introduction to agency (req read) p1.pdf · a real estate broker may also have an agency...

LP-9 Required Reading Part One

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Real Estate Agency Law

Agency is a special legal relat ionship that involves certain dut ies and

l iabil i t ies. The law of agency governs many aspects of a real estate agent ’s

relat ionships with cl ients and customers. The f irst part of this chapter

explains what an agency relat ionship is and how one is created, and then

discusses agency duties and l iabi l i t ies. The second part of this chapter

descr ibes the various types of agency relat ionships that are possible in real

estate transactions; it also discusses agency disclosure requirements.

Introduction to Agency

We’ll begin our discussion of real estate agency with some basic

def init ions and some information about the f ramework of agency law.

The Agency Relationship

An agency relat ionship ar ises when one person authorizes another to

represent him, subject to his control, in deal ings with third part ies. The

part ies in an agency relat ionship are the agent , the person authorized to

represent another; and the principal , the party who author izes and controls

the act ions of the agent. Persons outside the agency relat ionship who seek

to deal with the pr incipal through the agent are called third parties .

There is usual ly an agency relat ionship between a property seller and the

real estate broker with whom the sel ler has l isted the property. The seller is

the principal, who employs the broker to act as her agent. The broker/agent

represents the seller /principal ’s interests in negot iat ions with potent ial

buyers/third part ies. The sel ler/pr incipal is referred to as the broker’s cl ient.

A real estate broker may also have an agency relat ionship with a buyer.

The buyer hires the broker to locate a part icular k ind of property and

negotiate its purchase. The broker is the buyer ’s agent, and the buyer is that

broker’s principal (or client).


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There is also an agency relat ionship between a broker and the

salespersons who work for the broker. In other words, a real estate

salesperson is his broker’s agent.

A real estate salesperson is not l icensed to represent sel lers or buyers

direct ly, without a broker. (See Chapter 10.) So, str ict ly speaking, in the

eyes of the law it ’s the broker, not the salesperson, who has an agency

relat ionship with a sel ler or buyer. Of course, in common par lance,

salespersons as wel l as brokers are cal le d real estate agents. Also, as

agents of their brokers, salespersons owe essent ial ly the same duties to

cl ients and third part ies as their brokers do.

Agency Law

An agency relat ionship has signif icant legal impl icat ions. For a third

party, dealing with the agent can be the legal equivalent of deal ing with the

principal. For instance, when an agent who is author ized to do so signs a

document, it ’s as if the principal s igned the document. And, in some cases,

if the agent does something wrong, the principal may be held l iable to third

part ies for harm result ing f rom the agent’s act ions.

Those rules are part of general agency law, a body of law that appl ies to

agency relat ionships in nearly any context. For example, it governs the

relat ionship between lawyer and cl ient, or between trustee and benef ic iary.

I t tradit ionally has also appl ied to the relat ionship between a real estate

agent and a buyer or sel ler. That is st i l l t rue in some states, but not

in others.

In recent years, more and more states have adopt ed statutes that

specif ical ly def ine and regulate the agency relat ionships between real estate

brokers, salespersons, and cl ients. Depending on the terms of a part icular

state’s statute, it may either supplement or replace general agency law in

regard to real estate agency relat ionships in that state.

Whether the rules that govern real estate agency relat ionships in a

part icular state come from general agency law, a specif ic state statute, or


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both, it ’s extremely important for real estate agents to know them and

follow them.

In the f irst part of the chapter, we’ l l discuss basic agency concepts. Even

i f your state has replaced general agency law with a specif ic statute

concerning real estate agency, this discussion should be useful. Real estate

agency statutes are based on general agency law and of ten use many of the

same concepts.

Creating an Agency Relationship

No part icular formali t ies are required to create an agency relat ionship;

the only requirement is the consent of both part ies. Under general agenc y

law, an agency relat ionship may be formed in four ways: by express

agreement, by rat if icat ion, by estoppel, or by implicat ion.

Express Agreement

Most agencies are created by express agreement : the pr incipal appoints

someone to act as her agent, and the agent accepts the appointment. A

wr it ten agreement is general ly preferable; however, in some states an oral

agreement is suf f icient to create a valid agency relat ionship.

The agency agreement does not have to be supported by considerat ion.

Agency r ights, responsibi l i t ies, and l iabil i t ies may ar ise even when the

principal has no contractual obligat ion to compensate the agent for the

services rendered. For example, in most states, a broker cannot sue a sel ler

for compensation unless a wr it ten l ist ing agreement exists. Yet even without

a writ ten agreement, the broker st i l l may be the sel ler’s agent, with all of the

duties and l iabi l i t ies that agency entai ls.

Ratification

An agency is created by ratification when the principal gives approval

af ter the fact to acts performed by:

• a person who is without author ity to act for the principal, or


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• an agent whose act ions exceed the authority granted by the principal.

The principal may rat ify unauthor ized acts expressly, or by accepting the

benef its of the acts. For example, if the principal accepts a contract offer

negotiated by someone who wasn’t authorized to negotiate on his behalf , the

principal has rat if ied the agency.

Estoppel

Under the legal doctr ine of estoppel , a person is not allowed to take a

posit ion that contradicts her previous conduct, if someone else has relied on

the previous conduct. An agency can be created by estoppel when it would

be unfair to a third party to deny the agent’s authority, because the principal

has allowed the third party to bel ieve there was an agency relat ionship.

Implication

An agency may be created by implication when one person behaves

toward another in a way that suggests or impl ies that he is act ing as that

other person’s agent. If the other person reasonably bel ieves that the re is an

agency relat ionship, and the supposed agent fails to correct that impression,

he may owe the other person agency duties.

Although agency by implicat ion resembles agency by estoppel, there’s a

signif icant dif ference between them. An agency by estoppel requires the

principal to acknowledge that an agency relat ionship exists, to protect

the interests of a third party. An agency by implicat ion requires the

agent to acknowledge that an agency relat ionship exists, to protect the

principal ’s interests.

The Legal Effects of Agency

Once an agency relat ionship has been establ ished, the pr incipal is bound

by acts of the agent that are within the scope of the agent’s actual or

apparent author ity. Under general agency law, the principal may be held

l iable for harm caused by the agent ’s negligent or wrongful acts. In addit ion,


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the principal may be held to know information that is known to the agent. We

wil l examine each of these legal ef fects of agency in turn.

Scope of Authority

The extent to which the principal can be bound by the agent’s act ions

depends f irst of all on the scope of authority granted to the agent. There are

three basic types of agents:

• universal agents,

• general agents, and

• special agents.

A universal agent is authorized to do anything that can be lawful ly

delegated to a representat ive. This type of agent has the greatest degree of

author ity. Universal agency is much less common than the other two types.

A general agent is authorized to handle al l of the principal ’s affairs in

one or more specif ied areas. She has the authority to conduct a wide range

of act ivit ies on an ongoing basis on behalf of the principal. For example, a

business manager who has the author ity to handle personnel matters, enter

into contracts, and manage the day-to-day operat ions of the business is

considered to be a general agent.

A special agent has l imited authority to do a specif ic thing or conduct a

specif ic transact ion. For instance, an attorney who is hired to l i t igate a

specif ic legal matter, such as a person’s d ivorce, is a special agent.

In most cases, a real estate broker is a special agent, because the broker

has only l imited authority. A sel ler hires a broker to f ind a buyer for a

part icular piece of property, and the broker is authorized only to negotiate

with third part ies, not to sign a contract on the seller’s behalf . A real estate

broker can be granted broader powers, but usually is not.


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Actual vs . Apparent Authority

An agent may have actual authority to perform an act ion on the

principal ’s behalf , or else may have only apparent author ity.

Actual authority is author ity granted to the agent by the pr incipal, either

expressly or by implicat ion. Express actual authority is communicated to the

agent in express terms, either oral ly or in writ ing. Implied actual author ity is

the author ity to do what is necessary to carry out act ions that were

expressly author ized.

Example: When a sel ler l ists property with a broker, the broker is

given express actual authority to f ind a buyer for the

property. Based on custom in the real estate industry, the

broker also has the implied actual author i ty to delegate

certain tasks to a l icensed salesperson. In contrast, the

author ity granted to the broker does not imply the power to

enter into a contract or execute a deed on the seller’s behalf .

A person has apparent authority (or ostensible authority) when he has

no actual author ity to act, but the principal negl igent ly or del iberately allows


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i t to appear that the person’s act ions are author ized. In other words, the

principa l ’s words or conduct lead a third party to believe that this person

(the apparent agent or ostensible agent ) has author ity to act on behalf of

the principal. This type of authority corresponds to an agency created by

estoppel, which was explained earl ier.

A principal is bound by acts performed within the scope of an ostensible

agent’s apparent authority. However, declarat ions of the agent alone cannot

establish apparent authority; the pr incipal must be aware of the declarat ions

or acts and make no effort to deny that they are authorized.

A third party has a duty, when deal ing with an agent, to make a

reasonable ef fort to discover the scope of the agent’s authority. The third

party wi l l not be able to hold the principal l iable when an agent acts beyond

the scope of his actual authority and the principal ’s conduct does not

indicate approval of those acts. When a contract between the principal and a

third party l imits the agent’s authority to make representat ions, the third

party is on not ice that any represen tat ions made by the agent beyond the

wr it ten terms of the agreement are unauthorized and not binding on

the principal.

Vicarious Liability

A tort is a negligent or intent ional wrongful act involving breach of a duty

imposed by law (as opposed to breach of a contractual duty). I t is a

mistake, accident, or misconduct that results in an injury or f inancial harm to

another person. For example, negl igent driving that results in an accident

and injures another driver is a tort. Someone who commits a tort may be

sued by the injured party and required to compensate him.

Under general agency law, a principal may be held l iable for her agent’s

negligent or wrongful acts. This is referred to as vicarious liability. Thus, a

real estate broker can be vicariously l iable for the acts of a salesperson who

works for the broker.


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Under general agency law, it is also possible for a buyer or a sel ler to be

vicar iously l iable for the acts of his real estate broker, and by extension, for

the acts of a salesperson who is working for the broker. However, some

state statutes have modif ied or even el iminated vicarious l iabi l i ty in real

estate agency. In those states, a sel ler or buyer may be held l iable for the

acts of his real estate broker or salesperson only under very l imited

circumstances (for example, if the sel ler or buyer part ic ipated in or

author ized a wrongful act). But even in those states, a real estate broker is

st i l l vicar iously l iable for the acts of a salesperson.

Imputed Knowledge

Under general agency law, a principal is considered to have notice of

information that the agent has, even if the agent never actual ly tel ls the

principal. In other words, the agent’s knowledge is automat ical ly imputed to

the principal. As a result , the pr incipal could be held l iable fo r fail ing to

disclose a problem to a third party, even if the agent never informed the

principal of the problem. This is referred to as the imputed knowledge rule .

In some states, the imputed knowledge rule no longer appl ies to real

estate sellers and buyers. Like vicarious l iabi l i ty, the imputed knowledge

rule has been eliminated by real estate agency statutes. In those states, if a

broker or salesperson fails to pass information on to a cl ient, the client wi l l

not be held to have had not ice of that information.

Duties in an Agency Relationship

An agent owes certain duties to her pr incipal, and both the agent and the

principal have certain responsibi l i t ies to third part ies.

The Agent’s Duties to the Principal

An agency relat ionship is a fiduciary relat ionship. A f iduciary is a person

who stands in a special posit ion of trust and conf idence in relat ion to

someone else. The other party has a legal r ight to rely on the f iduciary, and

the law holds the f iduciary to high standards of conduct.


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As a f iduciary, an agent must serve the best interests of the principal.

The agent owes the principal these f iduciary duties:

• reasonable care and skil l ,

• obedience and good faith,

• accounting,

• loyalty, and

• disclosure of material facts.

The agent owes these f iduciary duties to the principal f rom the t ime the

agency relat ionship begins unti l the relat ionship terminates.

Reasonable Care and Skill . An agent has a duty to use reasonable care

and ski l l in the performance of his dut ies. If an agent claims to possess

certain ski l ls or abi l i t ies, the agent must act as a competent person having

those skil ls and abi l i t ies would act. For example, a person who holds

herself out as a real estate broker must exercise the care and skil l that a

competent broker would br ing to the agency. I f the broker (or the broker’s

salesperson) causes the principal harm due to carelessness or

incompetence, the broker wil l be l iable to the principal.

Obedience and Utmost Good Faith. An agent must obey the instruct ions of

the principal and carry them out in utmost good faith. The agent’s acts must

be in conformity with the purpose and intent of the instruct ions. A broker can

be held l iable for any loss caused by failure to obey the principal ’s

instruct ions.

I t is important to note that the duty of obedienc e and utmost good faith

never requires an agent to follow instruct ions that are unlawful or unethical.

I f the principal asks the agent to act unlawful ly or unethical ly, the agent

should refuse to do so, and terminate the agency relat ionship.

Accounting. An agent must account for any funds or other valuable items

she receives on behalf of the principal. The agent is required to report to the

principal on the status of those funds (cal led trust funds) and avoid mixing

(commingling) them with his own money. Most states require a real estate


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broker to deposit al l trust funds in a special trust or escrow account to

prevent improper use of the funds. Trust funds are discussed in more detai l

in Chapter 10.

Loyalty. The agency relat ionship is based on conf idence, s o loyalty is

essent ial. The agent must place the principal ’s interests above the interests

of a third party by refusing to reveal confidential information .

Example: In negotiat ions with a prospective buyer, a sel ler ’s real

estate agent should not revea l the sel ler ’s f inancial condit ion

or wi l l ingness to accept less than the l ist ing price, unless the

sel ler has authorized such a disclosure.

Note that this aspect of the duty of loyalty extends beyond the end of the

agency relat ionship. An agent must not reveal conf idential information

learned in the course of the agency even af ter the agency relat ionship

has terminated.

Loyalty to the pr incipal also dictates that the agent must place the

principal ’s interests above her own personal interests. For example,

it would be a breach of the duty of loyalty if a buyer ’s agent encouraged

the principal to pay more for a property than i t ’s worth, in order to get a

larger commission.

Another rule based on the duty of loyalty is that an agent must not make

a secret profit f rom the agency. Any f inancial gain must be disclosed to

the principal.

Disclosure of Material Facts. The agent must inform the principal of any

material facts that come to the agent’s attention. A material fact is any fact

that could reasonably be expected to inf luence the principal ’s judgment in

the transact ion. For instance, if a sel ler ’s real estate agent discovers that a

potent ial buyer is in a shaky f inancial s ituat ion, the agent must inform the

sel ler, even if i t means losing a sale and the subsequent commission.


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A real estate agent must be especial ly careful to avoid these

disclosure problems:

• failure to present all offers,

• failure to inform the principal of the property’s true value,

• failure to disclose any relat ionship between the agent and the other

party in a transact ion, and

• failure to reveal a dual agency.

A real estate agent representing the sel ler must present all offers to the

sel ler, regardless of how unacceptable a part icular offer may appear to be.

The principal, not the agent, decides whether or not to accept a part icular

offer. The agent should never hesitate to inform the principal of an offer,

even if i ts acceptance would mean a smaller commission for the agent; the

agent’s f irst loyalty must be to the principal. Furthermore, a sel ler ’s agent

should present an offer even if the prospective buyer did not submit a good

faith deposit along with the of fer.

An agent is also required to inform the principal of the property’s true

value . I t is not improper for a seller ’s agent to buy the pr incipal ’s property

with the principal ’s knowledge and consent, and then resel l the property for

a prof it . But the agent must provide the principal with his est imate of the real

value of the property before the property is sold. (Note that an ordinary

buyer—an unlicensed person who is not act ing as the sel ler ’s agent— is

under no obligat ion to tel l the sel ler that he plans to resel l at a prof it .)

The sel ler ’s agent must inform the principal if the agent has any

relationship with a buyer—before the principal decides whether to accept

the buyer ’s of fer. If the buyer is a f r iend, relat ive, or business associate of

the agent, or a company in which the agent has an interest, there may be a

conf l ict of interest. The principal has a r ight to have this information when

making her decision. The agent must also inform the principal if the agent

plans to split the commission payment with the buyer.


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In addit ion, the agent is required to reveal a dual agency . A dual agency

exists when a real estate broker is employed by both the sel ler and the

buyer in the same transact ion. In most states, dual agency is legal as long

as the broker has ful ly informed both part ies and obtained their consent.

However, a conf l ict of interest is inherent in a dual agency. A sel ler wants

to get the highest possible price for the property, whi le a buyer wants to pay

the lowest possible price. I t is dif f icult , i f not impossible, to adequately

represent these two opposing interests simultaneously. We’ll discuss dual

agency and agency disclosure in more detai l later in the chapter.

The Agent’s Duties to Third Parties

While agents owe obedience and loyalty to their pr incipals, this doesn’t

mean they can treat third part ies with reckless disregard. In fact, in most

states courts are holding real estate agents to increasingly higher standards

in their interact ions with third part ies.

As a general rule, a real estate agent owes a third party two basic dut ies:

a duty of reasonable care and ski l l and a duty of good faith and fair dea ling.

Reasonable Care and Skill . An agent must use reasonable care and ski l l in

providing services to third part ies as well as to the principal. I f the agent’s

negligence or incompetence harms a third party, the agent may be l iable.

Good Faith and Fair Dealing. When representing a sel ler, real estate

agents must disclose al l material facts about the property to prospect ive

buyers. They also must avoid inaccuracies in their statements to prospect ive

buyers. Any intent ional mater ial misrepresentat ion may constitute actual

fraud , and even an unintent ional or negl igent misrepresentat ion may be

considered constructive fraud . In either case, the buyer may have the

r ight to rescind the transact ion and/or sue for damages. (Note that

these requirements general ly apply to sellers as wel l as their real

estate agents; sellers also have a duty to disclose material facts and

avoid misrepresentat ion.)


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A dist inct ion is general ly drawn between misrepresentat ions, on the one

hand, and opinions, predict ions, or “puf f ing,” on the other. These are

nonfactual or exaggerated statements that a buyer should real ize she can’t

rely on. Since it isn’t reasonable to rely on them, opinions, predict ions, and

puff ing generally aren’t act ionable— they can’t be the basis of a lawsuit.

Examples: Opinion: “I think this is the best buy on the market. ”

Predict ion: “The propert ies in this neighborhood could easily

double in value over the next ten years.” Puff ing: “This is a

dream house; it has a fabulous view.”

Although statemen ts such as these may not be act ionable, it ’s unethical

for a real estate agent to make any statement to a buyer concerning the

property or the transaction that the agent doesn’t actual ly bel ieve. Also,

something that an agent regards as harmless “sales talk” could be construed

as a statement of fact by an unsophist icated buyer. An agent who made the

predict ion about a dramatic increase in property values given in our example

might be on dangerous ground.

Aside f rom avoiding misrepresentat ion, both a seller and a seller’s agent

general ly have a duty to disclose any known latent defects in the property

to buyers. A latent defect is a hidden defect, one that is not discoverable by

ordinary inspection.

Example: The sel ler tel ls his real esta te agent that the roof leaks in

heavy rains. This is a latent defect that buyers who are

shown the property in ordinary weather won’t be able to see

for themselves. The sel ler and the agent are legally required

to disclose this problem.

Certain condit ions or defects are red f lags that may signify more serious

under lying problems. For example, cracks in the garage f loor or windows

and doors that don’t close properly may be signs that the foundation is

shif t ing. Or a rott ing fence or sagging retaining wal l may be evidence that

the ground is not draining proper ly. Sel lers and their agents are general ly

required to disclose problems l ike these to prospective buyers. An agent


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doesn’t need to be able to determine whether an underlying problem exists;

i t ’s usual ly appropr iate, however, to recommend hir ing a specialist to take a

closer look.

Sometimes property is sold “as is,” which means that the sel ler wi l l not

pay for repairs needed to correct property defects. In most states, however,

stat ing that property is for sale “as is” doesn’t negate the duty to disclose

material facts about the property. The seller and the seller’s agent are st i l l

required to make the appropr iate disclosures.

Duty to Inspect. Tradit ional ly, agents represent ing the seller were required

only to pass on the sel ler ’s information about the property to prospect ive

buyers; the law didn’t require them to look for problems with the property

themselves. Today, however, some states specif ical ly impose a duty of

inspect ion on the agent. In those states, a sel ler ’s agent must conduct a

reasonably competent and dil igent visual inspection of the property

and disclose to prospective buyers any material information the

inspect ion reveals.

Stigmatized Properties. There are certain types of information that don’t

necessari ly have to be disclosed to prospective buyers. For example,

suppose the property was (or may have been) the site of a crime, a suicide,

gang-related act ivity, or pol it ical or rel igious act ivity. Such an event may

stigmatize a property, making it seem undesirable even though its physical

condit ion and t it le have not been adversely af fected.

To protect sel lers and property values, many states have passed laws

specifying that certain facts that might st igmatize a property are not material

and thus need not be disclosed. (Of course, if a prospect ive buyer asks

whether the property was the site of a st igmatizing event or act ivity, the

agent must answer honest ly.) On the other hand, some states specif ical ly

mandate disclosing the fact that a proper ty was the site of a drug

manufacturing lab, s ince hazardous residues may be lef t on the property.

When deal ing with property that was the site of a potential ly st igmatizing

event or act ivity, an agent should carefully check the disclosure


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requirements that apply in his state. I t may be a good idea to seek legal

advice. Note that a real estate agent (or a sel ler) does not have to disclose

that property was occupied by someone with AIDS or HIV. In fact, if a

prospect ive buyer asks an agent whether anyone with AIDS or HIV l ived in a

house, the agent should not answer the question. To do so could violate fair

housing laws that prohibit discr imination based on disabi l i ty.

(See Chapter 16.)

Megan’s Law . Since 1996, a federal law has required every state to hav e a

registrat ion program for sex offenders convicted of cr imes against chi ldren.

The federal law and the state laws based on it are commonly cal led Megan’s

Law, af ter a chi ld who was murdered. Upon release from prison, sex

offenders must register with a law enforcement agency, and they must also

notify the agency whenever they move. Although the specif ic rules vary f rom

state to state, information concerning registered offenders, including their

addresses, must be made avai lable to the public. In some cases, when a

registered of fender moves into a residential neighborhood, authorit ies are

required to not ify the community.

As a general rule, if a home buyer asks a real estate agent whether there

are any registered sex offenders in the area, the agent should refer the

buyer to the law enforcement agency that makes that information avai lable.

I f an agent actual ly knows there is a registered sex of fender l iving in the

vic inity of a l isted home, the agent may be required to disclose that to

prospect ive buyers. Agents need to know their state’s rules concerning this

type of disclosure. Some states have passed legislat ion that protects real

estate agents f rom liabi l i ty for failure to disclose information about sex

offenders, since buyers can obtain the information f rom other sources.

Seller Disclosure Statement . Many states now require a sel ler to provide

the buyer with a writ ten statement disclosing any known defects in the

property. (In some states, this requirement applies only to residential

transactions.) Even in states where writ ten disclosures aren’t required, real

estate agents of ten encourage their sel lers to provide them.


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Typically, sel ler disclosures are made on a standardized form. In states

where the seller’s agent has a duty to inspect the property, the re may be a

section on the form for the agent to f i l l out, disclosing defects revealed by

the inspect ion.

Lead-based Paint Disclosures. Transactions that involve housing bui lt

before 1978 are subject to a federal law concerning lead -based paint, which

is a health hazard to chi ldren. This law requires a sel ler or a landlord to do

al l of the following:

disclose the locat ion of any lead-based paint that he is aware of in the

home (in both the dwell ing unit and the common areas, if any);

provide a copy of any report concerning lead-based paint in the home,

if i t has been inspected; and

give buyers or tenants a copy of a pamphlet on lead -based paint

prepared by the U.S. Environmental Protect ion Agency.

In addit ion, buyers (though not tenants) must be offered at least a ten-

day per iod in which to have the home tested for lead -based paint.

Specif ic warnings must be attached to the purchase agreement or lease,

along with signed statements f rom the part ies acknowledging that the

requirements of this law have been fulf i l led. The signed acknowledgments

must be kept for at least three years as proof of compliance.

Other Disclosures. Depending on state law, a seller may be required to

provide buyers with a variety of other disclosure statements. For example, if

the property is in a f lood zone, an earthquake zone, or some other type of

hazardous area, it might be necessary to give buyers a separate form

disclosing that information.

Breach of Duty

I f a real estate broker or salesperson breaches any dut ies owed to either

a principal or a third party, it is considered a tort. (A tort, as we explained

earl ier, is a wrongful act result ing f rom a breach of a duty imposed by law.)


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The party injured by the tort, whether it is the principal or a third party, is

then ent it led to sue for redress.

The most common remedy in a tort suit is compensatory damages. A

court wil l order the real estate agent to compensate the injured party for the

f inancial loss that the injured party suf fered. This might include repaying any

commission col lected in a transact ion. The injured party may also be allowed

to rescind the transaction altogether.

I f a seller ’s real estate agent makes misrepresentat ions to a buyer, the

buyer can sue the agent’s broker in a tort act ion. In states where a principal

can be held vicariously l iable for a real estate agent’s torts, the buyer could

also sue the broker’s principal, the sel ler. As you’l l recal l, vicarious l iabi l i ty

means that a pr incipal is l iable for torts committed by an agent within the

scope of the agency. So the sel ler could be held l iable to the buyer even if

the sel ler was not aware of the broker’s misrepresentat ions. An innocent

sel ler who has been held l iable for the broker’s misconduct could, in turn,

sue the broker.

Most real estate brokers now carr y errors and omissions (E&O)

insurance; in some states, they’re required to have it . Similar to malpract ice

insurance, E&O insurance provides coverage for l iabi l i ty result ing f rom

mistakes or negl igent acts. If a principal or a third party sues a broker who

has E&O insurance for something that the broker or a salesperson did (or

failed to do), the broker’s insurance company wil l sett le the lawsuit or pay

the judgment, up to the policy amount.

Often, a breach of duty by a real estate agent is also a violat i on of the

state’s real estate l icense law. I f this is the case, the state l icensing agency

may take discipl inary act ion against the agent (and possibly the agent’s

broker) even if the injured party does not pursue a lawsuit. Discipl inary

act ion may include f ines as wel l as l icense suspension or revocation (see

Chapter 10).


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Terminating an Agency

Once an agency relat ionship has terminated, the agent is no longer

author ized to represent the principal. Under general agency law, an agency

may be terminated ei ther by acts of the part ies or by operat ion of law.

Termination by Acts of the Parties

The ways in which the part ies can terminate an agency

relat ionship include:

mutual agreement,

revocat ion by the pr incipal, and

renunciat ion by the agent.

Mutual Agreement. The part ies may terminate the agency by mutual

agreement at any t ime. If the original agreement was in wr it ing, the

terminat ion agreement should also be in wr it ing.

Principal Revokes. The principal may revoke the agency by f ir ing the agent

whenever she wishes. (Remember that an agency relat ionship requires the

consent of both part ies.) However, in some cases, revoking an agency

breaches a contractual agreement, and the principal may be l iable for any

damages suffered by the agent because of the breach.

An agency coupled with an interest cannot be revoked. An agency is

coupled with an interest if the agent has a f inancial interest in the subject

matter of the agency. For instance, if a real estate l icensee co -owns a

property with other people, and they ’ve authorized him to represent them in

sel l ing the property, it ’s an agency coupled with an interest. The co-owners

can’t revoke it .

Agent Renounces. An agent can renounce the agency at any t ime. Like

revocat ion, renunciat ion may be a breach of contract, in which case the

agent could be l iable for the principal ’s damages result ing f rom the breach.

But since an agency contract is a personal services contract (the agent has


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agreed to provide personal services to the principal), the principal could not

demand specif ic performance as a remedy. The courts wi l l not force a

person to perform personal services, because that would vio late the

constitut ional prohibit ion against involuntary servitude.

Termination by Operation of Law

Several events terminate an agency relat ionship automat ical ly, without

act ion by either party. These events include:

expirat ion of the agency term,

fulf i l lment of the purpose of the agency,

the death or incapacity of either party, and

ext inct ion of the subject matter.

Expiration of Agency Term. An agency terminates automatical ly when its

term expires. I f the agency agreement did not include an expirat ion date, it

is deemed to expire within a reasonable t ime (which would vary, depending

on the type of agency in question). I f there is no expirat ion date, either party

may terminate the agency without l iabi l i ty for damages, although the other

party might be able to demand reimbursement for expenses incurred before

the terminat ion.


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Fulfil lment of Purpose. An agency relat ionship terminates when its purpose

has been fulf i l led. For example, if a broker is hired to sel l the principal ’s

property and the broker does so, the agency is terminated by fulf i l lment.

Death or Incapacity. An agency is terminated before it expires if either the

agent or the principal dies. Most states provide that the agency also

terminates if either party becomes mental ly incompetent. General ly, the

agent has no author i ty to act af ter the death or incapacity of the principal,

even if the agent is unaware of the principal ’s death or incapacity.

Extinction of Subject Matter . The subject matter of a real estate agency is

the property in quest ion. I f the property is in any way ext inguished (for

example, sold or destroyed), the agency automatical ly terminates.

Real Estate Agency Relationships

A typical resident ial real estate transaction is l ikely to involve more than

one real estate agent. Someone who wants to f ind a home in a part icular

area contacts a real estate broker’s of f ice in that area. One of the

salespersons who works for that broker wi l l interview the prospective buyer

to f ind out what k ind of a home he wants and can afford, and then wil l show

the buyer various suitable propert ies. Most brokers belong to a mult iple

l ist ing service, so the salesperson wil l show the buyer not only homes that

are l isted direct ly with her own broker, but also homes that are l isted with

other MLS members. If the buyer becomes interested in a part icular home,

negotiat ions for the purchase of that home wil l involve the l ist ing agent as

well as the salesperson who has been showing propert ies to the buyer.

Meanwhile, other real estate agents may be show ing the same house to

other prospective buyers. By the t ime the transaction closes, i t may involve

a l ist ing broker, a l ist ing salesperson, a sel l ing broker, and a sel l ing

salesperson, in addit ion to other cooperat ing agents who showed the home

to buyers who didn’t want it or didn’t of fer enough for it .

Understanding the agency relat ionships in this transaction means

understanding which party each of these real estate l icensees is


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represent ing. As a f irst step, you should be familiar with all of the

following terms.

Real estate agent: Real estate agent is the generic term used to refer

to real estate l icensees. Real estate brokers are the only real estate

agents who are authorized to represent a buyer or a sel ler direct ly;

real estate salespersons act on behalf of their real estate brokers.

Client: A cl ient is a person who has engaged the services of an agent.

A cl ient may be a real estate seller, buyer, landlord, or tenant.

Customer: In transactions where the agent is represent ing a sel ler or

a landlord, third part ies are sometimes referred to as customers. A

customer may be a buyer or a tenant.

Listing agent: Either the l ist ing salesperson or the l ist ing broker may

be referred to as the l ist ing agent. The l ist ing salesperson is the

salesperson who takes the l ist ing on a home. (She may or may not be

the one who eventually procures a buyer for the l isted home.) The

l ist ing broker is the broker that the l ist ing salesperson works for.

Selling agent: Either the sel l ing salesperson or the sel l ing broker may

be referred to as the sel l ing agent. The sel l ing salesperson is the

salesperson who procures a buyer for a property. (He may or may not

have taken the l ist ing for the property sold.) The sel l ing broker is the

broker that the sel l ing salesperson works for.

Cooperating agent: A cooperating agent is a l icensee who did not

take the l ist ing on the property and who attempts to f ind a buyer. (The

cooperating agent who succeeds in procuring a buyer is then the

sel l ing agent.)

In-house sale: A sale in which the buyer and the sel ler are brought

together by salespersons working for the same broker.

Cooperative sale: A sale in which the l ist ing agent and the sel l ing

agent work for dif ferent brokers.


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Agency Relationships: A Historical Perspective

In the 1980s, various organizat ions, including the Federal Trade

Commission, the Nat ional Associat ion of REALTORS ®, and the Associat ion

of Real Estate License Law Off icials, conducted studies of agency

representat ion in real estate transact ions. Those organizat ions concluded

that many real estate buyers and sel lers were confused about which party

the real estate agent represented. Buyers, in part icular, appeared

bewildered by the rules of real estate agency. They of ten thought the real

estate agent that they were working with was represent ing them, when in

fact the agent was almost always representing the seller.

Unilateral Offer of Subagency. This confusion was based on a standard

provision found in most l ist ing agreements. This provision stated that any

member of the mult iple l ist ing service who found a buyer for a l isted property

automatical ly represented the sel ler. In other words, the sel l ing broker

was considered to be a subagent of the sel ler. (A subagent is an agent

of an agent.) This l ist ing provision was referred to as a “uni lateral of fer

of subagency.”

As long as this provision remained in l ist ing agreements, it was dif f icult

to enter into a buyer agency relat ionship. In order to represent a buyer in a

part icular MLS transaction, a l icensee had to reject the offer of subagency in

a t imely fashion and then enter into a separate wr it ten agreement with the

buyer. Thus, near ly al l l icensees represented the sel ler.

Inadvertent Dual Agency. Under these circumstances, it was easy for a

buyer to mistakenly bel ieve that the sel l ing agent was act ing as the buyer’s

agent, not the sel ler ’s. Af ter all, the sell ing agent was working with the buyer

on a cont inuous and usual ly f r iendly basis. The agent would of ten encourage

the buyer ’s loyalty by going out of his way to meet the buyer ’s needs. As a

result , the buyer of ten told the sell ing agent conf idential information. Yet

because the sel l ing agent was represent ing the sel ler, she had a duty to

pass along that conf idential information to the seller. I f the agent fulf i l led

that responsibi l i ty, the buyer might wel l be surpr ised and dismayed. But in


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many cases, the sell ing agent would let her natural desire to help the buyer

interfere with the f iduciary duties owed to the seller. This confusion caused

trouble for everyone, and somet imes resulted in the creation of an

inadvertent dual agency.

Example: Mart inez was a salesperson working for Baker Realty.

Over the course of several weeks, she showed the Greens

many homes. Mart inez l iked the Greens and worked very

hard to f ind them a good house. She gave them advice

about purchasing a home and discussed their f inancial

situat ion with them. Understandably, the Greens believed

that Mart inez was their agent. But Mart inez did not have

an agency agreement with the Greens, and that meant

(under the tradit ional presumption) that she was act ing as

a sel ler ’s agent.

The Greens decided to make an offer on a house l isted by Broker Rush.

They were very excited about the house, and they told Mart inez that they

were wi l l ing to pay ful l pr ice for it . Nevertheless, they wanted to start out

with an of fer that was $5,000 less than the l ist ing price.

I f Mart inez fai led to disclose to the sel ler that the Greens were wi l l ing to

pay the full l ist ing price, it would be a breach of her duty of loyalty to the

sel ler. However, her conduct had caused the Greens to bel ieve that she was

represent ing them. Thus, if Mart inez did disclose this information to the

sel ler, the Greens could claim that she had breached her duty of loyalty to

them. And because she was inadvertently act ing as agent for both part ies,

both could claim that she acted as a dual agent without their consent.

Cooperation and Compensation. In the 1990s, as new legal requirements

and var ious other considerat ions made real estate transact ions more

complex, buyers became more interested in having their own agents to

represent them. In response to the growing popularity of buyer agency, many

mult iple l ist ing services replaced the uni lateral of fer of subagency in their

l ist ing agreements with a “cooperat ion and compensation” provision. Under


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the terms of this provision, other members of the MLS act only as

cooperating agents, not as subagents. A cooperating agent is simply any

member of the MLS who attempts to f ind a buyer; the l ist ing agreement does

not set any type of agency relat ionship for a cooperat ing agent. I t becomes

up to each individual cooperat ing agent to decide whether he wi l l represent

the sel ler or the buyer in a given transaction.

Disclosure Laws. In an effort to reduce confusion over agency

representat ion, many states have passed agency disclosure laws— laws that

require real estate agents to disclose to both the buyer and the seller which

party they are representing in a transact ion. But even agency disclosures

do not always prevent problems. Real estate agents must understand the

consequences of the dif ferent types of agency relat ionships and learn to

avoid the pit falls that certain situat ions present.

Types of Agency Relationships

There are few restr ict ions on which party a real es tate agent may

represent. General ly, the types of agency relat ionships can be divided into

the following categories:

sel ler agency,

buyer agency, and

dual agency.

In some states, real estate l icensees also have the option of establishing

non-agency relat ionships with sellers and buyers.

Seller Agency. As we have seen, tradit ional ly, real es tate agents near ly

always represented the seller. While buyer agency is now also common,

sel ler agency is st i l l the most prevalent type of real estate agency

relat ionship.


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Sel ler agency relat ionships are typical ly created with a l ist ing agreement

(discussed in Chapter 8). Under the terms of the l ist ing agreement, the

primary task of a seller ’s agent is to f ind a buyer for the sel ler ’s property at

a price that is acceptable to the seller. To accomplish this, the sel ler ’s

agent advises the seller about prepar ing the property for sale, helps the

sel ler decide on the l ist ing pr ice, markets the property to advantage, and

negotiates on the sel ler ’s behalf with sel l ing agents and buyers.

A sel ler agency relat ionship can also be created by the words or conduct

of the part ies, although the broker may be prevented f rom suing for a

commission if there is no wr it ten l ist ing agreement. (See the discussion of

impl ied agency earl ier in this chapter.)

Seller’s Agents and Buyers . Throughout a transaction, a sel ler ’s agent

must use her best efforts to promote the interests of the seller. Yet the

sel ler ’s agent may also provide some services to a prospective buyer. For

example, the sel ler’s agent may help a buyer who doesn’t have his own

agent f i l l out a purchase of fer form and apply for f inancing. These services

are considered to be in the bes t interests of the seller, and thus do not

violate the agent’s duties to the sel ler. Of course, the sel ler’s agent must

disclose to the buyer that she is act ing as the sel ler ’s agent.

A sel ler ’s agent must be very careful to treat the buyer fair ly, but th e

agent must not act as if he is representing the buyer. In other words, the

agent must fully disclose al l known material facts and answer the buyer ’s


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questions honestly. However, the agent should not give the buyer advice,

such as suggesting how much to o ffer for the l isted property.

Example: Harrison, who works for Broker Yates, recently l isted

Taylor’s house. The l ist ing price is $315,000, but

Harrison has reason to bel ieve that Taylor would accept

an offer of $305,000. Harrison shows the l isted house t o

Markham, who asks Harrison, “How low do you think the

sel ler wi l l go?” Harrison should make it clear to Markham

that he is representing Taylor and cannot divulge

conf ident ial information to Markham. If he were to divulge

conf ident ial information, Taylor could sue Harrison’s

broker for breach of agency dut ies.

The situat ion in which the problem of inadvertent dual agency is most

l ikely to come up is when the l ist ing agent (who always represents the

sel ler) is the one who f inds a buyer for the property. Th is is especially true if

the l ist ing agent has had a previous agency relat ionship with the buyer. I t

may be dif f icult for the agent to represent the sel ler ’s interests without

feeling some loyalty to the buyer as wel l.

Example: After Harrison f inds a buye r for Taylor’s house, Taylor asks

Harrison to help him f ind another home. Harrison shows

Taylor one of his own l ist ings, a house owned by a sel ler

named Woods.

Under these circumstances, it would be easy for Taylor to

think that Harrison is act ing as his agent. However, because

of the l ist ing agreement with Woods, Harrison is the sel ler ’s

agent, and he should emphasize this fact to Taylor. Harr ison

should remind Taylor that he, Harrison, is obl igated to

disclose material information that Taylor tel ls him to the

sel ler, and that in al l negotiat ions he wil l be representing the

sel ler ’s best interests.


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Remember that a real estate agent is not permitted to

disclose conf idential information about a principal even af ter

the terminat ion of the agency re lat ionship. So Harr ison

cannot disclose to the sel ler any conf idential information

about Taylor that he learned during his agency relat ionship

with Taylor.

Buyer Agency. Many buyers are content with the tradit ional sel ler agency

relat ionship, as long as it is ful ly disclosed. They use the services of a real

estate agent because they want access to mult iple l ist ing inventory,

complete and honest information about propert ies, and someone to present

their of fers to sellers. The seller agency relat ionship of ten satisf ies those

requirements nicely, and buyers do not have to commit to a buyer agency

relat ionship to get the help they need. Quite of ten, however, buyers want

more than the services a seller’s real estate agent can provide to a

customer. Some buyers want advice on property values and help in

determining how much to offer or a part icular house. They want someone to

help them negotiate the terms of the sale and give them advice on

conf ident ial matters. For those buyers, a buyer agency relat ionship is

usual ly the answer.

Advantages of Buyer Agency. The advantages of buyer agency include

conf ident iality and loyalty, object ive advice, help with negot iat ions, and

access to more homes.

A buyer ’s agent owes agency dut ies to the buyer, including the duties of

conf ident iality and loyalty. For many buyers, these two duties are the most

important advantages of buyer agency.

Example: Broker Mendez is helping Buyer Jackson f ind a home. He

shows Jackson many houses, and there are two that

interest her. One is a large f ixer-upper sel l ing for

$345,000. The other is a small, newer house in mint

condit ion sel l ing for $330,000. Because Mendez must put

Jackson’s interests before his own, he advises her to


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purchase the smaller house because it better suits her

needs. He does so even though he would earn a bigger

commission if she bought the more expensive house.

Mendez advises Jackson to offer $324,900 for the

$330,000 house. Jackson agrees, although she tells

Mendez that she is wi l l ing to pay the full l ist ing price.

Because Mendez is Jackson’s agent, he is obl igated to

keep that conf ident ial. I f he were the sel ler’s agent, he

would be required to disclose that information to

the sel ler.

A buyer ’s agent can be rel ied upon to give the buyer object ive advice

about the pros and cons of purchasing a part icular home. She wil l point out

var ious issues the buyer should be aware of , such as energy costs, the need

for future repairs, and property value trends. By contrast, a seller ’s agent

wi l l present the property in the most posit ive l ight and may use expert sales

techniques to convince the buyer to sign on the dotted l ine.

Buyers of ten feel uncomfortable negotiat ing for a property, especially one

they really want to buy. They may be afraid to make a mistake through

ignorance, or they may feel pressured to make a high offer quickly before

someone else snaps up the property. A buyer’s agent can use his

negotiat ing skil ls and int imate knowledge of the real estate market to help

the buyer get the property on the best possible term s.

A buyer ’s agent may arrange to be compensated if the buyer purchases

any home, even one that isn’t l isted with a broker. So a buyer ’s agent may

pursue less tradit ional means of searching for propert ies, and show the

buyer propert ies that are for sale by owner, propert ies with open l ist ings,

and propert ies in foreclosure or probate proceedings.


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Creation of Buyer Agency. A buyer and a broker usually enter into a

buyer agency relat ionship by execut ing a wr it ten buyer agency agreement ,

also called a buyer representat ion agreement. (An example is shown in

Figure 9.4.) While the terms of buyer agency agreements vary, they

general ly include provisions addressing the following issues:

the durat ion of the agency,

the general characterist ics of the property the buyer wants,

the price range,

the condit ions under which a fee wi l l be earned,

who wil l pay the fee, and

a descr ipt ion of the broker’s dut ies.

Types of Buyer Agencies. Depending on the buyer agency agreement

form used, the buyer and broker may enter into either an exclusive buyer

agency or a nonexclusive (open) buyer agency.

Under a nonexclusive or open agreement, the buyer ’s agent is legal ly

entit led to compensation only if the agent locates a home that the buyer

purchases. Since it is nonexclusive, the buyer can enter into this type of

agency agreement with as many brokers as he l ikes. Only the agent who

actually f inds the property purchased wil l receive compensation.

I f the part ies enter into an exclusive buyer agency agreement, the buyer

is not al lowed to enter into any other agency agreements, and the buyer ’s

agent wi l l be ent it led to compensat ion as long as the buyer purchases the

type of home described in the agreement. Even if the buyer found the

property without anyone else’s help, the buyer ’s agent wil l st i l l be

compensated. An exclusive buyer agency agreement is somet imes cal led

an exclusive r ight to represent agreement, or an exclusive authority to

purchase agreement.


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Buyer’s Agent’s Compensation. A buyer’s agent may be compensated

in a number of ways. The three most common are:

a retainer,

a sel ler-paid fee, and/or

a buyer-paid fee.

A retainer is a fee paid up f ront before services are provided. Some

buyer ’s agents col lect a retainer when they enter into a buyer agency

relat ionship, to ensure that their services won’t go entirely uncompensated.

The retainer is usual ly nonrefundable, but it wi l l be credited against any fee

or commission that the agent becomes entit led to.

In many cases, a buyer ’s agent is paid by the sel ler through a

commission split . The commission spl it is based on a provision found in

many MLS l ist ing agreements, whereby any cooperating broker who procures

a buyer is ent it led to the sel l ing broker’s port ion of the commission,

regardless of which party that cooperating brok er represents. Note that the

source of the agent’s commission does not determine the identity of her

principal; accept ing a sel ler -paid fee does not create agency duties owed to

the sel ler.

Example: Helman l ists his property with Broker Thurston and agrees to

pay him a commission of 6% of the sales price. The l ist ing

agreement includes a clause that entit les any cooperat ing

broker who procures a buyer to the sel l ing broker’s port ion of

the commission.

Broker Adams has a buyer agency agreement with Gray.

Gray of fers $450,000 for Helman’s house and Helman

accepts the offer.

When the transaction closes, Helman pays a $27,000

commission; $13,500 goes to Broker Thurston and $13,500

goes to Broker Adams.


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Most buyer representat ion agreements provide for payment by means of a

commission spl it when the buyer purchases a home that is l isted through a

mult iple l ist ing service. However, a buyer representat ion agreement may

provide for a buyerpaid fee instead. The buyer-paid fee might be based on

an hour ly rate, in which case the agent is essent ially a consultant.

Alternatively, a buyer’s agent may charge a percentage fee, so that the

commission is a percentage of the purchase price. A third possibi l i ty is a f lat

fee—a specif ied sum that is payable if the buyer purchases a property found

by the agent.

Some buyer agency agreements provide that the buyer ’s agent wi l l accept

a commission spl it i f one is available, but the buyer wi l l pay the agent a fee

if the purchased property was unl isted (for example, if the property was fo r

sale by owner).

Dual Agency. As we explained earl ier, a dual agency relat ionship exists

when an agent represents both the seller and the buyer in the same

transaction. (By contrast , i f an agent is represent ing only one of the part ies,

it may be cal led s ingle agency.) A dual agent owes f iduciary duties to both

principals. Because the interests of the buyer and the seller usually conf l ict,

i t can be very dif f icult to represent both without being dis loyal to one or both

of them.

Example: Broker Kogawa represents both the buyer and the sel ler in a

transaction. The sel ler informs Kogawa that she is in a big

hurry to sel l and wil l accept any reasonable of fer. The buyer

tel ls Kogawa that he is very interested in the house and is

wi l l ing to pay the full l ist ing price. Should Kogawa tell the

buyer of the sel ler ’s eagerness to sel l? Should Kogawa tell

the sel ler about the buyer ’s wi l l ingness to pay the ful l pr ice?

In fact, i t is impossible to fully represent the interests of both part ies at

the same t ime, so dual agency is somet imes referred to as l imited agency .

Dual agency is general ly allowed as long as it is disclosed to both part ies

and they both give their consent to the arrangement in wr it ing. If a real


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estate agent acts as a dual agent without disclosure and wr it ten consent, the

agent may not be able to col lect a commission. Furthermore, i t might be

possible for either party to rescind the sales transact ion.

I t ’s essential for a real estate agent who is going to act as a dual agent

to give the part ies a clear and complete explanat ion of dual agency. A buyer

and sel ler, eager to get on with the business of buying and sell ing a home,

may agree to a dual agency without real ly understanding what it means.

Later, one party might feel that his interests weren’t protected and that the

agent favored the other party. This of ten leads to legal act ion.

Each party to a dual agency should be informed that she wil l not receive

full representat ion. Certain facts must necessar i ly be withheld f rom each

party; the dual agent cannot divulge conf idential information about one party

to the other party. Returning to our previous example, the dual agent must

not tel l the buyer that the sel ler is in a hurry, nor tell the seller that the

buyer is wil l ing to pay anything other than the amount the buyer has

formally offered.

Designated Agency. Dual agency is most l ikely to occur in an in-house

transaction , where the l ist ing agent and the sel l ing agent both work for the

same broker. Under the laws of some states, in-house transactions are

handled in the following way: the l ist ing agent represents the sel ler only, the

sel l ing agent represents the buyer only, and the broker acts as a dual agent,

represent ing both part ies.

Example: Salesperson Winston, who works for Broker Roberts, has

shown Buyer King several houses over the course of a

few weeks. Final ly, Winston shows King a house l isted by

Salesperson Vincent, who also works for Broker Roberts.

King decides to make an offer on the house. In this

transaction, Winston, the sel l ing salesperson, is the

buyer ’s agent; Vincent, the l ist ing salesperson, is the

sel ler ’s agent; and Roberts, the broker, is a dual agent.


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These agency relat ionships must be disclosed to and

agreed to in wr it ing by both the sel ler and the buyer.

This arrangement is sometimes referred to as a designated agency; in

effect, the broker is designating one agent to represent the sel ler and one

agent to represent the buyer. Designated agency is not legal in al l states.

Inadvertent Dual Agency. As we discussed ear l ier, a dual agency may

be created unintent ionally. In fact, many lawsuits involve an accidental or

unintended dual agency in which the conduct of the seller’s agent, or the

personal relat ionship between the agent and the buyer, is such that an

implied agency is created with the buyer. To prevent inadvertent dual

agency, a seller’s agent must make certain that the buyer understands that

the agent is representing the seller, and then act accordingly, never

forgett ing that he is the seller’s agent.

Non-Agency. A number of states now permit an agent to act as a non-agent

in a transaction. A non-agent (also referred to as a transaction broker , an

intermediary , or a facilitator) does not represent either party in the

transaction, but s imply assists them with the paperwork and closing. The

non-agent does not owe either party f iduciary duties; instead, she owes both

of them the duties of reasonable care and skil l and good faith and fair

dealing. The non-agent cannot disclose conf ident ial information to either

party or negotiate on behalf of either party.

Agency Disclosure Requirements

To avoid some of the confusion about who is represent ing whom, all

states now require real estate agents in resident ial transact ions to provide

their c l ients and customers with certain information about agency

relat ionships. The specif ic requirements vary f rom state to state.

In many states, real estate agents are required to give any member of the

public they work with a pamphlet that describes the dif ferent types of real

estate agency relat ionships and the dut ies that each type of relat ionship

entai ls. Some states also require an agent to disclose to each of the part ies


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involved in a transaction which party (or part ies) the agent is represent ing in

that transact ion. When and how this must be done depends on state law.

For example, an agent might be required to make an oral disclosure “as

soon as pract icable” af ter meeting a client or customer, and then follow up

with a writ ten disclosure before the cl ient or customer signs any wr it ten

contract. Once again, agents need to be thoroughly familiar with the

disclosure requirements in their state.

(Rockwell, 208-231)

Cited Material:

Real Estate Principles . Bellevue, WA: Rockwell Publishing, 2014. . Pr int.

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