What is Agency by Ratification?

Agency by ratification can be a tricky concept for many students to grasp. We are going to make it easier for you by first running through some definitions and then giving you an example.

An agency by ratification is a way that an agency relationship can be formed. In an agency relationship, you have two parties: the agent and the principal.

A principal ultimately is the person who engages an agent. Think of them as the property owner, landlord, buyer, or tenant.

An agent could be a real estate agent, or it could also just be a friend of the principal.

An agency by ratification is an agency relationship is formed when a principal “ratifies” a decision made by the agent before the agency relationship is established. This means that they approve of a decision made on their behalf after the decision was already made.

Unlike other types of agency relationships, an agency by ratification only creates an agency relationship for the one decision that the principal ratified.

Okay, so you have the basic idea but let’s apply it to an example.

John is a real estate agent who knows of an individual that wants to buy back their childhood home. John does not have a relationship with the current homeowner, in fact, they have never met. But John is confident that the owner will be motivated to sell if given the right offer.

Because the buyer is looking to purchase for sentimental reasons and they are familiar with the property, they are comfortable negotiating with John, site unseen. John negotiates a deal, draws up a contract, and approaches the homeowner with the completed contract that is only missing the homeowner's acceptance.  

The homeowner, after some consideration, decides that he is happy to accept the offer and sell his home. By accepting the offer, he is creating an agency by ratification relationship. Ideally, John will have discussed a fee with the homeowner. However, this type of agency relationship can be risky, and John may have to sue the homeowner for his fee should the homeowner choose not to pay.

If possible, real estate agents should avoid an agency by ratification relationship. However, it's always best to have an express agreement relationship outlined in a listing agreement. These documents create the most appropriate agency relationship, and they have clauses that protect both the principal the agent.

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