As a real estate agent, you have a variety of legal responsibilities to your clients, which are known as fiduciary duties. One of those responsibilities is ensuring that you properly represent your clients by agreeing to an agency relationship.
What Is an Agency Relationship?
An agency relationship is typically formed when the agent and their client sign an agency disclosure or agreement form. However, some states allow verbal agreements.
The agreement or disclosure states that the agent is acting on behalf of and in the best interest of the client. This includes keeping the client’s information confidential and providing exclusive representation.
“Agency, which creates a legally binding relationship between the real estate agent and their client during the buying and selling process, is one of the most important aspects of the real estate profession,” the National Association of REALTORS® says.
There are several kinds of agency relationships, and it’s important for you to fully understand them for both the real estate exam and your career.
When an agent represents a buyer or seller and is solely responsible for representing that client in the real estate transaction, that’s called single agency.
The buyer and seller will each sign an agreement (or disclosure in certain states like California) with their respective agents that lists the duties the agents must adhere to. These duties usually include performing care and due diligence, disclosing all material facts, and being transparent and honest.
With a single agency agreement, the buyer’s agent solely represents the buyer, and the listing agent solely represents the seller.
When the buyer’s agent and the listing agent are from the same brokerage, that’s called dual agency. For the situation to be considered dual agency, the agents’ brokerage must be the same. Other variables, like office location and familiarity, are irrelevant.
The way that dual agency is handled varies by state. In some states, dual agency must be agreed upon in writing between both parties.
There are three types of dual agency with which you should be familiar.
Dual Agency With Two Agents
This situation occurs when the buyer’s agent and the listing agent are from the same brokerage. The agents must work on behalf of their respective clients and not the brokerage.
Dual Agency With the Same Agent
In rare cases, an agent might represent both the buyer and the seller in a transaction. In this situation, the agent must commit to treating both parties fairly and equally. The agent can’t share confidential information, negotiate, or provide any sort of advice, including home prices.
A transaction agent is a third-party entity that helps overcome any self-interests when in dual agency. They facilitate the transaction , helping both agents fulfil their duties without losing credibility in representation.