Contracts and Agency Fundamentals
Real estate practice runs on contracts and on the agency relationships that authorize a broker to act for a client. This heavily weighted topic tests the elements of a valid contract and the fiduciary duties a broker owes.
Elements of a Valid Contract
A valid contract requires competent parties, mutual assent through offer and acceptance, consideration, a lawful purpose, and, for real estate, compliance with the statute of frauds requiring a writing signed by the party to be charged. An offer can be revoked any time before acceptance, and a counteroffer rejects the original offer and creates a new one. Contracts may be bilateral, exchanging mutual promises, or unilateral, promising performance in exchange for an act. Understanding these elements helps brokers know when a binding agreement actually exists.
Agency and Fiduciary Duties
An agency relationship authorizes a broker to represent a principal, creating fiduciary duties often summarized as loyalty, obedience, disclosure, confidentiality, accounting, and reasonable care and diligence. The duty of confidentiality survives the end of the agency relationship, protecting a client's negotiating position indefinitely. A broker representing a client owes these full duties, while a broker merely working with a customer owes honesty and fair dealing but not fiduciary loyalty. Disclosing agency status early prevents misunderstandings about who the broker represents.
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