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Chapter 24 - The Georgia Brokerage Relationships in Real Estate Transactions Act
At the completion of this chapter, students will be able to do the following:
1) Identify at least one duty owed by a broker engaged by a seller.
24.1 Introduction to the Georgia Brokerage Relationships in Real Estate Transactions Act
In this Chapter we will cover the Georgia Brokerage Relationships in Real Estate Transactions Act.
The Act was adopted to prevent harmful misunderstandings and misinterpretations between real estate brokers and sellers, landlords, tenants and buyers who engage their services.
The Act clarifies the responsibilities brokers and their affiliate licensees have to clients by providing financial and legal guidance about facilitating real estate negotiations between parties.
For example, under the Act brokers must establish an escrow account for earnest money collected when a buyer and seller enter into a contract. And, brokers must provide a timely accounting of all money and property received in which the seller has (or may have) an interest in.
The Act also identifies certain rights the broker has when engaged by property owners.
As an example, when offering a property for lease, brokers must disclose any material property defects or potentially negative elements within one mile of the property. Let's say there is a railroad track near the property within that distance, but not clearly visible. Prospective tenants have a right to know that the 2AM whistle may interfere with their sleep. If a tenant declines to make a lease offer based on this negative situation, the broker is allowed to offer more suitable properties for consideration, without compromising their duties to the landlord.
The Georgia Brokerage Relationships in Real Estate Transactions Act provides detailed guidance for navigating financial, ethical, and legal interactions between brokers and their clients to ensure everyone understands their rights and responsibilities while engaged in real estate transactions in Georgia.
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Before we dive into the details of the Georgia Brokerage Relationships in Real Estate Transactions Act, let’s first review some of the key terms encountered throughout the Act.
(1) "Agency" means every relationship in which a real estate broker acts for or represents another as a client by the latter's written authority in a real property transaction.
(2) "Broker" means any individual or entity issued a broker's real estate license by the Georgia Real Estate Commission. The term "broker" includes the broker's affiliated licensees.
(3) "Brokerage" means the business or occupation of a real estate broker.
(4) "Brokerage engagement" means a written contract wherein the seller, buyer, landlord, or tenant becomes the client of the broker and promises to pay the broker a valuable consideration or agrees that the broker may receive a valuable consideration from another in consideration of the broker producing a seller, buyer, tenant, or landlord ready, able, and willing to sell, buy, or rent the property or performing other brokerage services.
(5) "Brokerage relationship" means the agency and non-agency relationships which may be formed between the broker and the broker's clients and customers, as described in this chapter.
(6) "Client" means a person who is being represented by a real estate broker in an agency capacity pursuant to a brokerage engagement.
(7) "Common source information companies" means any person, firm, or corporation that is a source, compiler, or supplier of information regarding real estate for sale or lease (and other data) and includes but is not limited to multiple listing services.
(8) "Customer" means a person who is not being represented by a real estate broker in an agency capacity pursuant to a brokerage engagement but for whom a broker may perform ministerial acts in a real estate transaction pursuant to either a verbal or written agreement.
(9) "Designated agent" means one or more licensees affiliated with a broker who are assigned by the broker to represent solely one client to the exclusion of all other clients in the same transaction and to the exclusion of all other licensees affiliated with the broker.
(10) "Dual agent" means a broker who simultaneously has a client relationship with both seller and buyer or both landlord and tenant in the same real estate transaction.
(11) "Material facts" means those facts that a party does not know, could not reasonably discover, and would reasonably want to know.
(12) "Ministerial acts" means those acts which do not require the exercise of the broker's or the broker's affiliated licensee's professional judgment or skill.
(13) "Timely" means a reasonable time under the particular circumstances.
(14) "Transaction broker" means a broker who has not entered into a client relationship with any of the parties to a particular real estate transaction and who performs only ministerial acts on behalf of one or more of the parties, but who is paid valuable consideration by one or more parties to the transaction pursuant to a verbal or written agreement for performing brokerage services.
24.3 Broker’s Legal Relationship to Customers or Clients
Georgia's Code lays out specific rights and responsibilities for brokers' legal relationships with clients or customers. A broker who performs brokerage services for clients in the state of Georgia is bound only by the state statutes, and by any brokerage engagement agreement signed by both parties.
As an example, if John Smith and a broker enter into an agreement where the broker will market a rental property for $600 per month, the broker is under no financial obligation to deliver a qualified tenant willing to pay that amount.
If a prospect makes a counter offer of $550 dollars, the broker must relay that offer to the landlord. The landlord may agree, or refuse the offer. And, if no prospects are found that are willing to pay the asking price, the broker is not held responsible financially for any shortfall.
Furthermore, the broker must disclose any new or modified brokerage relationships with customers or clients that may involve existing clients or customers.
Looking at the above example, if the broker and John Smith have a landlord-broker relationship, and the broker signs a new agreement with a party looking for a rental property that matches, or is similar to John Smith's property for lease, the broker must make both parties aware of all agreements in place.
Brokers are obligated to follow all Fair Housing and civil rights statutes, both federal and state mandated.
This means that if a customer asks how to avoid selling their property to people from certain ethnic groups, or if they can only take offers from people of a certain religious affiliation, the broker is obligated to follow Fair Housing guidelines when marketing and showing the property, even if it means voiding the client agreement.
Brokers shall guard all confidential information gained during broker-client discussions, unless deemed necessary to share by Georgia statutes.
For example, the state laws require brokers to disclose all material defects, certain financial matters, such as loan status, and certain other facts that may affect financial decisions, to potential buyers and renters.
24.4 Duties and Responsibilities of a Broker Engaged by a Seller
The Georgia Brokerage Relationships in Real Estate Transactions Act establishes legal guidelines for Georgia brokers and their clients. This lesson covers the basic responsibilities of brokers to sellers and other people with an interest in sellers’ property.
First, and foremost, the Act mandates that a broker exercise reasonable care and skill when providing service. For example, the broker must disclose all material facts to a seller which the broker has actual knowledge about, and should advise the seller to seek expert advice on matters that are beyond the broker's expertise.
For example, if the broker knows there are potential code violations concerning a water source, the broker could suggest the owner consult a government water-testing agency or seek assistance from a professional well-testing and repair service.
The broker is not obligated to invest time and resources to discover potential material defects; however, the broker must disclose any known problems which could not reasonably be discovered by the seller by observation or reviewing public records, such as zoning maps, flood zone maps, original plats and other property-specific documents.
The Act obligates the broker to promote the seller's interest by seeking a sale under the price and terms established in a broker engagement agreement unless specifically prohibited by the Act or the owner changes the agreement verbally or by actions.
For example, if a written agreement calls for the broker to seek cash buyers only, and the seller puts an “owner finance” sign on the property, the broker would not violate the agreement by telling buyers the owner may seriously consider non-cash offers.
The broker is obligated to:
- Promote the seller's interest,
- Timely present all offers, even if there is a contract in progress,
- Timely account for all money and other things of value received in which the seller has (or may have) an interest,
- Exercise due diligence and reasonable care performing broker duties,
- Maintain client confidentiality, and
- Follow all state and federal laws while performing client services.
A broker does not breach any obligation to sellers by showing prospective buyers alternative properties, and may provide ministerial acts to buyers described in Code Section 10-6A-14. Providing ministerial services to buyers does not establish a broker-buyer engagement agreement.
24.5 Duties of a Broker Engaged by a Landlord
The Georgia Brokerage Relationships in Real Estate Transactions Act provides a legal road-map for the broker engaged by a landlord.
The first rule is that a broker must perform duties under the terms of the brokerage engagement made with a landlord, unless strictly prohibited by local, state or federal statutes.
For example, Fair Housing regulations must be followed, even if the brokerage engagement document implies, or plainly states, otherwise.
A broker must promote the best interest of a landlord, seeking a tenant under the terms and conditions set forth in the engagement agreement. Once a contract to lease, or a formal letter of intent to lease is in place, the broker is not required to seek additional prospects, although doing so does not violate the terms of the broker engagement.
A broker could continue to show an "under-contract" property under two conditions.
- The broker showing a property under contract should inform all parties with an interest in the property about any activities, including marketing or showing said property, and
- cease showing the property if requested by the landlord, or the broker engagement explicitly prohibits those activities.
The broker is required to present all offers to and from the landlord, even when the property is subject to a lease or letter of intent to lease.
As an example, if a tenant signs a letter of intent, and three days later the landlord informs the broker of an issue that may make the dwelling uninhabitable, the broker is obligated to inform the prospective tenant, and deliver any responses from the tenant to the landlord.
Under Georgia law, a broker must:
- Disclose all adverse material facts to the landlord that the broker has actual knowledge concerning the transaction;
- advise the landlord to see professional advice about matters beyond the scope of the broker's experience or knowledge;
- hold confidential any information received during the course of the broker-landlord engagement; except that the broker may share all information gained with licensed associates, affiliates and others employed by or otherwise engaged to facilitate broker-landlord transactions as part of the broker's normal business operations.
For example, the broker could ask a secretary to type contract notes without violating trust.
A broker must also inform prospective tenants of their landlord-broker relationship promptly.
24.6 Duties of a Broker Engaged by a Buyer
The Georgia Brokerage Relationships in Real Estate Transactions Act establishes legal guidelines for Georgia brokers and customers or clients. This lesson summarizes the responsibilities of brokers to buyers, and other people with an interest in real estate property in Georgia.
The Act mandates that a broker provide services with integrity and honesty, exercising reasonable care and expertise at all times.
The Act seeks to ensure that the broker will look for properties that meet the financial and other standards established by the buyers in the engagement contract.
This means that a broker must:
- perform all buyer services under the engagement agreement, unless otherwise prohibited by state or federal laws,
- protect the buyer's interest, and
- disclose any material defects, or potential problems, known by the broker, that may disqualify a property under the engagement.
For example, let's say a buyer is interested in purchasing land suitable for raising thoroughbred horses, and the buyer has requested the broker look for property that borders undeveloped land, with a natural water supply.
And, let's assume a broker recently helped a developer purchase rural property with the intention of building a manufacturing plant, but who has not formally filed development plans with governing agencies.
When showing vacant land bordering or adjacent to, the potential manufacturing site, the broker has an obligation to inform the buyer the undeveloped land may be converted to commercial property, even though those plans may or may not be executed.
The broker also has an obligation to:
- disclose all professional relationships that may affect the buyer-broker engagement;
- present all offers to and from the buyer, even when the buyer has already entered a contract to purchase;
- advise the buyer to seek professional assistance for all matters beyond the scope of the broker's skill and knowledge; and,
- provide a timely account of all money and other assets received in which the buyer has (or may have) an interest.
The broker is required to inform sellers of any known facts about the buyer's ability to meet financial obligations when a transaction involves owner financing or a loan assumption. However, the broker is not obligated to investigate credit worthiness, or guarantee buyer performance.
The broker does not violate buyer engagement terms by providing ministerial assistance to sellers.
24.7 Duties of a Broker Engaged by a Tenant
In this lesson we will discuss the broker-tenant relationship requirements under the Act.
Under the Act, the broker engaged by a tenant shall promote the interest of the tenant and perform the terms of the brokerage agreement, unless specifically prohibited by local, state or federal laws, or other chapters in the Act.
A broker shall:
- Look for properties to lease at terms and prices acceptable to the tenant. The broker is not required to seek other properties while the tenant is a party to a lease unless the engagement specifies this provision;
- Provide a prompt accounting of all money received during the transaction;
- Maintain strict client confidentiality standards at all times;
- Present all offers to and from a tenant-client, even when the tenant becomes a party to a lease, or signs a letter of intent to lease;
- Exercise ordinary skill and diligence as set for by the engagement agreement and the duties under the Act;
- Comply with all Fair Housing and civil rights regulations; and,
- Not knowingly make false statements or attempt to hide negative material facts about a property.
The broker must also inform all interested parties of other relationships that may affect the tenant-client and the landlord.
For example, a broker is required to inform the landlord promptly of the client-broker relationship, and of any known facts or circumstances about a prospective tenant's ability to meet financial obligations under a lease.
Let's say that the broker finds a property that meets tenant-client requirements under the engagement, and the tenant decides to pursue a lease. During conversations with the broker, the tenant reveals credit and background checks will reveal two criminal convictions, and some delinquent credit accounts. The client asks if there is a way to avoid telling the landlord this.
The broker is now obligated to tell the landlord what is known, even if the tenant declines to authorize a credit report or background check. It should be noted that under civil rights statutes, criminal convictions do not automatically disqualify a lease applicant, and may not affect a tenant's creditworthiness.
24.8 Duration of Relationships Between Brokers and Clients
The Georgia Brokerage Relationships in Real Estate Transactions Act provides specific guidelines for brokers and their clients or customers in Georgia.
This lesson will cover some basic principles about starting and ending a broker engagement.
Naturally, the broker-client relationship begins at the time that a client makes a formal request for services. However, terminating the relationship can take several paths.
The Act stipulates that the relationship ends when the broker completes performance of the engagement, in other words, the broker found a buyer for a seller, or helped a tenant successfully sign a lease with a landlord.
But, what happens if there is no transaction to end the relationship?
In that case, the relationship ends when one of three events happen. Whichever event happens earlier will terminate the engagement.
These events are:
- The date of expiration agreed upon by the parties during the engagement process, or added to the engagement with an amendment, arrives; or
- An authorized termination of the relationship is offered; or
- The engagement expires one year from the initiation date of the original engagement.
As an example, assume the broker-customer relations begins on May 10, 2018, when a seller requested service to locate a qualified buyer. If no buyer is found, and the engagement did not stipulate an end date, the engagement would automatically expire on May 10, 2019. If the seller decided not to sell the house December 13, 2018, the engagement would end on that date because the seller is authorized to bring the relationship to an end before the one-year term.
When the engagement agreement technically ends, and the broker is relieved of the duty to perform, whether the engagement is withdrawn, expired or otherwise ended, the broker still has a few obligations to former customers or clients.
The broker still has a duty to account for all money and real property related to the engagement, and to keep confidential all information received during the course of the relationship, unless one of three events take place.
These events are:
- The former client's speech or actions permit such disclosures, or
- The disclosure is required under other provisions of the Act or Georgia statutes, or
- The confidential information becomes public knowledge in any manner except that the broker breached the client trust.
As an example, let's say that the seller, a politician in the process of getting a divorce, asked the broker not to mention his marital status to anyone because he was concerned about the public losing faith in his ability to serve. If the seller, or the estranged wife, revealed this bit of information to a reporter, the broker would be under no obligation to maintain silence about the issue.
If a broker is faced with a decision to either breach a trust or give a customer false information, the broker must provide truthful information at all times.
The Act protects the broker, and no cause of action shall prevail against the broker and their affiliated licensees for complying with this subsection of the Act.
24.9 Duties of Brokers Prior to Entering Into Brokerage Engagement Relationships
In this lesson, we will discuss the duties of brokers prior to entering into a brokerage engagement relationship.
Under the Act, a broker must inform potential clients of certain facts before the engagement relationship begins.
For example, the broker must specify the types of services offered through the broker's agency. A broker may have relationships with sellers and buyers, but not offer landlord and tenant services. Or, the agency may only service commercial clients.
Broker engagement contracts must inform clients of the following:
- Of other relationships which may create a conflict of interest, such as relationships with lenders, zoning officers, right of way agents, and others who may have conflicting interest with a potential client.
- Of the broker's fees; and whether those fees are shared with other brokers representing parties to the transaction. For example, a broker acting as a seller's agent may share compensation with a broker acting as a buyer's agent. The broker must also stipulate whether other parties are affiliated with the broker's agency, and in what capacity.
- Of the confidentiality afforded under the Act, and what conditions would permit a broker to share information learned in confidence.
Under the Act, the broker may share confidential information with employees, agency partners and external parties when doing so is necessary to perform duties established by the engagement.
The Act also obligates a broker to provide truthful information to all parties in a transaction. This means that a broker representing a prospective tenant who discloses confidential information about past evictions due to non-payment, must not provide false information to prospective landlords.
24.10 Creation of Relationship Not Determined by Payment or Promise of Compensation
In this lesson, we will briefly discuss the creation of an agency relationship, which is not determined by payment or commission, or a promise of compensation.
Under the Act, promising to pay, or otherwise compensate a broker for services is not sufficient to create an agency relationship under the Act.
An agency relationship under the Act requires that both parties agree to the terms and conditions of an engagement.
For example, let's say that a prospective client tells the broker he will pay a flat fee of $500 if the broker finds a buyer qualified to assume an existing loan, and the seller presents the broker with a check as payment in advance.
Under the Act, the broker may accept or decline such an offer without obligation. A payment or promise of a payment does not create a relationship because the Act requires a broker to disclose certain facts before an engagement is in effect.
24.11 Broker Acting as a Dual Agent
In this lesson, we will discuss the requirements for a broker acting as a dual agent.
Under the Act a broker may act as a dual agent in the State of Georgia, representing two parties with different interests in the same property, such as a buyer and a seller; however, written consent of all clients in required.
Formal written consent must inform all parties of potential conflicts of interest, such as a landlord's interest to secure the highest rent, and the tenant's interest to negotiate lower lease payments.
The consent must also provide details about the different types of services offered and a statement that a dual agent will disclose all negative material facts known by the agent, except confidential information not required by the Act or other Georgia statues to be revealed.
The consent document must also provide accurate information about material relationships the broker and/or broker affiliates have with any party to a transaction. For example, if a broker is related to a landlord either by birth or marriage, the broker would be obligated to inform tenants because this relationship may cause the broker to unfairly consider the relative's interest over the tenant-client interest.
Clients must agree to the dual agency voluntarily; and the consent form should make it clear that clients may decline service from a dual-agent broker. The written consent must include a statement informing a client of the right to refuse dual agency, and contain a section for the client to signify their agreement with the terms by signing the document.
Informed consent protects the broker and the client. Under the Act, the broker may choose not to work with a client who does not agree to dual-agency, and a client may elect not to work with a broker who insists on a dual-agent arrangement. An agency must have a written policy in place that describes dual agent obligations; and a broker may withdraw from any relationship if a client decides not to accept the dual agency terms and conditions.
One party to a transaction choosing not to sign the written consent document, does not prevent other parties from entering into a dual agent brokerage engagement.
For example, assume a buyer voluntarily signs a written dual agent consent form prior to making an offer on a house for sale. If the seller declines to enter into a dual agent engagement, the broker may continue the relationship with the buyer, and may refer the seller to another brokerage firm to represent the seller's interest in the transaction; however, sellers are not obligated to engage with the recommended broker. Should the seller choose to work with an agency referred by the broker, the referring broker may receive a referral fee from the seller's new broker, without violating the guidelines of the Act.
24.12 Exclusive Representation
In this lesson, we will discuss exclusive representation under the Act when a broker acts as a dual agent.
Under the Georgia Brokerage Relationships in Real Estate Transactions Act clients can expect confidential information to be held private, unless the Act or other legal statutes allow, or require, brokers to share that information with other parties.
The broker may take steps to ensure a client is exclusively represented by an agency affiliate or broker assignee.
Ensuring exclusive representation may be achieved by directly assigning an affiliate within the broker's agency, or through a written company policy that assigns management level personnel or licensed affiliates qualified to facilitate real estate transactions. These assigned agents are also known as designated agents.
Any company policy that covers assigned representation must comply with other code sections of the Act.
Designated agents shall keep confidential all privileged information gained from a client, except that sharing information with the agency broker is not considered a breach of trust.
Let's assume that a broker assigns a designated agent from the agency to represent a buyer, and assigns another licensed affiliate to represent a seller in a transaction.
Each agent is bound to provide exclusive services to their clients. The seller's agent may not disclose confidential information to a buyer or buyer's agent.
For example, assume a seller tells a designated affiliate that the property must be sold because there is a mold infestation problem causing health issues. The seller admits that insurance money was spent to pay mold-related hospital bills, and the mold was painted over, but not professionally remediated.
The designated agent does not breach confidentiality by discussing these facts with the agency broker. Under the Act, the seller’s agent cannot discuss financial or health disclosures with buyers unless given permission by the seller, but is required to divulge known negative material facts, such as a mold infestation.
Two more important details to remember:
- A client may give permission to share confidential information.
- Compliance with Act provisions does not create a dual-agent arrangement.
24.13 Ministerial Acts Explained
In this lesson, we will explain the meaning of ministerial acts.
A broker acting as a transaction broker is free to provide ministerial acts for all parties to a transaction. Ministerial acts are services performed without compensation, except that they facilitate a transaction by ensuring all parties are well-informed and have access to information necessary to make transaction decisions.
The Act allows brokers and designated affiliates to perform such acts for interested parties without compromising broker exclusivity conditions, or other sections of the Act.
For example, a seller's broker may give prospective buyers a list of medical facilities in proximity to a property, or provide buyers with a list of real estate attorneys experienced in reviewing contracts and attachments.
- providing real estate market information, such as information on property, recent transaction data, housing availability, etc.;
- identifying property available for lease, sale, or exchange;
- preparing (or providing) transaction documents, such as pre-printed contracts, lease agreements, disclosure forms and related attachments;
- assisting parties, locate professionals, including inspectors, lenders, insurance companies, lawyers, engineers, surveyors and other service providers necessary to complete a well-informed legal transaction, and
- sharing information about community services, such as places of worship, hospitals, malls, schools, government offices and other facilities.
A broker acting as a transaction broker is obligated to perform certain duties. The transaction broker must timely report transfers of money and other property received on behalf of a party to a real estate transaction. And, the transaction broker is required to inform clients (tenants and buyers) of all known material facts related to defects in the property and provide disclosures about environmental contamination and other facts required by state and federal laws.
The transaction broker must also be honest with all parties in a real estate transaction, based on the broker's knowledge. Brokers are not required to do extensive research to discover property defects. When relaying information about hazards or defects, the broker should provide the source of any disclosure.
For example, assume a tenant-client viewing a lease property with a stream running through it asks if the water is potable. The broker is not obligated to test the water, or research area water quality. As a ministerial act, the broker could provide information about water testing services, or refer the tenant-client to the local health department.
24.14 Affiliation With Common Source Information Company
In the final lesson in this chapter, we will briefly discuss a broker affiliation with a common source information company.
A broker is considered an independent agent, notwithstanding membership in a common source information company.
This means that a broker who belongs to an association, such as the multiple listing service, as a means to access information about all properties currently on the market, is not considered an agent, representative, or employee of the information company.
Unless a broker enters a written agreement with a common information source, there is no designation as a subagent.
For example, if a buyer’s broker finds a property for their client on the multiple listing service, the buyer’s broker is not considered a sub-agent of the seller’s broker who added the property to the MLS. The buyer’s broker is still exclusive to the buyer.
Chapter 24 - Quiz
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