Define Agency in Real Estate

"A Deep Dive for Real Estate Agents"

There are different types of agency relationships in real estate, and each has its unique characteristics. Here are the main types and working examples for each:

Seller's Agent (or Listing Agent): Represents the seller in a real estate transaction. Their primary responsibility is to market the property, negotiate the best price and terms for the seller, and facilitate a smooth transaction.

Example: Jane hires Tom to sell her house. Tom, as the seller's agent, markets the property, finds a buyer, and negotiates the best possible price and terms for Jane.

Buyer's Agent: Represents the buyer in a real estate transaction. They help the buyer find a suitable property, negotiate the best price and terms on their behalf, and guide them through the buying process.

Example: Bob wants to buy a new home. He hires Alice, a real estate agent, to represent him. Alice, as the buyer's agent, helps Bob find a suitable property, negotiates the best price and terms, and assists him throughout the buying process.

Dual Agency: Occurs when a real estate agent represents both the buyer and the seller in the same transaction. Dual agency can be controversial because it can create a conflict of interest, as the agent must balance the interests of both parties.

Example: Jane hires Tom to sell her house. Bob, who is also represented by Tom, wants to buy Jane's house. Tom becomes a dual agent, representing both Jane and Bob in the transaction. He must now work to ensure a fair outcome for both parties while avoiding favoring one over the other.

Designated Agency: In some cases, a real estate brokerage may represent both the buyer and the seller through separate agents within the same company. Each agent represents their client's interests, and the brokerage must ensure that both agents are acting ethically and professionally.

Example: Jane hires Tom from XYZ Realty to sell her house, while Bob hires Alice, also from XYZ Realty, to help him buy a house. Tom and Alice, as designated agents, represent their respective clients and work to protect their interests throughout the transaction.

Subagency: Occurs when one agent enlists the help of another agent to perform specific tasks on their behalf. The subagent is also responsible for representing the principal's best interests.

Example: Tom, the seller's agent, enlists the help of Alice, another agent, to show Jane's house to potential buyers. Alice, as a subagent, must act in Jane's best interest even though she is not directly representing her.

Understanding the various types of agency relationships in real estate is crucial for agents and their clients. Being aware of the roles and responsibilities of each type of agent can help you navigate the real estate process more effectively and ethically.

NOTE: Some states have restrictions or prohibitions on certain types of agency relationships to protect the interests of consumers and avoid potential conflicts of interest. Here are a couple of examples:

Dual Agency: Dual agency is not allowed in some states. In these states, real estate agents are not permitted to represent both the buyer and the seller in the same transaction. Instead, agents must choose to represent either the buyer or the seller, or they can act as transaction brokers, facilitating the transaction without representing either party.

Subagency: Subagency is becoming less common and is not allowed or practiced in some states due to the potential for conflicts of interest and confusion over fiduciary responsibilities. Some states have shifted towards a more transparent agency relationship model, which encourages agents to represent either the buyer or the seller, rather than acting as a subagent.

It's essential to familiarize yourself with the agency laws and regulations specific to the state(s) in which you plan to practice real estate. Each state has its own rules and guidelines regarding agency relationships and disclosure requirements. Understanding these rules will help you serve your clients ethically and professionally while adhering to your state's regulations.