An implied agency is an agency formed by the conduct of the principal and agent.
Under Federal laws, an agent has the power to act on the behalf of the principal such as the signing of documents, the selling of properties, or the drafting of listing agreements, as long as it is within the duly signed and agreed upon contract.
A Closer Look
However, in an implied agency, there is no such thing. An implied agency does not need a written agreement nor a verbal one, but rather it stems from actions.
Like its name suggests, it is implied.
In this article, we will be discussing all the things you need to know about it in order to ace your real estate license exam. If you are not a real estate licensee examinee, then a little information does not hurt anybody.
Before we dive into the topic of implied agencies, knowing what an agency is, how it is created, and the different types, is important. Why? Because an implied agency falls under one of the categories.
- Laws state that an agency is “a consensual relationship created by contract or by law, where one party, the principal, grants authority for another, the agent, to act on the behalf of and under the control of the principal to deal with the third party.”
In other words, there is a relationship between the Principal (P), the Agent (A), and the Third Party.
- An agent’s definition “a person who acts in the name and behalf of another, having been given and assumed some degree of authority to do so.”
Anyone can be an agent, as long as he or she is capable of handling duties and other legal matters.
Take note, an agent is a representative of the principal and whatever he does in the name of the principal is binding.
Nowadays, partnerships, corporations, and even sole proprietors heavily rely on agents to conduct business.
Agents play a huge role, but this does not mean that they have the same rights as owners do. There are two primary types of agents:
- General agents possess a wide range of transactions on the behalf and interest of the principal. He or she can be a manager of a business or a purchasing officer to cite.
- Whereas, a special agent is one who is given authority to act in a specific task. A good example of this is a real estate agent. Most of the time, real estate agents are special agents who are only tasked to find a buyer. They can neither sign nor enter a contract, even though it is done in good faith or for the interest of the owner.
Note: In order to restrict the general agent’s authority, the (P) must state each limitation explicitly in a written agreement.
Agency Relationships in Real Estate
Generally, the agency law involves three parties and thus deals with three different relationships: (1) between the (P) and (A), (2)between the (P) and the third parties or the clients, and (3) between the (A) and the third parties.
- An agency relationship’s definition is “consensual fiduciary relationship between two people where the agents have the power to bind the principal by his actions, and the principal has the power to control the actions of the agents.”
But in real estate, agency relationships are different:
- Buyer Agency: A buyer’s agent represents the sole interests of buyers. He or she is expected to be loyal, honest, and responsible through means of arranging property showings, providing the right information to the client, negotiating the best price and terms in buyer agency agreements.
- Seller Agency: Seller agency relationships are similar to the one above. Only here, it represents the seller instead of the buyer. In this agency relationship, the seller is the client, and the agents are known as the listing agents.
- Dual Agency: In certain circumstances, the agent can represent both the buyer and seller in a single transaction. Now, this can be quite tricky, because the mistake of one can lead to the mutual mistake of both principals.
Fun fact: A dual agency relationship is legal in all 50 states of America.
How to Create An Agency Relationship
In order to create an agency relationship, there are four ways:
- Written or oral agreement: Parties end up in mutual understanding and agreement either through an express agency or implied agency. An express agency is one that is expressed either orally or in writing, while the latter through conducts representing the (P)’s intentions.
- Ratification: One that is granted retroactively. Suppose a broker negotiates a deal for a home property without the authorization and knowledge of the seller. Unless it can be proven that there is an agency relationship, the case is void.
- Estoppel: This agency relationship occurs when the (P) acts in a certain way that leads the clients to believe that a person or people is an (A).
- Operations of law: An agency relationship based on established principles. In short, it is what is expected of the agent to do such as a broker saving the property of the (P).
So, how is an implied agency created?
An implied agency relationship is formed through the conducts of the involved individuals, whether (P), (A), or buyers.
The agent has implied authority. This means that a person’s manifestations and the other member’s belief and reliance are clothed upon him. Thus, an agency is implied or stipulated even without an agency agreement.
Deeds such as offering to advertise a property for the owners or negotiating for the best price can be considered as implied agency because it does not require written or word agreement. But rather, agency implied.
Implied Agency in Real Estate
When it comes to real properties, an implied agency does not happen often. Real estate laws state that a written form of contract is necessary for transactions. In selling, a mere implied authority is not enough.
If you are a broker or a listing agent looking into selling properties, first consult with your principal and have their permission in written word form.
Otherwise, the deal is void. For the sale and purchase of real properties to be valid, a SPA is needed.
Note: The term, SPA, means Special Powers of an Attorney.
A case was found that a broker in New Jersey sold the principal’s home property without his knowledge.
The local court judge deemed the contract between the agent and the client as void, due to the fact that there was no written permission from the principal.
In most circumstances, implied agencies in real estate are limited in order to protect against frauds. The statute of frauds state that sale of lands and goods worth over $500 above need to be executed in writing.