What Are Agency Relationships In Real Estate

Due to the complexity of real estate transactions many states have adopted laws regarding the agency relationship between a real estate agent and the client.  All too often lines can get blurred as to who an agent is representing when there are multiple parties involved in a real estate transaction.  Generally in most states a real estate agent works for a broker who is the one setting the terms of the relationships with clients.  The real estate broker can impose on their agents the rules with which how agents can represent real estate buyers and sellers provided for under the state laws they are bound by.  The agency relationship between a client and their agent governs how the agent is to treat their client and this article will explore agency relationships further.

Agency Disclosure And State Laws

Often states have agency disclosure rules that require home sellers or buyers to sign a document that explains how an agent will be representing them during the real estate transaction.  The document to be signed by the buyer or the seller basically describes real estate agency relationships in detail.  While the document is full of legal language and may look like some sort of contract, the document is not a contract and the signature is only indicated receipt.  The buyer or seller client in most cases do not have to sign it they choose not to, and in many states the real estate agent only need make a note that the form was presented but client refused to sign which will be kept in their brokerage records.  Signing merely acknowledges the client was informed about real estate agency relationships and the form itself generally requires no further obligation to the agent unless it was combined with some other type of document.

Agent Representing The Home Seller

In the past based on state laws and sometimes local real estate rules all agents represented the sellers in a real estate transaction.  In essence buyers had no true exclusive representation where they could share in confidence information with their agent to help them find a house. Due to the many issues and lawsuits with agents only representing seller’s many states have changed their laws to allow real estate agents to represent buyers or sellers exclusively. With exclusive representation that means the agent will only represent either the buyer or the seller and is required to work in their clients best interest and keep confidential their client’s information.  

When it comes to representing the seller the real estate agent is expected to provide duties like loyalty, confidentiality, disclosure, obedience, reasonable care and accounting to their seller.  The other basic duties a seller’s agent should be providing include informing the seller of comparable prices for their home so the homeowner can determine a price for their home, the agent should be marketing the home which involves more than just listing the home in the Multiple Listing Service (MLS) and putting a sign in the yard.  The agent should be communicating with the seller throughout the entire time the home is on the market helping the homeowner with questions about accepting offers, the closing process and more.  By law the selling agent must present all offers to their clients whether written or verbal and it is up to the client to decide how to respond to the offers. A client can instruct their agent to only submit offers to them that are above a certain amount and as a result the real estate agent would be fine to not submit offers below the amount specified. The key aspect is that the seller client has provided instructions to the agent as to how offers are to be presented, otherwise absent any instructions all offers must be presented.

Agent Representing The Home Buyer

The same duties a seller’s agent owes to their client as noted above, the buyer’s agent will also owe to their client except the buyer’s agent is helping the homebuyer to find the best home for their needs.  Buyer’s agent should be discussing with their clients their needs, helping them obtain a pre-approval, and working on guiding the clients to find homes in locations that meet their requirements.  Things that the buyer tells their agent in confidence such as how much they are pre-approved for, how much they really want to pay for their home, how much they love a particular home and want it at all costs should be kept in confidence by their agent as that type of information could have a major impact on how a seller’s chooses to negotiate with the buyer.  

Real estate agents for buyers can do a variety of things in order to help them find a house such as: showing them active listings and helping the buyer tour those active listings they want to see in person;  Exploring homes before they come on the market and discussing with their clients those homes to see if they are interested;  Mailing letters to homeowners whose homes are not listed for sale and asking if they would be interested in selling to their buyers. Especially in times when the inventory of homes is light and not much is available for buyers to look at this strategy might lead to success in finding a good home for the buyer.  The letter mailing strategy does require some planning as the agent should only be emailing to homeowners in neighborhoods that match the price range, location and style of home that would meet the buyer’s needs.

Dual Agency Representation

Just as an attorney will exclusively represent their client, a real estate agent should exclusively represent their client and put the client’s interest above their own.  But in the case of real estate agents in many states there is a notable exception with the exclusive agency representation and that is where certain states allow agents to be dual agents serving both the buyer and the seller in the same transaction.  In this case agents generally cannot provide all of the fiduciary duties to their client as disclosing one client’s confidential matters to the other client could cause problems for the client whose information was disclosed.  As a result in these types of situations the agent acts more as a neutral third party working towards getting the transaction closed.  So in the true sense of representation the agent is not acting as the exclusive agent for one side or the other.

In the case of dual agency representation the agent must get the consent of both the seller and the buyer prior to working in such a manner.  Sometimes an agent’s real estate broker may not allow their agent to serve as a dual agent within the brokerage but instead the broker can act as a dual agent and allow another agent who works for the same broker to represent the client on the other side of the transaction.  In this situation each agent still has the best interests of their clients in mind and can provide the full fiduciary services to their individual client and the broker serving as dual agent serves more as a supervisory role getting involved in the transaction only where necessary.  In this type of situation where two agents under the same broker are representing clients in the same real estate transaction it is best that the client files and information for each side remain separate and inaccessible by the other agent so as confidential information is not released to the detriment of one side over the other.

Some brokerages as a general policy will only allow single agency representation where they will only represent the buyer or just the seller and will require the other side of the transaction to find their own agent at a different brokerage.  As mentioned above and this is an important point to repeat both the buyer and the seller must agree to allow an agent to represent both sides in the transaction.  Often times dual agency with a single agent is not in the best interests of either the seller or buyer in real estate.  Each side should have their own representation in order to make sure they are getting the full benefits from their agent.  Generally based on the way the MLS system works a buyer or a seller is not paying any more if each side has their own real estate agent.  On the other hand some agents may desire to be a dual agent since it allows them to get the full amount of the commission rather than having to split it with another agent.

Bottom Line

Real estate agency is controlled by state laws and governs how agents can represent their clients. Real estate agents are responsible for providing fiduciary duties to their clients and putting the client’s interest above their own.    Each client should seek and require their own exclusive representation in order to ensure their best interests are being looked after.

Additional Resources

• How Does Dual Agency Work by Bill Gassett
• What Is Buyer Agency by Karen Highland
• Picking The Right Real Estate Agent by John Cunningham
• Mistakes To Avoid When Picking A Real Estate Agent by Xavier De Buck
• Should Homebuyers Have Their Own Agent? by Paul Sian
• Agency Defined at NAR.Realtor

About the author: The above article “What Are Agency Relationships In Real Estate” was provided by Luxury Real Estate Specialist Paul Sian. Paul can be reached at paul@CinciNKYRealEstate.com or by phone at 513-560-8002. If you’re thinking of selling or buying your investment or commercial business property I would love to share my marketing knowledge and expertise to help you.  Contact me today!

I work in the following Greater Cincinnati, OH and Northern KY areas: Alexandria, Amberly, Amelia, Anderson Township, Cincinnati, Batavia, Blue Ash, Covington, Edgewood, Florence, Fort Mitchell, Fort Thomas, Hebron, Hyde Park, Indian Hill, Kenwood, Madeira, Mariemont, Milford, Montgomery, Mt. Washington, Newport, Newtown, Norwood, Taylor Mill, Terrace Park, Union Township, and Villa Hills.