Authority to bind a transaction participant

Power of attorney

is a temporary authority granted to an individual to perform activities during a period of the owner’s:

  • incapacity; or
  • travel.

For example, a property owner with a disability wants to sell their primary residence and buy replacement property, but they are unable to fully comprehend the sales terms.

Or a buyer plans to be out of the country during the time their real estate transaction will take place but needs to be able to physically sign transaction documents.

In those instances, it’s appropriate for the transaction participant to authorize another to sign on their behalf, referred to as the authorized individual or attorney-in-fact.

Different forms are used at different stages of the real estate transaction when dealing with a power of attorney situation.

A uniform statutory form entitled Power of Attorney grants powers to the authorized individual agreed to represent the transaction participant. [See RPI Form 447]

To be effective, the Power of Attorney form needs to be notarized by a licensed notary public. [See RPI Form 447]

Further, when entering into an agreement, the identity of the transaction participant and the identity of their appointed attorney-in-fact is verified through a Verification of Capacity to Represent Addendum. [See RPI Form 252]

Types of agreements calling for this addendum include:

  • listing agreements;
  • counteroffers;
  • purchase agreements; and
  • property management agreements.

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Granting power of attorney

An agent or escrow officer uses the Power of Attorney — Uniform Statutory Form published by Realty Publications, Inc. (RPI) when an owner or buyer appoints a person who is to act on their behalf as their attorney-in-fact. The form grants specific powers to the person authorized to act as their attorney-in-fact. [See RPI Form 447]

Through the statutory form, the transaction participant may choose specific powers to grant to the attorney-in-fact for particular transactions and situations or choose to grant all powers on a broad scale to the attorney-in-fact. [See RPI Form 447]

The transaction participant accomplishes this by initialing next to each option for which they want to grant specific powers. When they do not wish to grant powers to the option listed, they leave the item blank without including their initial. [See RPI Form 447]

When the transaction participant wants to grant all powers, they initial next to option (n): All of the powers listed above. No other line needs to be initialed. [See RPI Form 447]

Powers may be limited or extended by filling out the lines provided in the Special Instructions. Here, one option is to indicate when the power of attorney is to be revoked.

Unless directed otherwise, power of attorney will be effective immediately and will continue until it is revoked.

The transaction participant may choose to allow the power of attorney to remain effective even when the participant becomes incapacitated, or they may strike through the sentence to remove this power. [See RPI Form 447]

When the transaction participant designates more than one authorized individual power of attorney, they check a box indicating whether the authorized individuals are to act:

  • separately; or
  • jointly.

Authorized individuals acting jointly need to act or sign together. On the contrary, when they are authorized to act separately, either authorized individual may act alone without the signature of the other. [See RPI Form 447]

The transaction participant then signs the form and notarizes it in the county in which they live.

On acceptance by the attorney-in-fact, the attorney-in-fact assumes the fiduciary and other legal responsibilities of an agent authorized to act on another’s behalf. [See RPI Form 447]

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Verifying capacity to represent in an addendum

A broker and their agent representing a client for the sale, lease or financing of real estate will commonly encounter a participant in a transaction to be:

  • an entity, such as a limited liability company (LLC), partnership or corporation;
  • a trust, vested with the assets to buy, sell or lease real estate under a trust agreement;
  • an estate, conservatorship or guardianship, approved by a court order; or
  • an attorney-in-fact authorized to act under a power of attorney. [See RPI Form 252]

An agent uses the Verification of Capacity to Represent Addendum published by RPI when a participant entering into an agreement is an entity, trust, estate or guardianship, or has granted a power of attorney. The form verifies the identity of the participant in a transaction and authority of the individual signing the agreement intending to bind the participant. [See RPI Form 252]

The verification of the individual’s authority establishes the individual signing an agreement on behalf of a participant as the agent of the participant. It also verifies the individual is not personally liable for performance of the agreement entered into by their signature.

When the verified individual represents an entity as an investor or syndicate, a separate document written up by the LLC, partnership or corporation authorizing the individual to act on its behalf is attached. [See RPI Form 252 §2.1]

When the verified individual is a trustee holding title to property in a trust, the individual attaches a copy of their trust agreement. [See RPI Form 252 §2.2]

When the verified individual is approved as an executor, administrator, conservator or guardian of the estate through a court order, they attach a copy of the court approval verifying their involvement as an estate, conservatorship or guardianship. [See RPI Form 252 §2.3]

When the verified individual represents the participant as an attorney-in-fact, the Power of Attorney form is attached. [See RPI Form 252 §2.4; See RPI Form 447]

The individual acting on behalf of the transaction participant signs the form and the agent attaches the form as an addendum to the agreement or counteroffer entered into by the transaction participant. [See RPI Form 252]

Related article:

The Verification of Capacity to Represent Addendum – confirmation of an individual’s authority to sign