In common law agency, the agency relationship exists between the client (buyer or seller), and the real estate brokerage (company). If both parties to a transaction are represented by the same brokerage, the brokerage has a conflict of interest. Designated agency is a departure from traditional common law agency practices that addresses this conflict. In designated agency, the agency relationship exists between the client and a designated agent(s) from a particular brokerage, and not with the brokerage as a whole.
An industry member or a “real estate broker” must inform his or her clients as to what type of brokerage they work for, be it a common law brokerage or a designated agency brokerage.
If a brokerage operates under designated agency, the client’s agency relationship is with the individual real estate broker(s) and not with the brokerage. Should the other party to a potential transaction be represented by another real estate broker within the same brokerage, there is no conflict, as each real estate broker will be in sole agency with their respective clients. This is a key difference between common law agency and designated agency.
If a client chooses to work with a real estate broker who is associated with a designated agency brokerage, the client needs to sign a written service agreement. This document explains the nature of the agency relationship in detail and confirms the client’s choice of agency representation. A designated agency relationship allows the client’s designated agent(s) to fulfill his or her full duties and obligations to the client even when the other party to a transaction is represented by another real estate broker from within the same brokerage.
If the designated agent represents the other party to the transaction, this creates the same conflict as discussed in common law (i.e. the same agent is representing both parties). In addition to the options to resolve the conflict identified in common law, in designated agency, the client can also be referred to another designated agent within the brokerage who may provide the client with sole agency representation.
For more information about designated agency, please review the Designated Agency Practice Guide for Industry Members.