Six Types of Agencies
Agency relationships are categorized into six classifications:
1. Seller Agency
2. Buyer Agency
3. Dual Agency
When a property owner contacts an agent to have his or her property sold, the agent becomes the seller’s agent. The seller is the principal and the agent’s client. The agent is obligated to act in fairness to all parties involved in the transaction process but is sternly accountable to the principal or seller. This means that agents must adhere to federal and state regulated license law and fiduciary duty on behalf of the seller. Cooperative agency agreements represent a relatively new development established within the real estate industry over the past few years. Commonly, after selling, an agent posts a listing on an MLS, he or she is inviting other agents to help him, or she meet the seller’s needs. Although the original listing agent continues to be the seller’s agent, contributing agents may receive a commission from the broker’s commission. In most instances, when residential properties are posted to an MLS, the listing agent offers a sub-agency relationship with other agents; however, a sub-agency relationship is not formally established until the agent acquires an offer to purchase the property.
A buyer contacts an agent to receive assistance in the process of acquiring property and enters into the contract with the agent by signing a buyer agency agreement. The buyer then becomes the principal and is then known as the agent’s client. In turn, although the agent is obligated to act in fairness to all parties involved in the transaction process, he or she is strictly accountable to the buyer, adhering to federal and state regulated license law and fiduciary duty on behalf of the buyer exclusively. Historically, buyers have represented themselves, or they inadvertently concluded that selling agents also represented them. In those states where dual agency is legal, and the buyer has been informed of to the agent’s representation of the seller, buyers may be okay with the agent’s seller relationship. However, in those instances where a buyer wishes to avoid a biased risk while receiving greater buyer services, they may wish to acquire independent buyer representation. E.g., consultative advice on property values, how to make viable offers, how to interpret the terms of sale in a contractual buyer relationship. With the buying process becoming more complex, buyer representation has become a much more formal and common element within the transaction process, resulting in some brokerages offering buyer representation exclusively. Real estate brokerages who market themselves as buyer agencies commonly recommend that “would be” principals not sign in or register at any homes they preview, because agents on these premises likely represent the seller. Buyer agencies provide buyers with many advantages, including complete loyalty, expert advice, and confidentiality. In the best of situations, these advantages add up to the buyer finding the right home at the right price, acquiring the right financing options, support when completing legal documentation, and assistance through the inspection and appraisal processes.
Additional services commonly include:
- Identify the specific needs and wants of the buyer and look for those properties that fit these specifications.
- Assist in viewing properties and even preview properties on behalf of the client to ensure the buyer’s criteria is met.
- Identify property defects to help assist the consumer in making an informed decision.
- Negotiate on behalf of the buyer.
- Assistance in securing appropriate financing.
- List of potential vendors. For example, identifying movers or carpenters if the consumer needs these services.
- Provide buyer/consumer confidence.
In many instances, costs associated with the service provided by a buyer agency are charged back to the seller through a seller-paid fee or commission.
Buyer agency agreements vary from state to state. However, most include at least the following categories:
- Agency duration
- Brokers duties
- Description of buyer’s interests (For example, property amenities, location, etc.)
- Price range the buyer is willing to spend
- Terms of agent compensation and who is responsible for paying them
In most cases, buyers and their brokers establish one of two buyer agency contracts:
[dropcap]1.[/dropcap] Exclusive Buyer Agency (exclusive right to represent or exclusive authority to purchase) Under this agreement, a buyer is not able to enter into any other agreements with any other agents and the agent receives compensation only if/when the buyer purchases property within the scope of the exclusive buyer agency agreement. Although limited in some respects, exclusive buyer agency agreements can offer advantages:
- Buyer agents do not retain sellers as clients.
- Greater control over third-party involvement. (For example, home inspectors that serve the exclusive needs of the buyer.)
- Increase buyer confidentiality.
- Increased commitment level to buyer representation through education including heightened legal and ethical obligation.
The National Association of Realtors® publication ‘Agency – Choices, Challenges, and Opportunities’, Exclusive Buyer Agency is: “The practice of representing only buyers and never sellers in a transaction. The company never lists a seller’s property and thus never has a seller as a client. Agents never accept sub-agency that is offered by a seller’s agent”.
Additionally, the NAR® warns its members: “Buyer agency is a viable method of practicing real estate, but an agent should be cautious in her approach if she is not thoroughly knowledgeable about the entire process. Agents who are used to working with buyers as seller’s sub-agents need to be aware of the new duties and potential liabilities of buyer’s agents before changing the form of representation they offer.” (pg. 18). NAR also suggests that buyer agency “Promotes a more natural relationship with agents working with buyers” (pg. 26). Agents who represent sellers and buyers commonly cite advantages to providing both services for clients (in separate transactions).
[dropcap]2.[/dropcap] Non-exclusive buyer agency – Under this agency, a buyer can create the buyer agreement with as many agents as he or she wishes, with a duty to pay only the agent that identifies the property that the buyer purchases. This is a standard real estate contract in all 50 states. The greatest advantage to a buyer under this agreement is that the agency does not limit the buyer to an agent that may be an under-performer.