Understanding a Real Estate Agency Relationship Before Buying or Selling

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Before you partner up with a specific real estate agent, it’s important that you have a clear understanding of just how agency works, and how a business “relationship” is established with these professionals. The California Association of Realtors (CAR) provides a standard two-page disclosure form that agents provide to their buyer or seller clients that explains this relationship.

Whether you’re a buyer or seller, these disclosure forms will provide you with the information you need to fully understand how agency works before you hire a particular real estate agent. You’ll be asked to sign this form, but it’s not a contract – it’s just a disclosure. Signing it just acknowledges that you have had an opportunity to read it over and understand its contents.

Different Types of Agencies

The disclosure form will outline the different types of agencies that can be established, and what each one entails.

Seller’s Agent – If you are the seller in a transaction, the seller agent – who will represent you in the real estate transaction – will be obligated to provide you with a “fiduciary duty,” which are just fancy words that mean they must act in your best interests. However, this agent must still treat the other party – the buyer – fairly, honestly, and with respect.

The seller agent must supply the buyer with any facts that would affect their interest in the property, as well as its value. However, there is no fiduciary duty owed to the buyer.

Buyer’s Agent – The disclosure form will specify that the buyer agent is not representing the seller, even if the seller has arranged to pay a commission to the buyer’s agent. It’s standard for the seller in the transaction to pay the commission to both the seller and buyer agent. However, the buyer agent’s fiduciary duties lie solely with the buyer. If you’re the buyer in the transactions, this means the buyer agent must act in your best interests by helping to get the lowest price and the best conditions, and help you go through all paperwork associated with the transaction.

Dual Agency – A “dual agency” refers to an arrangement whereby the same agent represents both the buyer and the seller in the same real estate transaction. Some states have actually done away with dual agency, for obvious reasons. It can be tough for one agent to help the buyer negotiate the lowest price and get the seller the highest price at the same time, for instance.

This situation isn’t exactly ideal, but it is still legal in California, as long as the buyer and the seller are aware that they are both being represented by the same agent and have provided written consent. Dual agency can easily be a conflict of interest, which is why it is critical that both parties in the transaction are fully aware of the situation.

Dual agency can also occur when there are two different agents – one representing the buyer and the other representing the seller – who work for the same real estate agency. Any time a buyer and seller are being represented by the same brokerage in the same real estate transaction, dual agency is present.

Your Agent Must Either Be a Broker Or Work For One

The real estate agent that you end up hiring must belong to a brokerage, which must have at least one broker. The real estate agent can either be the agency’s broker or simply work for the agency. It is actually the broker who is responsible for each transaction within the agency and represents all clients that the office’s agents are working with.

The Bottom Line

Make sure that you go over disclosures before you sign them. You want to ensure that you’re entirely clear about how you will be represented and what obligations your real estate agent has to you and the other party in the transaction. If you ever have any doubts or questions about the disclosure and agency relationships, your real estate agent will be happy to clarify. Only after you’re in complete understanding should you sign on the dotted line.