These categories describe scope, not the agent's professional quality. A special agent can owe the same demanding fiduciary duties as a general agent. A general agent can still exceed authority by undertaking an action outside the management agreement, such as borrowing against the property.

A subagent acts for an agent in conducting the principal's business when properly authorized. Do not assume that every cooperating broker is the seller's subagent. A cooperating broker may represent the buyer. Determine the actual relationship from the parties' agreement and conduct, then verify the required disclosures.

An express agency arises from words: the principal explicitly authorizes the agent to act. A signed listing or buyer representation agreement provides clear evidence of the relationship, its scope, and its duration. An implied agency may arise from conduct and surrounding circumstances showing consent and an undertaking to act. A person's label for the relationship cannot necessarily overcome conduct inconsistent with that label.

Writing requirements still matter. General agency principles do not excuse compliance with California rules governing real estate compensation agreements, buyer representation agreements, or authority to execute certain contracts. Separate these questions:

1. Did a relationship and corresponding duties arise?
2. Does the agent possess authority for the particular act?
3. Is there an enforceable agreement supporting the claimed compensation?

A broker may fail the third question even when the facts establish duties under the first. Conversely, a written listing may support compensation while granting no authority to sign a sale contract for the owner. An employment agreement to find a buyer is not itself a conveyance of the real estate.

Actual authority comes from what the principal intentionally confers or intentionally or negligently allows the agent to believe has been conferred. Express directions are the easiest example. Incidental authority can include ordinary steps necessary to carry out an authorized task, provided the agreement and law do not prohibit them.

Ostensible authority concerns what the principal causes a third person reasonably to believe. The critical conduct is attributable to the principal. An agent cannot manufacture authority merely by announcing, "I can approve any price." A third person also cannot reasonably rely on supposed authority while ignoring clear limitations or contradictory information.

Suppose an owner repeatedly directs a tenant to deal with the property manager about routine repairs, and the manager has consistently authorized modest repairs with the owner's knowledge. The facts may support authority for another ordinary repair. They do not automatically establish authority to sell the building. The magnitude and nature of the act matter.

Agency by estoppel is often used to describe a situation in which a principal cannot deny a relationship the principal has caused another person reasonably to rely on. On an exam, look for a representation or course of conduct, reasonable reliance, and a resulting change in position. An unsupported claim by the supposed agent is insufficient.

Civil Code section 2334 limits liability based on merely ostensible authority to a person who acts in good faith, exercises ordinary care, and incurs a liability or parts with value in reliance on that appearance. Believing a manager has power is not the entire test. Identify what the principal communicated, what the third person knew, and what commitment or value followed.

Ratification is informed adoption of an act initially performed without adequate authority. A principal who knows the material facts and accepts a transaction's benefits may ratify it, depending on the circumstances and required formalities. Ratification is not a device for validating an illegal transaction or ignoring a required written authorization. A principal also cannot deliberately accept the favorable part of an indivisible transaction while rejecting its burdens.

A power of attorney authorizes an attorney-in-fact to act within the instrument's terms. The attorney-in-fact need not be an attorney-at-law. Authority to execute real estate documents should be verified carefully, including scope, effectiveness, revocation, and any recording requirements relevant to the transaction.

A standard listing authorizes brokerage services. It does not ordinarily allow the broker to execute a purchase agreement or deed for the seller. Where the statute of frauds requires a transaction to be in writing, the equal dignities principle can require the agent's authority to enter it to be written as well. Never infer signing authority from possession of keys, an advertising budget, or a commission agreement.

Morgan hires Harbor Realty to list a duplex. Harbor salesperson Lee markets it. Buyer Casey signs a buyer representation agreement with Valley Realty and works with salesperson Jordan. Morgan agrees to pay an amount toward Casey's brokerage expense.

Harbor represents Morgan, while Valley represents Casey. The seller's contribution does not turn Valley into Morgan's agent. Lee cannot accept Casey's offer for Morgan merely because Lee is the listing salesperson. Jordan cannot promise that Morgan will make repairs. Each agent must stay within actual authority and communicate accurately about the other party's decisions.

If Casey instead becomes represented by another Harbor salesperson, analyze the brokerage's role again: Harbor would be representing opposing principals in the same transaction. The matter requires the dual agency disclosures and consent discussed in the next lessons. Assigning two staff members does not create two unrelated brokerages.

Identify the principal before classifying the duty. Identify the task before deciding whether authority exists. Agency, compensation, and signing authority are related but separate issues. A client relationship depends on authorization and conduct, not who happens to pay the bill. A salesperson's involvement must always be understood within the responsible brokerage's role.