Almost all recent litigation against real estate brokers and salespersons has involved some kind of claim related to the scope of the agency relationship. The dispute usually arises more from a misunderstanding as to what an agent can and cannot do for a client rather than from an actual error or omission in carrying out agent duties, and, while a liability claim suggests a failure in the business relationship, the exposure to this liability can be minimized, if not avoided altogether, through simple and effective communication, most often through the use of proper agreements.

 

Underlying all real estate agency law is the understanding that real estate brokers and salespersons are the agents of the principal, their client, and, as agents, they owe specific duties to those clients (but only to those clients). MCL 339.2512(1)(a), and MCL 339.2512d(2)(c); see also Andrie v Chrystal-Anderson & Associates Realtors, Inc, 187 Mich App 333, 335 (1991), and McMullen v Joldersma, 174 Mich App 207, 212 (1988).

 

So, what does it mean to be an agent? While this is an elemental question, the relationship can be defined in different ways.

 

Agent - in general. On a basic level, an agent is one who acts for or on behalf of another, based on the authorization of the principal, and, consequently, the agent is subject to – within reason – the principal's direction and control. Stephenson v Golden, 279 Mich 710, 734 (1937); see also Logan v Manpower of Lansing, Inc, 304 Mich App 550, 559 (2014).

 

Because an agent is charged with acting for the principal, the agent has a primary duty of loyalty to the principal. Brotman v Roelofs, 70 Mich App 719, 729 (1976). This generally means that an agent cannot have a personal interest in the transaction or benefit from the deal to the principal's detriment. Menhennick Family Trust by Menhennick v Menhennick, 326 Mich App 504, 507, 512 (2018). The agent also is required to use reasonable care and skill when acting as the agent,  In re Messer Trust, 457 Mich 371, 380 (1998), and, as it relates to real estate agents, this duty has been codified by statute. See MCL 339.2512d(2)(a).

 

Agency formation - general. The principal-agent relationship and the extent of that agency are determined by objective factors demonstrating that the principal has authorized the agent to act for the principal. Meretta v Peach, 195 Mich App 695, 697 (1992). This determination (whether an agency has been created) is one of intent, Van Pelt v Paull, 6 Mich App 618, 623-624 (1967), and this intent can be expressly stated in an agency contract or intent can be implied by the specific acts of the parties. Breighner v Mich High Sch Athletic Ass'n, 255 Mich App 567, 582-583 (2003). In this regard then, the scope and purpose of an agency is determined by “ ‘the relations of the parties as they in fact exist under their agreements or acts.' ” St Clair Intermediate School Dist v Intermediate Ed Ass'n/Michigan Ed Ass'n, 458 Mich 540, 557 (1998), quoting Saums v Parfet, 270 Mich 165, 170-171 (1935).

 

Agency formation - implied. To imply an agency, the circumstances of the business relationship between principal and agent must evidence that the principal actually authorized the agent. AFP Specialties, Inc v Vereyken, 303 Mich App 497, 507 (2014) (an implied agency may be established through “reasonable deductions, drawn from disclosed facts or circumstances.”) As such, an agency can arise, even through the subjective belief of an agent, but the terms of that agency, and what the agent is authorized to do for the principal, are established only by the principal. Weller v Speet, 275 Mich 655, 659-660 (1936).

 

Duties also can be imposed on an agent when the agent “assume[s] a function that [the agent] was under no legal obligation to assume.” Baker v Arbor Drugs Inc, 215 Mich App 198, 205. In other words, an agent can agree to perform, and will be responsible for, acts outside the general scope of the relationship, but, liability is limited to what the agent specifically promised to do and to what was reasonable for the other party to expect. See Scott v Harper Recreation Inc, 444 Mich 441, 448-452 (1993).

 

As a result, an agency, with all the attendant duties and liabilities, can be formed when an agent undertakes to do something for someone else, even if not otherwise required to do so, or if an after-the-fact interpretation of the circumstances suggest that an agency was intended.  Uncertainty is inherent when trying to define an agency in these circumstances, especially if a dispute has arisen between the principal and agent as to what the agent was supposed to do. See Birou v Thompson-Brown Co, 67 Mich App 502, 506-507 (1976). Eliminating this uncertainty, and ensuring that a client is well-informed and properly advised, are important functions of the written contract.

 

Agency formation - express contract An agency relationship obviously can be created through a written contract, see, for example, Reed v Kurziel, 352 Mich 287, 294 (1958). To form a contract, including an agency contract, there must be “mutual assent or a meeting of the minds on all the essential terms.” Kloian v Domino's Pizza, LLC, 273 Mich App 449, 453 (2006). A benefit of an express contract is that, as a fundamental element of law, contracting parties can include in their agreement any lawful terms they determine to be mutually acceptable. Terrien v Zwit, 467 Mich 56, 71 (2002). All terms, in a properly drafted contract, are given effect, exactly as written, and according to their ordinary meaning. Klapp v United Ins Group Agency, Inc, 468 Mich 459, 468 (2003); see also Reicher v SET Enterprises, Inc, 283 Mich App 657, 664 (2009) 

 

The courts will not impose a contract obligation contrary the specific terms written into the agreement. UAW-GM Human Resource Center v KSL Recreation Corp, 228 Mich App 486, 492, 495 (1998) (“The parties are bound by the contract because they have chosen to be so bound.”) Consistent with this is the principle that “the courts cannot make a contract for the parties when none exists.” Huntington Nat'l Bank v Daniel J Aronoff Living Trust, 305 Mich App 496, 508 (2014). As a result, the primary goal in interpreting and enforcing a contract is to “give effect to the parties' intent as stated by the plain language of the contract.” Patel v FisherBroyles, LLP, 344 Mich App 264, 271-272 (2022).

 

Application. Whether duties are implied or expressed (i.e., set forth in a contract), the agent is acting as a fiduciary. Andrie, 187 Mich App at 335. However, an agent – even a real estate agent – cannot be all things to all people at all times. In other words, the duties an agent may have are not without limit, and the law recognizes this.

 

For instance, the duties of an agent only extend to include those that are within the scope of the agency relationship. Teadt v Lutheran Church Missouri Synod, 237 Mich App 567, 580-581 (1999). An agent – even a real estate agent – does not have a duty to conduct any investigation or perform any task or engage in any conduct for a principal that is not within the scope of the agency relationship. Sherman v Korff, 353 Mich 387, 397; 91 NW2d 485 (1958). It is well-recognized then that the duties of an agent do not extend to all issues that could arise with respect to the agency, even if those issues are related to the transaction. For example, a real estate agent cannot be expected to act as an attorney, accountant, tax advisor, mortgage broker, appraiser, surveyor, home inspector, title examiner, builder, or any other specialized service provider that may be needed in a real estate transaction.

 

The fact that there are limits on what an agent can do for a client also are recognized by statute in that, for those matters which are outside the expertise of a real estate agent, a "referral of the client to other licensed professionals for expert advice" is required. MCL 339.2512d(2)(e).

 

Because contracting parties have the right to contract on any terms those parties determine to be acceptable (subject only to applicable law and public policy considerations), Wilkie v Auto-Owners Ins Co, 469 Mich 41, 61 (2003), the importance of a written contract, setting forth the terms under which the agent will act for the principal, cannot be overstated. This is because the contract is the means by which the agent informs the principal of the limits of what the agent will and will not do for the principal, and the scope of what can be expected from the agency relationship. The principal not only has the opportunity to determine whether to engage the agent for the purposes as stated in the contract, but also is made aware as to the other elements of a transaction for which other real estate service providers are needed. In other words, the principal knows that the agent cannot be all things to all people at all times and can make informed decisions in the transaction.

 

The importance of a written contract also is underscored by the principles applicable to contracts generally, meaning that a subjective understanding of the contract is irrelevant, and that the only consideration is the plain language of the contract. Stanton v Dachille, 186 Mich App 247, 264 (1990). Where this is applicable to the real estate agent context is that a buyer or seller would not be in a position to claim that an agent should have done something not defined in the contract because “to allow a person to bind another to an obligation not covered by the contract as written because the first person thought the other was bound to such an obligation is neither reasonable nor just.” Raska v Farm Bureau Mut Ins Co of Mich, 412 Mich 355, 363 (1982).

 

Because the authority of an agent arises from the direction, authorization, or consent of the principal, Little v Howard Johnson Co, 183 Mich App 675, 680 (1990), when the principal has a mistaken understanding of the services a real estate agent provides, then the lack of a written contract could result in the relationship being essentially whatever the principal believes that relationship should be, even if that means the principal is calling on the agent to act in some capacity arguably outside the scope of the agent's expertise (unless it can be established that the principal's belief is not reasonable).

 

With an express contract, then, the agent (generally) is not in a position of having to demonstrate that the agent was not the house inspector, mold expert, foundation specialist, builder, mortgage broker, title examiner (or insurer), surveyor, appraiser, or providing any of the other services necessary in a real estate transaction, but that these roles are for more appropriate service providers on whom the client should be relying, and to whom the real estate professional should be referring the client. MCL 3392512d(2)(e).

 

When the agency relationship has been adequately defined by a written contract, the extent of liability also is defined and, in many instances, appropriately limited to what a real estate agent is reasonably expected to do. See Birou, 67 Mich App at 506-507 (1976). When a contract with appropriate terms is not place, the issue as to what an agent is supposed to do for a client becomes more problematic.

 

While the basic issues of what it means to be an agent may appear to be an elementary exercise, managing the principal-agent relationship, and limiting liability risks, requires an understanding not only of the business relationship, but the different methods by which an agency relationship can be formed or recognized. Included in that analysis is the importance of defining the role of an agent and the limits of the agency, as well as ensuring that the client is well-informed and knowledgeable as to what an agent can and cannot do in a real estate transaction.