Creating an Agency

Are there any legal requirements for creating an agency?

Yes, there are two legal requirements in creating a real estate agency, and they are as follows:

  1. Legal purpose for the agency
  2. The capacity of both parties

In other words, for an agency to be created, it must be created for a lawful purpose, and the principal can only empower an agent to do what they are authorized to do.

Creating an AgencyWho are the parties involved in creating an agency?

There is the principal, who in real estate is usually the seller, but can also be referred to as the client.  The agent is the broker they hire to help them sell their property.  The agency could be vast, or very narrow in the responsibilities conveyed.  See our article here about the different types of agency that can be formed.

How are agencies created?

Strangely enough, it is not necessary to put pen to paper.  You would think all agency agreements would be in writing, but they are not.  An agency can be created in one of the following ways:

  1. Expressed agency – Created orally or in writing.  Usually, a listing agreement is used when creating an agency in this manner.  However, it could be done orally.  Some states may require listing agreements to be in writing to be enforceable.
  2. Implied agency – This agency is created by the actions or conduct of the parties’, rather than an agreement.
  3. Agency by necessity – This type of agency is created in an emergency, and it may be unnecessary to gain the consent of the principal to create.

Does an agent’s compensation determine the agency relationship?

No, the source of an agent’s compensation does not determine the agency relationship.  A real estate agent is not always paid by the person who they represent.

How can an agency be terminated?

Check out our article on that topic here.

Under an agency, what duties does an agent owe a principal?

Learn more about this topic in our exam prep article here.

What else can help me prepare to pass my real estate licensing exam on my first attempt?

Other tips to help you pass your real estate licensing exam on your first attempt:

Real Estate Test Taking Tips

How to Pass the Real Estate Exam

Real Estate Exam Math Made Easy

Also, check out our question of the day videos on our YouTube channel:

PassMasters Real Estate Exam Prep YouTube Channel