Real estate brokerages are companies licensed to assist consumers in buying, selling, or leasing real estate. A real estate broker oversees each brokerage. Real estate associates and associate brokers need to be registered with a brokerage, and they are typically the brokerage representatives when working with consumers.
Agency is a relationship established when two parties agree to have one party represent the other party or provide services on behalf of that party. In a typical real estate deal, the brokerage or brokerage professional will act as the ‘agent’ for the consumer.
When people say, “real estate agent,” they typically mean the associates or associate brokers who work with consumers directly. But the legally defined ‘agent’ of the consumer is the brokerage itself, or the individual(s) that the brokerage names as ‘designated agent(s).’
When a buyer or seller first contacts a brokerage or brokerage professional, there is no agency relationship. An agency relationship develops when the brokerage professional and consumer agree that the brokerage’s professional will represent the consumer in a transaction.
If a consumer interested in residential real estate or property management wants to be in an agency relationship, the brokerage representative will ask the consumer to sign a written service agreement that confirms the consumer’s decision. Consumers must enter a written service agreement, as it offers valuable protection for real estate professionals and consumers. These agreements provide clarity and transparency regarding the nature of the agency relationship, and explain the duties and obligations of the professional and the consumer. Consumers can decline to sign, but by doing so, the brokerage cannot represent them.
Sole agency is a relationship in which the brokerage or industry professional acts as the agent for only one party in a trade.
In sole agency, agents (i.e. the industry professionals) are obligated to protect and promote the interests of their clients. Specifically, a sole agent owes his or her clients the following duties:
Undivided loyalty: the agent must act solely in the client’s best interests, must always put the client’s interests above the agent’s own interests and above the interests of other parties. This means avoiding conflicts of interest and protecting the client’s negotiating position at all times.
Confidentiality: the agent has a duty to keep the client’s confidences. Confidential information includes any information about the client, the property, or the transaction that is not required by law to be disclosed, but if disclosed could be used by another party to the disadvantage of the client. The duty of confidentiality continues even after the agency relationship ends.
Full disclosure: the agent must inform the client of all facts known to the agent that might affect the relationship with the client or influence the client’s decision in the transaction. This includes any conflicts of interest the agent might have in providing services to the client. The agent should not decide if information is important to the client, rather, the agent is obligated to disclose all relevant information to the client. However, the agent cannot disclose any confidential information from a previous agency relationship to the client unless the previous client agrees in writing.
Obedience: The agent must obey all of the client’s lawful instructions, as long as instructions are reasonable and ordinary under the circumstances. If the client insists the agent do something unlawful, the agent would be obliged to refuse, and consider terminating the relationship and existing service agreement.
Reasonable care and skill: The agent must exercise reasonable care and skill in performing all assigned duties. The agent is expected to meet the standard of care that a reasonable and competent industry member would exercise in a similar situation.
Full accounting: The agent must account for all money and property placed in the agent’s hands while acting on the client’s behalf.
Customer status is when a professional performs certain tasks and services for a consumer, but they are not the agent of that consumer and are not working on the consumer’s behalf.
Customer status is appropriate for consumers who do not want to have an agency relationship with you, but still want your services to help them facilitate a transaction.
In customer status, your brokerage does not represent the consumer. You are not the consumer’s agent and do not owe them fiduciary duties. You will not provide the customer any services that require the exercise of discretion or judgment, the giving of confidential advice, or advocating on their behalf.
However, even in customer status, a brokerage and its professionals continue to have the following obligations to their customer:
At the discretion of the brokerage, you may assist customers in completing a transaction by:
Transaction brokerage is a service (relationship) option in which a brokerage or an individual real estate professional provides facilitation services to a buyer and seller in the same transaction. Transaction brokerage is intended as an option when a real state professional has existing sole agency relationships with a buyer and a seller, and a conflict of interest arises.
Transaction brokerage allows the transaction to continue by allowing a professional to facilitate the transaction while not advocating for either side. The professional treats the buyer and seller in an even-handed, objective, and impartial manner. Essentially, the professional will treats both sides of the transaction as customers; no longer are they in sole agency relationships.
Consumers must provide their informed, written consent to transaction brokerage before this relationship may occur, and before any offer is presented to buy or sell a property.
In transaction brokerage, a professional can provide facilitation services and but cannot provide confidential advice, advocate on behalf of either the buyer or seller, or use discretion or judgment that benefits the buyer or seller to the prejudice of the other. Facilitation services may include:
For more information about transaction brokerage, please review the Transaction Brokerage Practice Guide for Industry Members.
Designated agency is a type of representation relationship between real estate professionals and consumers. In a designated agency relationship, the service agreement is between the brokerage and the consumer, but the agency relationship is between the consumer and the real estate professional(s) designated as their agent(s).
Designated agency is fundamentally different from common law. In designated agency, although the service agreement is with the brokerage, the agency and fiduciary relationship is between the designated real estate professional(s), not the brokerage, and the consumer.
Another significant difference in a common law brokerage is that the law deems that all persons in the brokerage have the same knowledge about the clients of the brokerage. In a designated agency brokerage, designated agents do not share information with the brokerage or with the designated agents representing other buyers or sellers. Clear documentation, agreed to by the brokerage, the designated agent(s), and the consumer are necessary for such a fundamental departure from common law brokerage practices.
For more information about designated agency, please review the Designated Agency Practice Guide for Industry Members.