Types of Agency-Brokerage Relationships With Consumers
Agency is a legal relationship between a principal (client) and an agent (the broker and salesperson) that arises when the principal delegates authority to the agent to perform acts on the principal’s behalf and the agent consents to the delegation. In general, an agency agreement should be in the form of a written contract, but this isn’t essential unless it is required by state law.
—Adapted from the Don’t Risk It: A Broker’s Guide to Risk Management, 2nd Edition, published by the NATIONAL ASSOCIATION OF REALTORS®.
Also known as a listing 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 evidenced by a listing contract. Once a property is listed, the seller’s agent either can attempt to sell it or, in addition, may be permitted by the seller to cooperate with another licensee who will attempt to find a suitable buyer for the property, A seller’s agent negotiates the best possible price and terms for the seller. The agent represents the seller's best interest throughout the transaction.
A real estate licensee is hired by a prospective buyer as an agent to find an acceptable property for purchase and to negotiate the best possible price and terms for the buyer. The agent represents the buyer's best interest throughout the transaction. The buyer can pay the agent directly through a negotiated fee, or the buyer’s agent may be paid by the seller or a commission split with the listing agent.
A cooperating agent who works for a listing broker-salesperson in the sale of a property. The subagent represents the seller, and therefore, works with the buyer, but not for the buyer. The subagent owes fiduciary duties to the listing broker and to the seller. Although subagents can’t assist the buyer in any way that would be detrimental to their client the seller, a buyer-customer working with a subagent can expect the subagent to treat him honestly. A subagent generally may provide the buyer with certain types of services, often called ministerial services, which are factually based and do not require the licensee’s judgment.
TIP: Many state laws governing the brokerage relationships between real estate licensees and consumers define in detail all of the possible relationships. Check the definitions in your state for specifics on the types of brokerage relationships allowed there.
Disclosed dual agent
Dual agency is a relationship in which the brokerage represents both the buyer and the seller in the same real estate transaction. Dual agency relationships don’t carry with them all of the traditional fiduciary duties to the clients; instead, dual agents owe limited fiduciary duties. The fiduciary duty of loyalty to the client is limited. This focuses on confidentially and the negotiation process. Because of the potential for conflicts of interest in a dual agency relationship, it’s vital that all parties to the dual agency relationship give their informed consent. In many states, this must be in writing. Disclosed dual agency is legal in most states.
The NATIONAL ASSOCIATION OF REALTORS® encourages state associations to work toward comprehensive agency relationship legislation.
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 agents of the seller, and which will act as agents of the buyer, without the individual licensees being dual agents. The designated agents give their clients full representation, with all of the attendant fiduciary duties. To use designated agency, it specifically must be permitted by state law. State laws vary, and in some states permitting this practice, the managing broker also is not a dual agent.
This relationship is called, among other things, a transaction broker, or facilitator. Some states permit a type of nonagency relationship with a consumer. These relationships vary considerably from state to state, both as far as the duties owed to the consumer and the terminology used to describe the relationship. Very generally, in these relationships, the duties owed to the consumer are less than the complete, traditional fiduciary duties, but in most states which allow for this type of relationship, the licensee still owes fiduciary duties to the consumer. Learn more about the duties of a licensee acting in a non-agency capacity at NAR's website (requires member log in).
Note: This information provides general legal information and should not be relied upon as legal guidance. Before acting, both the relevant laws and legal counsel should be consulted. This information should not be construed as specific legal advice nor as an opinion on particular facts, cases, or situations.
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