FAQ on Real Estate Brokerage - Part 1 of 3

[Basic Knowledge for Brokers Series]
A Real Estate Broker is a duly registered and licensed natural person who, for a professional fee, commission or other valuable consideration acts as an agent of a party in a real estate transaction to offer, advertise, solicit , list, promote, mediate, negotiate or effect the meeting of the minds on the sale, purchase, exchange, mortgage, lease or joint venture, or other similar transactions on real estate or any interest therein.

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What is Real Estate Broker? What is the difference between Real Estate Broker as an agent from an agent under the law on agency?

§ A Real Estate Broker, under M.O. No.39, is an agent of another person who, for and in consideration of a fee, commission or other compensation, negotiates, mediates or effects the meeting of the minds on the sale, purchase, exchange, mortgage, or lease of or joint venture or other transaction in real estate or in any interest therein.

§ On the other hand, an agent under the law on agency is a person who binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority or the latter.

In other words, a real estate broker is one who in behalf of others and for a commission or a fee negotiates contracts relative to real property and interest therein. He is the negotiator between parties, never acting in his own name, but in the name of those who employ him; he is strictly a middleman, and for some purposes, the agent of both parties. Indeed, he is one whose occupation it is to bring parties together or to bargain for them in matters of sale, purchase, lease, mortgage, or other transaction relating to real estate property.

Although a real estate broker is an agent, he is distinguished from a true agent, generally by reason of the fact that his authority is of special character, being limited only to the acts of negotiation or mediation for on behalf of his principal, while a true agent acts in representation or on behalf or in lieu of his principal, within the scope of his authority, and for which reason, when authorized under a special power of attorney as an attorney-in-fact, he is exempted from the licensing requirement of MO No.39, although performing any of the acts of a real estate broker.


What is the difference between a real estate broker and a real estate dealer?

§ As to function:

§ A real estate broker performs his acts in behalf of another, while a real estate dealer perform the same acts in his own behalf.

§ As to income:

§ A real estate broker receives a fee or commission for his services, while a real estate dealer transacts his business with the object of making a profit.

§ As to license:

§ A real estate broker is required to secure a license from the Professional Regulation Commission (PRC), while a real estate dealer is only required to register with the Local Government Unit as a business entity and pay a privilege tax on a graduated scale under the Local Tax Code.


What is the difference between a real estate broker and a real estate salesman?

§ For licensing purposes, a Real Estate Broker is required to pass a written examination, while a Real Estate Salesman is not so required, as he is licensed as such merely on the recommendation of his broker-employer

§ A Real Estate Broker is required to file a P20,000 bond, while a Real Estate Salesman is not, as he is covered by the bond of his broker-employer

§ A Real Estate Broker is an independent entity subject only to government regulations, while a Real Estate Salesman does not have such independence. A salesman has to work under a broker and acts only in behalf of his employer-broker.


What is an agent?

An agent is the one who represents the interests of another (the principal, i.e. client or real estate broker).
What is a principal?

Principal is commonly known as the person who engages the agent for representation.


What is a client?

Client is a person who empowers another to act as his or her representative or agent. Client relationship is equals to fiduciary relationship.
What is a customer?

Customer generally refers to person without representation involved in the transaction involved in the transaction. All agents have a duty to treat customers fairly.


How the Agency Relationship is created?

§ Appointment means that the principal gives express authorization to the agent. Under both common and statutory law, this requires writing when the sale of real estate is involved.

§ Estoppel means that if the principal causes third persons to believe that someone is his agent and that third party deals with the agent, then the principal cannot deny the agency relationship even though it did not exist in fact.

§ Ratification means that if a person having no authority whatsoever, purports to act as an agent and the purported principal later adopts the acts of that agent, an agency relationship has retroactively been created.


What are the powers of an agent?

An agent has the powers which are conferred upon him by the principal. In addition, the agent has all such powers as are necessary, proper, or usual to enable him to accomplish the purpose of the agency. The powers granted to an agent may be restricted by contract or by statute.


What are the duties of an agent/broker to his principal?

§ The broker must be loyal to his or her principal. All relevant information within the knowledge of the broker should not be withheld from the owner. The broker should advise the principal on anything that concerns the principal’s interest.

§ The broker acts as a fiduciary. The broker should never hold any interest that is not beneficial to the principal. He is prohibited from buying for himself or for relatives the seller’s property without prior knowledge of the principal.

§ The broker must account for money deposits. In serving as an agency, the broker should immediately remit and account all monies in behalf of the principal such as deposit or earnest money.

§ The broker must obey the instructions of his or her principal. The broker should never deviate from the instruction of the principal most especially on the terms of payment. If the seller requires a cash down payment, the broker should accepting nothing but cash from the buyer. If he accepts a check then he violates the instructions of the buyer.

§ The broker must act in person. A seller employs a broker based on his confidence and reputation of the broker. He relies on the personal services of the broker thus a broker should never delegate his task to others.

§ The broker must not have a personal interest in the property for which he or she acts as broker without full disclosure to the principal.

§ The broker is prohibited from acting for both the buyer and the seller without full disclosure. On rare occasions, should the broker need to represent both the buyer and the seller and collect a commission from both parties, there should be full disclosure to both and should give their consent. Without disclosure, the broker is in violation of his or her agency if he or she accepts a commission both from the principal and some third persons.


What are the liabilities of a principal?

The principal is liable for the actions of his agent under the doctrine of respondeat superior. The knowledge of an agent is imputed to the principal and the principal is deemed to know all facts known by the agent. The knowledge imputed to the principal includes relevant knowledge received prior to the commencement of the agency. Torts committed by the agents such as negligence and fraud are also attributed to the principal.


What are the liabilities of an agent?

An agent is liable to his principal for any violation of his duties imposed upon him by virtue of the agency. An agent may also be liable to a third party for his acts that have been directed towards that third party.


What are the brokers’ duties to the prospects?

Common observation of the role of real estate brokers suggests that the broker works diligently with the prospects in satisfying his or her needs. In this respect, the broker does not earn a commission unless the prospect is satisfied; a property must be found that suits the buyer and that may be financed within the limitations of the buyer’s income and cash reserves.

In pursuing this objective, the broker must not make any misinterpretations or false promises or commit any fraudulent act. Although the broker may promote the property by such statements as “price are going up,” or “this house is constructed of only the best quality materials,” he should not make promises or false statements which the buyer may rely on. If the broker states that “I can sell this land for P500 per square meter more next year,” this is a false promise; and it is in violation of his duties to the prospect.


What are the principles or elements of agency applicable to a real estate broker as an agent?

§ There must be a meeting of the minds or mutual consent as to the establishment of the agency relationship
§ There must be a determine subject matter for which the agency is established
§ That the fee, commission, or compensation must be certain in money or its equivalents
§ That the agent must act within the scope of his authority
§ That the agent must act in behalf of his principal and not in his own name


How is a contract of agency extinguished?

§ Expiration of the period for which the agency was constituted
§ Death, civil interdiction, insanity or insolvency of the principal or agent
§ Withdrawal of the agent
§ Accomplishment of the object or purpose of the agency
§ Revocation of the authority of the agent by the principal
§ Dissolution of the firm which entrusted or accepted the agency


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