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Agency Relationship

Understanding The Agency Relationship

It’s important to understand what legal responsibilities your real estate salesperson has to you and to other parties in the transactions. The type of relationship created between the licensee and the consumer establishes a legal framework of duties and responsibilities. Frequently, this is an agency relationship.

Generally, in real estate sales, the listing broker (and through the broker, the salesperson) is the agent, and the seller is the principal.

An agency relationship is created when:
One person — the agent — agrees to represent the interest of another person — the principal — in a specific transaction. For an agency relationship to exist, the principal must delegate responsibility to the agent, and the agent must consent to accept that responsibility.

1. Seller’s representative (also known as a listing agent or seller’s agent). A seller’s agent is hired by and represents the seller. All fiduciary duties are owed to the seller. The agency relationship usually is created by a listing contract.

Fiduciary duties:

  • Loyalty: To act at all times in the best interest of the principal and to put those interests above all others, including yourself.
  • Obedience: To obey promptly all lawful instructions of the principal.
  • Disclosure: To disclose all known, relevant facts to the principal.
  • Confidentiality: To safeguard the principal’s secrets, unless keeping the confidence would violate disclosure requirements about the property’s condition.
  • Reasonable care and diligence: To diligently use real estate skills and knowledge when pursing the principal’s affairs.
  • Accounting: To account for all funds and property entrusted by the principal.

2. Buyer’s representative(also known as a buyer’s agent).A real estate licensee who is hired by prospective buyers to represent them in a real estate transaction. The buyer’s rep works in the buyer’s best interest throughout the transaction and owes fiduciary duties to the buyer.

Fiduciary duties:

  • Loyalty: To act at all times in the best interest of the principal and to put those interests above all others, including yourself.
  • Obedience: To obey promptly all lawful instructions of the principal.
  • Disclosure: To disclose all known, relevant facts to the principal.
  • Confidentiality: To safeguard the principal’s secrets, unless keeping the confidence would violate disclosure requirements about the property’s condition.
  • Reasonable care and diligence: To diligently use real estate skills and knowledge when pursing the principal’s affairs.
  • Accounting: To account for all funds and property entrusted by the principal.

3. Disclosed dual agent. Dual agency is a relationship in which the brokerage firm represents both the buyer and the seller in the same real estate transaction. Dual agency relationships do not carry with them all of the traditional fiduciary duties to the clients. Instead, dual agents owe limited fiduciary duties. Because of the potential for conflicts of interest in a dual-agency relationship, it’s vital that all parties give their informed consent. In many states, this consent must be in writing. Disclosed dual agency, in which both the buyer and the seller are told that the agent is representing both of them, is legal in most states however Coldwell Banker High Country Realty chooses not to practice this form of agency.

4. Designated agent (also called, among other things, appointed agency). This is a brokerage practice that allows the managing broker to designate which licensees in the brokerage will act as an agent of the seller and which will act as an agent of the buyer. Designated agency avoids the problem of creating a dual-agency relationship for licensees at the brokerage. The designated agents give their clients full representation, with all of the attendant fiduciary duties. The broker still has the responsibility of supervising both groups of licensees.

5. Transactional Broker (called, among other things, a non-agency relationship or facilitator). Some states permit a real estate licensee to have a type of non-agency relationship with a consumer. These relationships vary considerably from state to state, both as to the duties owed to the consumer and the name used to describe them. Very generally, the duties owed to the consumer in a non-agency relationship are less than the complete, traditional fiduciary duties of an agency relationship

6.  Compensation – Once the real estate transaction is completed compensation will be provided to the licensee/s involved in the transaction.  Most common is a split between the listing broker and selling broker.

An agency relationship doesn’t require:

  • A written contract. Unless your state law specifically states otherwise, no written, or even oral, contract is required to create an agency relationship, although a written contract is always a good idea. However, an agency relationship is consensual, meaning that generally no formalities are required to establish it. In the absence of a written contract, there is a danger that an agency relationship may be implied by the conduct of the parties. Implied agency means that if you act like an agent, you may in fact be creating an agency relationship.

Compensation. No compensation — neither money nor any other form of payment— is required to create an agency relationship. At the same time, a person is not necessarily an agent of those paying compensation.