Agency, Brokerage & Ethics

National part (80 items) · blue = this unit

Practice of RE (violet) is shared: its fair-housing items belong to Unit 4. This unit covers its antitrust, employee vs. independent contractor, confidential information and due diligence items.

What PSI lists under Agency (13%)

• Agency relationships and how they're established · listing and buyer-representation contracts · transaction brokers
• Powers of attorney · how agency and brokerage agreements end
• Fiduciary duties · duties to customers ("honesty and good faith")
• Disclosure of agency · disclosure of conflicts of interest

…and under Property Disclosures (7%)

• Seller's property condition disclosure · conditions that call for an inspection
• Environmental and government disclosures · material facts and defects

🤝 Agency basics

• The person an agent represents: the principal (client)
• A party the licensee works with but doesn't represent: a customer
• In NJ, "the agent" is the brokerage firm, including every licensee affiliated with it
• Listing one house = special agent · ongoing property manager = general agent
• Who pays the commission does NOT decide who is represented
• Firm doing work for a buyer, with nothing else agreed = buyer's agent by default

📄 Consumer Information Statement

• Explain the relationships verbally before the first talk about a buyer's motivation or financial ability
• …or a seller's motivation or desired selling price
• Written CIS to a buyer no later than the first showing (no showing → initial offer)
• Business relationships on today's CIS: 5 (pre-Aug 2024 materials: 4)
• Since 2024 the party signs an acknowledgment, and the CIS is part of the brokerage services agreement
• Is the CIS a contract? No. Is it consent to dual agency? No

👥 Relationships

• Dual agency needs the informed written consent of both parties
• Without express permission, a dual agent can't say the seller will take less than list or the buyer will pay more than offered
• Designated agency: each agent represents only one party; the firm is a disclosed dual agent
• A transaction broker represents neither party and must keep confidential nothing
• A cooperating firm working for the listing firm as seller's agent = a subagent

🔎 Disclosure

• "Reasonable effort" at minimum = ask the seller + visual inspection
• Murder, suicide, "haunted": disclose only if asked (then say what you know)
• Sex-offender (Megan's Law) questions: refer to the county prosecutor
• Written offers go to the seller within 24 hours
• New-construction off-site notice: buyer may cancel within 5 business days

⚖️ Ethics & the business

• NAR Code of Ethics adopted in 1913, with 17 Articles
• "REALTOR®" means a member of NAR, not a license type
• Code and law conflict → the law wins
• NAR ethics training: 2.5 hours every 3 years (cycle 2025–2027)
• Competing brokers agreeing on commission rates = price fixing (Sherman Act)

🆕 2024 law (P.L. 2024, c.32)

• Effective date: August 1, 2024
• Written brokerage services agreement in residential deals: required, before or as soon as reasonably practical after services start
• Dual agent paid by both sides? Allowed if sources and amounts are disclosed in writing
• Open-house sign says the host agent represents the seller
• CE now requires at least 1 hour of agency each term

How agency is created

• Express: stated in words. Listing agreements and buyer agreements are express agency.
• Implied: from the principal's conduct (acting as if someone is their agent).
• Apparent authority: a third party reasonably believes, from the principal's conduct, that the agent is authorized. The principal can be bound.
• Ratification: the principal approves an unauthorized act after the fact.

How agency ends

NJ statute (N.J.S.A. 45:15-16.95): the relationship lasts until the earliest of:

Duties that survive the end: an accounting for money and property, and confidentiality if there was an agency relationship.

General agency law (taught in national texts, not listed in the NJ statute): agency also ends by operation of law, for example the death or incapacity of the principal, or the property being destroyed. A typical power of attorney lasts only while the principal is alive and competent.

🟢 CLIENT gets everything

• All six fiduciary duties above
• Advice and negotiation for them (price, terms, strategy)
• Their price, motivation and finances kept confidential
• A continuous, good-faith effort to find a buyer or a property (it pauses once a contract is past attorney review)

⚪ CUSTOMER (everyone else) still gets

• Honesty and good faith, and fair dealing
• Reasonable skill and care
• No misrepresentation of material facts, such as "the buyer's financial ability to pay"
• Disclosure of material physical defects the licensee knows of or would find with a reasonable effort
• Their written offers presented on time, with written confirmation of receipt

• No loyalty, no advice against the client, no confidentiality. A seller's agent tells the seller what the buyer reveals.

🏠 Sellers

Same pattern. Explain verbally before discussing the seller's motivation or desired selling price. Hand over the CIS no later than the start of the listing presentation. For unlisted property: the first showing or the initial offer.

🙋 Unrepresented party

Under the 2024 Act: before they sign an offer, or as soon as reasonably practical after. A signed CIS is not required just to view a house at an open house (Bulletin 24-11).

📋 Which deals?

Sales of 1–4 unit residential property and vacant one-family lots, and residential leases. Short-term rentals (125 days or less) only need a relationship statement in the lease. Commercial deals are not covered.

Timeline

Duties every agent owes everyone (can't be waived)

• Follow the laws of agency and fiduciary principles
• Reasonable skill and care · honesty and good faith
• Present all written offers and counteroffers on time, and confirm receipt in writing, even if the property is already under contract
• Residential sellers: obtain a signed Property Condition Disclosure Statement
• Disclose material information about the property's physical condition that you know, or that a reasonable effort would reveal
• Account for money and property · deliver the CIS · put the relationship in writing

N.J.S.A. 45:15-16.87. A licensee isn't held to a home inspector's standard unless she's also a licensed inspector.

🪧 Required open-house sign (N.J.S.A. 45:15-16.99)

At any residential showing "generally open to the public," posted at the entrance or the sign-in sheet. Key lines:

Also new in the Act

• Pay: may come from the seller, the buyer, a third party, or a split between firms. Flat fee or percentage both count as a commission. Pay agreements must be in writing, signed.
• Buyer agreement must say what happens if the seller offers the buyer's agent less than agreed (does the buyer pay the difference?).
• Liability: a client isn't liable for the agent's errors unless they took part, authorized them, or benefited (and then only up to the benefit).
• Imputed knowledge: unless agreed in writing, a client isn't charged with knowing what the firm knows, and vice versa.
• Dual agency agreements end early only by a writing signed by the buyer or seller, delivered to the firm.

🔍 The licensee's duty to look (N.J.A.C. 11:5-6.4)

Latent defect = hidden; not found by reasonable, customary inspection (a cracked heat exchanger inside a furnace). Patent defect = visible on ordinary inspection (a cracked window). Licensees must disclose defects they know of or should have found. The same rule requires a reasonable effort to learn the financial qualifications of anyone whose offer they submit to their client.

🧾 Seller's Property Condition Disclosure Statement (PCDS)

• The 2024 Act requires the firm to obtain one, signed by the seller, in residential sales. Its form is set by the Division of Consumer Affairs (N.J.A.C. 13:45A-29.1).
• The seller is the source. The form tells buyers to inspect and to hire experts.
• Licensee protection: no Consumer Fraud Act liability for passing on the seller's false information if the licensee didn't know it was false and made a reasonable, diligent inquiry. That means telling the buyer the seller is the source, after a visual inspection.

⚖️ The LAW

• License Act (N.J.S.A. 45:15) + Commission rules (N.J.A.C. 11:5)
• Binds every NJ licensee, REALTOR® or not
• Enforced by the Real Estate Commission: fines, suspension, revocation (Units 1–2)
• Ethics hours: 3 in the pre-license course; at least 2 in each CE term

🏅 NAR Code of Ethics

• Adopted 1913. 17 Articles: 1–9 duties to clients and customers, 10–14 to the public, 15–17 to other REALTORS®. Clarified by Standards of Practice.
• Binds REALTORS® (NAR members) only, who accept it voluntarily
• Enforced by the local REALTOR® association, through a Professional Standards hearing panel
• Discipline: letter of warning or reprimand, ethics course, fine up to $15,000, suspension (30 days–1 yr), expulsion (1–3 yrs), loss of MLS rights. Not license revocation.
• Where the Code and the law conflict, the law takes precedence
• Members: ethics training of at least 2½ hours every 3 years (current cycle: 2025–2027)

🚫 Antitrust (Sherman Act)

• Price fixing: competitors agreeing on prices or fees, e.g., "we all charge 6%"
• Group boycott: competitors agreeing not to deal with a firm, e.g., a discount broker
• Market allocation: dividing territories or customers
• Tie-in: requiring a buyer to take a second product to get the first

Penalties: up to $1 million and 10 years for an individual, $100 million for a corporation. Victims recover triple damages. NJ rules also ban collusion on commission rates and splits.

🧾 Employee or independent contractor?

NJ requires a written agreement either way (Unit 1). For federal tax, a licensed salesperson is not an employee if:

• she's a licensed real estate agent,
• substantially all pay is tied to sales, not hours, and
• a written contract says she won't be treated as an employee for tax purposes.

💸 RESPA kickbacks

On federally related mortgage loans, no one may give or accept a fee or "thing of value" for referring settlement business (lender, title company, appraiser…). Pay must be for services actually performed. Referral arrangements between real estate brokers and agents are allowed. Details are in the financing units.