Agency Relationships Explained

What is Agency Relationship?

An agency relationship is created where one person (the principle) asks another person (the agent) to act for and on behalf of the principle. The principle defines the nature and extent of the agency relationship. Basically, the principle decides what the agent will do.

Applied in the world of real estate, agency relationships are formed when home sellers or purchasers ask real estate agents to act for them in the process of buying and selling real estate.

Consequences Of Agency Relationship

According to the law, an agent representing a client owes the client the highest duty of " utmost good faith". It is the responsibility of the agent to represent the client's best interests at all times. The agent owes his client a duty of confidentiality concerning information about the client.

Agency In Real Estate Transactions

Generally, two parties are involved in a real estate transaction. One is a vendor who owns property and who wants to sell it. The other is a purchaser who wants to buy a property.

The job of a Realtor® is to bring together willing vendors and willing purchasers to conduct successful real estate transactions.

Agency Relationship between the Vendor And the Listing Broker

A Realtor® is usually engaged to act on a vendor's behalf in the sale of a property. The Realtor® is then called the Listing Broker.

The vendor and the Listing Broker enter into an MLS® Listing Agreement. The agency of the Listing Broker is confirmed, and the vendor agrees to pay commission to the Listing Broker upon the successful sale of the vendor's property.

The Listing Broker enters the property on the MLS® System, in effect inviting other Co-operating Brokers to find a purchaser. The Listing Broker then shares the resulting commission received from the vendor.

The Relationship between the Purchasers And Their Representatives

Usually, the purchaser of real estate employs the services of a Realtor® when purchasing a property.

This does not necessarily mean, however, that the purchaser has established an agency relationship with that Realtor®. The usual types of relationship that may exist between a purchaser and Realtor®, known as the "Co-operating Broker", may be as follows:

• Sub-Agent of vendor
• Buyer Broker, to be compensated by purchaser
• Buyer Broker, to be compensated through Listing Broker

There could also be other forms of relationship between the purchaser and the Co-operating Broker.

When a Realtor® acts as a sub-agent of the vendor, purchasers must realize that the Realtor® is technically an agent of the vendor. The duties of the Realtor®, therefore, are owed to that vendor. The purchaser can still expect the Realtor® to disclose all pertinent information about the property, not to misrepresent any facts, and to honestly answer all questions about the property. This has been a usual form of relationship for many years in the real estate industry.

When a Realtor® acts as Buyer Broker, the Realtor® can be paid either directly from the purchaser or through the Listing Broker. In this case, the Realtor® acts in the purchaser's interest only. There is no sub-agency relationship with the vendor.

In the case of a buyer brokerage, the relationship is usually defined by a Purchaser's Agency Agreement. The Realtor® is then definitely only the agent of the purchaser.

Dual Agency

Dual agency means that both the vendor and purchaser are represented by the same firm in a real estate transaction.

In dual agency, there is basically only one agent (or firm), but two principals.

In this case, duties to principals may conflict since one agent only is acting for more than one principal. When this situation occurs, it is standard that, upon signing a confirmation of agency relationships with a purchaser or a Listing Agreement with a vendor, the Realtor® will ask the signing party to acknowledge that dual agency is a possibility. Conflicts and duty of confidentiality are then waived.

Disclosure Of Relationship

In an offer regarding real property, Realtors® are required to disclose to other Realtors® the nature of their agency relationship at the earliest practical point in time. This can also occur if the agency relationship changes.

Commissions And Payment Of Commissions

By adding a property to the MLS® System, the Listing Broker (the vendor's agent) offers every REALTOR® the opportunity to become a Co-operating Broker. The Listing Broker, therefore, offers to share the commission agreed to by the vendor.

When a Co-operating Broker is a sub-agent of the vendor, the Realtor® will be paid through the Listing Broker. The purchaser does not have to pay anything directly to the Realtor®.

When the purchaser enters into a Purchaser's Agency Agreement with a Realtor® as a Buyer Broker, and the Realtor® is only agent of the purchaser, the purchaser will pay the Realtor® directly. The purchaser may also direct that the Realtor® be paid through the Listing Broker.

Conclusion

All vendors and purchasers must take the initiative to discuss openly and clearly with Realtors® relationships to define the type of agency relationship desired. The best way of paying commission to Realtors® needs to be clearly discussed, as well.

All Realtor®s are committed to acting on behalf of vendors and purchasers. They are also committed to the efficient working of organized real estate. All Realtor®s are ready and able at all times to answer all questions and inquiries.

As a vendor or a purchaser, once you have read this Agency Relationship information, you are then prepared to discuss with your Realtor® the next step in selling or buying property. For a vendor, this means the MLS® Listing Agreement. For the purchaser, this means the Purchaser Agency Consent.