Buyer Agency and other forms of real estate relationships
Real estate licensees are required to disclose how they intend to work with buyers and sellers in a real estate transaction at the earliest practical time. Before you disclose confidential information to a real estate licensee regarding a real estate transaction, you should understand what type of business relationship you have with that licensee. Just because you haven't signed a piece of paper doesn't mean that an agency relationship doesn't exist. There are five business relationships: (1) seller's agent; (2) buyer's agent; (3) disclosed dual agent; (4) designated agent and (5) transaction broker. Each or these relationships imposes certain legal duties and responsibilities on the licensee as well as on the seller or buyer represented. These four relationships are defined in greater detail below. Please read carefully before making your choice.
SELLER'S AGENCY
A seller's agent WORKS ONLY FOR THE SELLER and has legal obligations, called fiduciary duties, to the seller. These include reasonable care, undivided loyalty, confidentiality and full disclosure. Seller's agents often work with buyers, but do not represent the buyers. However, in working with buyers a seller's agent must act honestly. In dealing with both parties, a seller's agent may not make any misrepresentations to either party on matters material to the transaction, such as the buyer's financial ability to pay, and must disclose defects of a material nature affecting the physical condition of the property which a reasonable inspection by the licensee would disclose.
Seller's agents include all persons licensed with the brokerage firm which has been authorized through a listing agreement to work as the seller's agent. In addition, other brokerage firms may accept an offer to work with the listing broker's firm as the seller's agent. In such cases, those firms and all persons licensed with such firms, are called "sub-agents." Sellers who do not desire to have their property marketed through sub-agents should so inform the seller's agent.
BUYER AGENCY
A buyer's agent WORKS ONLY FOR THE BUYER. A buyer's agent had fiduciary duties to the buyer which include reasonable care, undivided loyalty, confidentiality and full disclosure. However, in dealing with sellers, a buyer's agent must act honestly. In dealing with both parties, a buyer's agent may not make any misrepresentations on matters material to the transaction, such as the buyer's financial ability to pay, and must disclose defects of a material nature affecting the physical condition of the property which a reasonable inspection by the licensee would disclose.
A buyer wishing to be represented by a buyer's agent is advised to enter into a separate written buyer agency contract with the brokerage firm which is to work as their agent.
DISCLOSED DUAL AGENT
A disclosed dual agent WORKS FOR BOTH THE BUYER AND SELLER. To work as a dual agent, a firm must first obtain the informed written consent of the buyer and the seller. Therefore, before acting as a disclosed dual agent, brokerage firms must make written disclosure to both parties. Disclosed dual agency is most likely to occur when a licensee with a real estate firm working as a buyer's agent shows the buyer properties owned by sellers for whom that firm is also working as a seller's agent or sub-agent.
A real estate licensee working as a disclosed dual agent must carefully explain to each party that, in addition to working as their agent, their firm will also work as the agent for the other party. They must also explain what effect their working as a disclosed dual agent will have on the fiduciary duties their firm owes to the buyer and to the seller. When working as a disclosed dual agent, a brokerage firm must have the express permission of a party prior to disclosing confidential information to the other party. Such information includes the highest price a buyer can afford to pay and the lowest price a seller will accept and the parties' motivation to buy or sell. Remember, a brokerage firm acting as a disclosed dual agent will not be able to put one party's interests ahead of those of the other party and cannot advise or counsel either party on how to gain an advantage at the expense of the other party on the basis of confidential information obtained from or about the other party.
If you decide to enter into an agency relationship with a firm which is to work as a disclosed dual agent, you are advised to sigh a written agreement with that firm.
DESIGNATED AGENCY
Also known as Appointed Agency, Split Agency. Some firms also offer a form of dual agency called "designated agency" where one agent in the firm represents the seller and another agent represents the buyer. This option (when available) may allow each "designated agent" to more fully represent each party.
In designated agency, the employing broker may, with your consent, designated one or more licensees from their company to act exclusively as the agent for the seller/landlord and one or more licensees to act exclusively as the agent for the buyer/tenant. Other licensees in the company, who are not designated, may represent another party and should not be provided with any confidential information. In designated agency, the employing broker will be a dual agent and have the additional duties to:
- Take reasonable care to protect any confidential information disclosed to the salesperson.
- Take responsibility to direct and supervise the business activities of the licensees who represent the seller and buyer while taking no action that is adverse or detrimental to either party's interest in the transaction.
- The designated agent(s) shall have the duties to the seller/landlord or buyer/tenant as listed above under seller and buyer agency.
The designation may take place at the time that the parties enter into a written agreement, but may occur at a later time. Regardless of when the designation takes place, the broker is responsible for ensuring that confidential information is not disclosed.
TRANSACTION BROKER
The Licensing Laws of many jurisdictions do not require licensees to work in the capacity of an "agent" when providing brokerage services. A transaction broker works with a buyer or a seller or both in the sales transaction without representing anyone. A TRANSACTION BROKER DOES NOT PROMOTE THE INTERESTS OF ONE PARTY OVER THOSE OF THE OTHER PARTY TO THE TRANSACTION.
Licensees with such a firm would be required to treat all parties honestly and to act in a competent manner, but they would not be required to keep confidential any information. A transaction broker can locate qualified buyers for a seller or suitable properties for a buyer. They can then work with both parties in an effort to arrive at an agreement on the sale or rental of real estate and perform tasks to facilitate the closing of a transaction.
A transaction broker primarily serves as a manager of the transaction, communicating information between the parties to assist them in arriving at a mutually acceptable agreement and in closing the transaction, but cannot advise or counsel either party on how to gain an advantage at the expense of the other party. Owners considering working with transaction brokers are advised to sign a written agreement with that firm which clearly states what services that firm will perform and how it will be paid. In addition, any transaction brokerage agreement with a seller should specifically state whether a notice on the property to be sold will or will not be circulated in any or all Multiple Listing System(s) of which that firm is a member.
Methods for brokers to work both ends of a transaction
Why all this matters you may ask? Real estate is one of the only professions that allows the same agent to represent both parties to a transaction. One the responsibilities of a fiduciary, which agency law implies to an agent for someone else, is to act at all times for the sole benefit and interest of their client. Obviously, under the laws of agency, this can create a conflict of interest since noone can fully discharge fiduciary duties for two parties with opposing interests. However, Realtors have been successful in lobbying lawmakers into allowing double ended transaction whereby they are able to collect, in essence, two commissions for their work. Here are a few of the ways they have been able accomplish this through change of law…
- Designated agency: Some states allow brokers to designate two agents affiliated with the same firm to represent the buyer and seller separately, often with safeguards intended to protect clients' confidential information.
- Disclosed dual agency: The most controversial method of double-ending a sale is for a single agent to represent both the buyer and the seller in an agency relationship. In states with no provisions for designated agency, when two agents affiliated with the same broker represent both sides of a transaction, the broker is viewed as a dual agent.
- Transaction brokerage: One agent or two agents at the same brokerage may provide services to the buyer, the seller, or both, in a non-agency relationship, owing limited or no fiduciary duties such as loyalty and obedience.
- Subagency: Although no longer widely employed because of legal liabilities now associated with the practice, agents working with buyers are considered subagents of the listing broker. Buyers are unrepresented.
- Provision of "ministerial" services to unrepresented "customers": A listing broker may avoid splitting a commission with a cooperating broker by providing limited services to an unrepresented buyer.
YOU MAY OBTAIN LEGAL ADVICE ABOUT THESE BUSINESS RELATIONSHIPS FROM YOUR OWN LAWYER.
