Have you ever made a decision on behalf of a friend?
Were you authorized to do so?
More importantly, was your friend happy about your (unsolicited) act of authority?
In real estate, such a situation gives rise to what we call agency by ratification.
And to help you make better and informed decisions before purchasing properties, you should know what this is all about.
Defining Agency by Ratification
An agency by ratification arises when a principal approves of an agent‘s actions before the authorization of their agency relationship.
Normally, the authorization comes first: you have an agent bidding on your will.
But in this case, the authority comes last: your representative has already made a decision. You are simply agreeing to go through with it after being informed about it.
Now to understand this concept better, we should first identify the two actors in the real estate story:
Role of the Principal
Think of yourself as the principal. As the one looking for a good deal, you are the one seeking the help of a third party to act on behalf of yourself.
Such is the agent’s role.
Ideally, your agent knows what you want: your preferences, wishes, terms, conditions, and everything in between.
So when there comes a situation where you cannot attend a meeting in person, your representative can act as yourself under your own authority.
As an owner or potential owner of a property, this is great! All because you don’t have to be physically present to make a deal.
Role of the Agent
Simply put, an agent acts as the third party that gets the job done.
The keyword: “acts on behalf of the principal.” Meaning that in an agency relationship, he/she represents the principal’s thoughts, actions, and decisions.
Even though the principal is not physically present, the manifestation of the agency is as good as the former’s word. There is a given authority to act.
So the Exact Definition Would Be…
And in stark contrast to this, agency by ratification happens only when an action by the agent is made without the authorization of the principal.
It’s a post-event authorization of the third party to act on behalf of the principal. Or in other words, it’s the agent who first forces the authority upon their own boss.
Ultimately, ratification aims to foster the agency relationship that should’ve been in the first place.
It retraces back to a time wherein authorization should already have been granted prior to the decision-making process.
When Is an Act Considered to be Ratified?
Sometimes, the concept of agency by ratification becomes tricky to distinguish.
But behind this very simple concept is also a simple checklist.
Because really, when push comes to shove, this checklist may be deemed valuable in the court of law.
The ratification of an act is confirmed if it satisfies these criteria:
- The principal may only ratify acts if he has free choice.
- The agent intends to act as an agent.
- The principal should be aware of all events that have taken place.
- The act of ratification may be implied.
To illustrate it better, here’s a tricky situation!
Example of a Ratification Act
Consider this:
- Client A is the principal
- Friend B does something on behalf of Client A
- Friend B lends Client A’s condominium unit to Client C
- Client C pays rent to Client A
- Client A accepts the rent paid by Client C
In this case, no agreement was made to give Client A the authority to act on Friend B’s behalf. But by accepting the rent from C, B indirectly shows acceptance to A’s previously unauthorized decision.
Fairly easy, right? Now listen to this.
Possible Consequences of Agency By Ratification
The agency relationship present in ratification is centered on trust.
But if you give too much of it to your agent, you might as well say goodbye to a good deal and image.
Entrusting that person without prior consultation could result in an abuse of authority. It may sound pretty ironic since ratification especially points to granting authority post-event, but it makes sense, right?
Because the agent knows that you, the principal, are trusting enough, conflicts are all the more likely to transpire.
And you wouldn’t want to be surprised by a binding purchase of something that is well beyond your budget.
There really isn’t any way out of this one either. You just have to notice these things throughout the entire process. These acts will only transpire if you make them happen.
Simply put, ratification is more of a mind game than it is a business deal.
Final Thoughts
Agency by ratification is effective. But more than that, it’s convenient.
Having someone you can trust act on behalf of you should be a no-brainer. Go for it!
But be careful.
Trusting someone is one thing, but trusting someone to make legal decisions for you is another.
Likewise, an agent who acts on behalf of another should be wary of transactions made with the same principle as well.
Because remember: agency by ratification is a two-way street.
