Actual authority

Key Takeaways

• Actual authority is the power a principal deliberately gives an agent, and it is measured by what the principal communicated to the agent.
• Express actual authority is what the principal spells out. Implied actual authority is what a reasonable agent understands comes with the job, and it can never override an express instruction.
• Apparent authority is measured by what the principal led a third party to believe, so a licensee can bind a principal through apparent authority while holding no actual authority at all.
• In Washington, RCW 18.86.020 requires the real estate firm to enter a written services agreement with the buyer or seller before, or as soon as reasonably practical after, the appointed broker starts rendering brokerage services.

What It Means

Actual authority is the power a principal deliberately hands an agent to act on the principal's behalf. It comes from the principal and only from the principal. When a seller signs a listing that tells a firm to market the house, advertise it, and present offers, the appointed broker holds actual authority to do those things.

Actual authority has two halves. Express actual authority is what the principal spells out in words or in writing: list at $625,000, hold open houses on Sundays, present every written offer. Implied actual authority is what a reasonable agent understands comes with the job, such as ordering a lockbox, booking photography, or entering the listing in the Multiple Listing Service. Implied authority fills gaps in the express grant. It never contradicts one.

The contrast that shows up on every exam is apparent authority, which is not granted at all. It arises when a third party reasonably believes a licensee can act for the principal because of something the principal said, did, or failed to correct. Actual authority is measured by what the principal told the agent. Apparent authority is measured by what the principal led the outside world to believe. A licensee can hold one, both, or neither, and the three types of representation covered in our guide to universal, general, and special agency describe how wide that grant can be.

How It Works in Washington

Washington puts actual authority on paper. RCW 18.86.010(4) defines a services agreement as a written agreement between a real estate firm and a principal that appoints a broker to represent the principal as an agent. RCW 18.86.020(2)(a) then requires the firm to enter into that agreement with the principal before, or as soon as reasonably practical after, its appointed broker commences rendering real estate brokerage services. The agreement must state the term (with a default 60 day term when the principal is a buyer, and the option of a longer one), name the appointed broker, say whether the Agency Relationship is exclusive or nonexclusive, and capture separately initialed consent to limited dual agency. A Written Services Agreement is therefore the written record of what a Washington broker is authorized to do, and our complete guide to Washington's written services agreement rules walks through the form field by field.

Two more sections narrow what that authority carries with it. RCW 18.86.110 provides that the duties under the chapter are statutory duties and not fiduciary duties, that the chapter supersedes the fiduciary duties of an agent to a principal under the common law, and that the common law continues to apply to the parties in all other respects. That last clause is why the common law of actual and apparent authority still governs a Washington file even though the fiduciary label does not. RCW 18.86.100 adds that unless otherwise agreed to in writing, a principal does not have knowledge or notice of facts known by an agent that are not actually known by the principal, so authority to act is not the same as knowledge charged to the client. The relationship itself runs until the earliest of completion of performance, expiration of the agreed term, mutual agreement to end it, or notice from either party, under RCW 18.86.070. The Department of Licensing publishes the current chapter 18.86 RCW text and the related rules.

Example

Priya signs a services agreement with Cascade Realty on March 3 naming Ben as her appointed broker to sell her Tacoma duplex at $625,000. The agreement runs 90 days and states in writing that Ben may accept an earnest money deposit of up to $10,000 and order a pre-listing inspection costing up to $600. That is Ben's express actual authority. Ordering the photographer, installing the lockbox, and entering the listing in the MLS are implied actual authority, because no seller lists a duplex expecting to be phoned about each of those steps.

On April 12 a buyer offers $610,000 with a 30 day close. Ben likes it and tells the buyer's broker "we accept." Nothing in the services agreement gave Ben authority to accept an offer for Priya, so he had no actual authority to bind her. If Priya had let Ben sign a counteroffer for her in front of that same buyer's broker two weeks earlier and never corrected it, the buyer could argue apparent authority from Priya's own conduct. Ben takes the safe route instead: he presents the $610,000 offer to Priya, she counters at $618,000, and she signs the counter herself.

Common Mistakes and Exam Traps

• Actual authority is created by the principal's communication to the agent. Apparent authority is created by the principal's communication to the third party. Exam items reverse the two.
• Implied authority is a branch of actual authority, not a form of apparent authority. It supplies the routine acts that make the express grant workable.
• A signed listing or buyer services agreement authorizes a Washington broker to market the property and present offers. It does not by itself authorize the broker to sign a binding contract for the client.
• Under RCW 18.86.110 a Washington broker's duties are statutory duties, not common law fiduciary duties. Answer choices that describe the duty as purely fiduciary are testing that swap.