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#462621 - 10/13/18 01:58 PM Question about agency relationships
Bill Ryder Offline
Junior Member

Registered: 10/06/18
Posts: 6
Loc: Tampa, soon Philadelphia burbs...
Hi all,

So I'm taking an online course to become an agent in PA. The following is a caption from those materials and I'll ask a question after the quote:

"In an agency relationship, a principal hires an agent as a fiduciary to perform a
desired service on the principal's behalf. As a fiduciary, the agent has a legal
obligation to fulfill specific fiduciary duties throughout the term of the
relationship.

Chapter 11 Agency 135
The principal, or client, is the party who hires the agent. The agent works for
the client. The principal may be a seller, a buyer, a landlord, or a tenant.
The agent is the fiduciary of the principal, hired to perform the authorized
work and bound to fulfill fiduciary duties. In real estate brokerage the agent
must be a licensed broker.
The customer or prospect is a third party in the transaction whom the agent does
not represent. The agent works with a customer in fulfilling the client's
objectives. A seller, buyer, landlord, or tenant may be a customer. A third party
who is a potential customer is a prospect."

Can anyone explain a real world example of who the "customer" would be? I'm missing the difference between a principal and a customer.

If I'm reading it right, the principal is the buyer or seller who hires an real estate agent. It seems like the principal would *be* the customer. So in the scenario described I don't even understand who a third involved party would be. (?)

Thanks in advance!

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#462624 - 10/14/18 05:56 AM Re: Question about agency relationships [Re: Bill Ryder]
Vermont Offline
Major Contributor

Registered: 04/12/08
Posts: 7934
Loc: Vermont's North-East Kingdom
Originally Posted By: Bill Ryder
"... Can anyone explain a real world example of who the "customer" would be? I'm missing the difference between a principal and a customer ..."

It might help to consider the existence of a "Contract" to be a critical component in establishing a Principal/Agent relationship.

There is no "contract" between an Agent and a Customer or Prospect . . . . there is no fiduciary relationship. If a "Contract" is executed, then the Customer ceases to be a mere prospect or customer; but becomes a "Client" who is owed all of those fiduciary duties. Customers are not given this loyalty (even though many expect it). No Contract = No Client . . . . and No Fiduciary.

Though I did it, I never much liked being an Agent of Buyers, many of whom are fickle and don't have a sufficient fixation on the mission at hand. I often found myself having to serve too many masters.

Taking on a Client Buyer in a Buyer Broker Contract is akin to entering a Marriage Contract; while I prefered to stay in the realm of "just going steady" . . . . no vows, no commitment. When I did enter such a Contract, I always strived to collect a sizeable Retainer up front to secure a more serious commitment from the Buyer Client. I don't like leashes very much; and I prefer to control who'll be on the other end. I am not a Dog, and won't become one for free.

Now, I don't have that same problem with Seller/Clients. The Listing Agreement is the Contract, and we have an agreed upon common objective . . . . to get their property sold fast and at a high price and without any unnecessary entanglements. There's a focus with Sellers, and no (or very limited) wandering around losing sight of the objective; and when that property is sold, our legal relationship is over.

I think the confusion in your excerpt from Chapter 11 Agency 135 is the author's reference to a "Third Party" . . . . and, without being too critical, seems to simplify a Real Estate Transaction to just three Parties: You as the Seller's Agent, the Seller as your Client and some un-represented Customer (the Third Party) who's interested in Buying the Seller's property.

That simplified scenario occurs; but these days, the Buyer is often represented by another Agent, so that's a Fourth Party. You'll soon learn that this is often the case because Dual Agency (where one Brokerage or Agent may represent the interests of BOTH the Buyer and the Seller) is specifically outlawed in many, if not most, jurisdictions.

To avoid that weakness, I would shy away from using the term "Party" altogether except to refer to the Parties to a Contract. In a Purchase and Sales Agreement, there are only Two (2) Parties, the Seller and the Buyer. We as Agents, are not Parties . . . . even though we may have prepared the Sales Agreement between the Buyer and the Seller, we do not become a "Party" to that Contract.

One Agent/Client relationship that you have't mentioned is overlooked by new Agents, but it's often the only "Contract" they will enter into . . . . and that is the Broker/Agent relationship, which should be well defined in an ICA (Independent Contractor Agreement) where the Agents fiduciary duties to the Broker and expectations of his corresponding compensation for performance should be laid out. Many Agents forget about the loyalty that their Broker is entitled to expect. And even today many Agents still operate without a formal ICA . . . . not wise !

I hope that helps to clarify the issue. Customers and Prospects ARE NOT not Clients and don't have the protections of a fiduciary relationship and should not expect any legally imposed loyalty from a Sales Person (even though many of them still refer to the Sales Person as "My Agent" . . . . that's a false reliance).
_________________________
Dale C. Hittle of GOLDEN RULE PROPERTIES in Glover, Vermont
Where We're Always Striving To Put Together "THE FAIR DEAL"

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#462672 - 10/20/18 02:39 PM Re: Question about agency relationships [Re: Bill Ryder]
Bill Ryder Offline
Junior Member

Registered: 10/06/18
Posts: 6
Loc: Tampa, soon Philadelphia burbs...
Thanks again! So, in short, are you saying the "customer" as referred to in this excerpt, is always the buyer?

At the end of the day I need to be able to pass the Realtor's licensing test, so I need to boil this down a little bit in my own mind as to what they may ask about this and the needed answer.

Right now I feel like they seem to lay out expected well known terms of the industry, but by your response it sounds like the result is a discussion rather than clear definitions. I mean, if an experienced RE agent has no idea exactly what they mean, how am I suppose to take a test on it? smile

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#462673 - 10/20/18 06:05 PM Re: Question about agency relationships [Re: Bill Ryder]
Vermont Offline
Major Contributor

Registered: 04/12/08
Posts: 7934
Loc: Vermont's North-East Kingdom
Originally Posted By: Bill Ryder
". . . So, in short, are you saying the "customer" as referred to in this excerpt, is always the buyer? . . ."

Not being the Author of the text you're studying nor that specific excerpt, I can't answer your question. "Always" is one of those big all encompassing words that I very seldom use.

In Agency Law, "Principal" and "Client" are synonyms . . . . they're the people we "Agents" work for.

"Customers" are people who might buy something, and if they have entered a Buyer Broker Contract with us, they could also be Clients.

"Sellers" are people who might sell something, and if they've entered a Listing Agreement with us, they too could also become our Clients.

"Prospects" is a wishy-washy term to represent all of those people with whom we may do business, buying or selling; but have done neither so far, nor have they become our Clients via a Contract.

Originally Posted By: Bill Ryder
". . . At the end of the day I need to be able to pass the Realtor's licensing test . . ."

No, and since we're talking about important word definitions, you're currently studying to pass the Pennsylvania Real Estate Sales Person Examinations. REALTORS® is an independent Trade Association, similar to the Teamsters or the UAW or IBEW, and run by the National Association of REALTORS® - the NAR, which is not a licensing authority . . . . they just collect our membership dues.

What you need to do is make sure you get your primary guidance from someone who's familiar with Pennsylvania Real Estate Laws, Rules, and Regulations. Concepts and terminology are similar from jurisdiction to jurisdiction; but the bottom line will be that the Exam you take will have been prepared or approved by the Pennsylvania Real Estate Commission, so it's going to be their use of terms and their definitions and local customs which will prevail . . . . so I wouldn't want to be responsible for screwing up your head in these matters.

I hope that Text you're referring to was authored by a Pennsylvania Practitioner . . . . not someone from California or New York or even from Vermont. You're in Pennsylvania.
_________________________
Dale C. Hittle of GOLDEN RULE PROPERTIES in Glover, Vermont
Where We're Always Striving To Put Together "THE FAIR DEAL"

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