In the real estate business, the Law of Agency has a serious, practical impact. It is important to know who is representing whom. Traditionally, real estate firms represent and work for the best interest of the seller. When you call an agency about an advertised property, you will be speaking with a seller’s agent. A seller’s agent can drive you around, show you property, and mover the sales process along by providing you with helpful information and services. However, a seller’s agent cannot legally give you advice, and cannot tell you that they think a property is over-priced without jeopardizing their license. What is more: A seller’sagent is legally required to disclose to the seller anything he or she learns about you which will weaken your bargaining position. Only a buyer’s agent with whom you have a written brokerage agreement can advise you, and help you plan a negotiating strategy. Only your agent owns you loyalty, accountability, and confidentiality. Following is a discussion of agency as it applies to real estate.
Agents are Firms
In real estate practice, the individual licensees are often referred to as “agents” but in reality the brokerage firm is the agent, and every individual licensee within that firm is legally bound to act according to the duties of an agent regarding that firm’s principals.
If the real estate agent’s principal is the seller, then the agent’s assignment is to sell the seller’s property, and that agent owes fiduciary responsibility to the seller. The firm listing the seller’s property is the seller’s agent, and any sub-agent (see below) is also the seller’s agent.
If the principal is the buyer, then the real estate agent’s assignment is to help the buyer procure property, and that agent owes fiduciary responsibilty to the buyer.
A real estate firm, other than the real estate firm hired by the principal, can be delegated agency authority by the original agent and this second agent thus becomes a sub-agent. Modern real estate practice allows cooperation between firms so that ABC Realty, working as a subagent, may work with a buyer and show that buyer property listed with XYZ Real Estate. Although working with the buyer and trying to match up that buyer with a suitable property, that sub-agent is not the buyer’s agent. Even though the seller and the seller’s sub-agent may never have met, nonetheless, the sub-agent owes the same duties and responsibilities to the seller as does the listing agent.
Sub-agency has been eliminated in Vermont by the Real Estate Commission. In Vermont, a “Broker’s Broker” now performs the functions which would otherwise be performed by a sub-agent. The technical difference is that a broker’s broker is an agent of the seller’s broker, but not an agent, or sub-agent, of the seller. The reason this category was created was to eliminate the seller’s liability for actions by a sub-agent. Thus if a broker’s broker were to make a fraudulent representations regarding a property, the buyer’s legal cause of action would be against the broker’s broker and against the listing agent, but not against the seller. In day-to-day practice, a broker’s broker walks like a sub-agent, talks like a sub-agent, and acts like a sub-agent.
An agent and the agent’s principal join together for the accomplishment of their common purpose (such as selling a home, or buying a home). Because they have joined, each is legally responsible for the actions of the other within the scope of their agency agreement. This if a seller makes fraudulent, material representations about their home, the real estate agent representing the seller could be sued along with the seller, regardless of whether or not she or he was aware that the seller’s statements were fraudulent. Likewise, the seller can be liable for misrepresentations by her or his agent. The same is true regarding buyers and buyers’ agents. Obviously it is important for buyers and for sellers to exercise good judgement in selecting an agent; and it makes good sense for a real estate agent to be careful in selecting clients!
Customer vs. Client
The principal (whether buyer or seller) who has engaged the services of an agent, is that agent’s client. When an agent works with a non-cient — for example a seller’s agent who is showing homes to an unrepresented buyer — then the buyer receiving those services is a customer, not a client.
Agency Services vs. Ministerial Services
Agency services are defined by contract, and involve the agent working on behalf of the client. Ministerial services are given to a customer (usually in order to move the sales process along) not to fulfill a contractual, agency obligation to that customer. A seller’s agent may provide listing sheets, area information, etc., to a customer. However, if that seller’s agent advises, counsels, or negotiates on behalf of a non-client, then that agent has stepped over the line by acting as though he or she were the customer’s agent.
An agency relationship can be created by words and actions that indicate an agency relationship, even when there is no formal agreement and even though the agency nature of the relationship is not acknowledged. Implied agency is also sometimes called “accidental agency” or “undisclosed agency.” In most states, an agency relationship must be disclosed to all parties affected by that agency relationship, and, therefore, any kind of undisclosed agency is illegal.
Agency Relationship Disclosures
The Vermont Real Estate Commission requires licensees to make a written disclosure of agency status to all buyers and sellers with whom they have a significant contact while conducting real estate business. If a real estate licensee asks you to sign an Agency Relationship Disclosure, she or he is simply trying to comply with the law. Signing an Agency Relationship Disclosure does not create a contract: It is simply an acknowledgment that you have received, read, and understood the disclosure. However, any time you feel uncomfortable with signing any document, you may refuse, or have an attorney review the document first.
Agency Agreements Must Be Written
In both Vermont and New Hampshire, the only legal way a real estate agent can represent a seller, or represent a buyer, is through a written agreement.
Conflicts of Interest of Buyer’s Agents
When an ordinary real estate agency attempts to represent buyers, they are often faced with a conflict of interest, when a buyer becomes interested in a property owned by a seller/client who is also represented by that same agency (see discussion below). An exclusive buyers agent — an agency which represents buyers only, never sellers — avoids this common conflict of interest. However, there is a much less common conflict of interest which an exclusive buyer’s agent may run into: Suppose two buyers, both of whom are represented by the same buyer’s agent becomes interested in the same property? In such a case, the buyer’s agent has confidential information about both buyers, and therefore, is not in a position to honestly represent them both when they are competing for the same property. Brattleboro Buyer Brokerage’s policy is to resolve such a conflict by continuing the represent the buyer who is first submits a written offer on that property, and to refer the other buyer out to another agency — just for that one, particular transaction. It is so rare, that in the ten years since Brattleboro Buyer Brokerage has been in business, it has never happened. Prior to that, when this writer was a licensee with a large, local firm, he only had it happen one time. In that instance, the buyer who was referred out (with no referral fee) prevailed.
Conflicts of Interest of Seller’s Agents
Traditionally, real estate agencies specialize in representing sellers. Naturally, the bigger the firm, the more sellers they represent. In the past few years, in an attempt to take advantage of current trends, traditional firms have begun to offer buyer representation. So long as you, the buyer, are only interested in the listings of other firms, fine. But what happens when you become interested in a property listed by the agency which is representing you? Your brokerage agreement (Right to Represent Agreement) is not with an individual agent ,but with the firm. The same is true of the seller’s brokerage agreement (Listing Agreement). How then can the same firm represent the best interests of both a buyer and a seller on opposite sides of the same transaction? Obviously, they cannot, and, therefore, unless they refer out either the buyer or the seller to be represented by another firm, in a potential transaction in which the agency represents both buyer and seller; either buyer or seller, or both must receive less than full, agency representation.
Dual Agency Is Illegal
As a practical matter, no one can serve two masters; as a legal matter, dual agency, whether disclosed or undisclosed, is illegal in Vermont.
Until a few years ago, disclosed dual agency was permitted in Vermont as a solution to the dilemma which occurs when an ordinary real estate firm finds itself representing both buyer and seller in the same transaction. However, nobody feels very comfortable with dual agency, disclosed or otherwise, so the Real Estate Commission did away with it and replaced it with so-called “limited agency.” Some feel that “limited agency” is just a name change for disclosed, dual agency. Limited agency is supposed to be practiced only as a reluctant, last resort, and with the written consent of both parties. In theory, the “limited agent” represents both the buyer and the seller in the same transaction, advancing the interests of both, neither at the expense of the other. Umm…good luck!
As a matter of policy, a real estate firm may decide that they will voluntarily forgo the right to act as a dual or “limited” agent, even though they may be permitted to do so by law. Such a policy makes that firm a single agent. In such a case, unless that agency represents buyers only, or represents sellers only (this is rare) then the agency must have a written policy specifying how they will determine whether to continue to represent the buyer, or the seller if a conflict should arise. Their policy may be that, in a conflict of interest situation, they will alway continue to represent the buyer (this would be extremely unusual) or always the seller; or some other solution, such as first in, last out, which means that whichever party has been represented by the firm the longest would be the one who would continue to be represented. Finding an agency which exclusively represents sellers only, never buyers is quite rare; but it would be a cleaner solution to the conflict of interest situation if real estate brokerage firms (agencies) were required to make a policy choice: either represent sellers only or represent buyers only.
Before Signing a Brokerage Agreement, Find Out the Agency’s Policy
Before signing up as a client, informed buyer or seller, should know what the agency’s policies are regarding single agency vs. dual or “limited” agency.
Brattleboro Buyer Brokerage’s Policy
Brattleboro Buyer Brokerage is a single agent always, never a dual or “limited” agent. We represent buyers only, never sellers.