What is Agency?
According to Blackʼs Law dictionary — 6th Edition — “Agency is a fiduciary relation which result from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act.“
An agent has a fiduciary responsibility to the principal. The word fiduciary is etymologically related to the word “faithful.” The agent is legally required to be faithful to the principalʼs best interests, even at the expense of the agentʼs own, personal interests.
A general agent has a wide range of authority, and may be empowered to enter into contracts which are binding on the principal. An example of a general agent would be the manager of a business owned by an absentee owner.
A real estate agent is a special agent whose power and authority is limited to accomplishing a specific, and limited assignment. A real estate agent does not have the authority to enter into contracts on behalf of the principal. As a buyerʼs agent, any agreement that I have negotiated is subject to approval of the buyer whom I am representing.
Duties of an Agent
The following are the fiduciary responsibilities owed by an agent to his or her client:
An agent must act at all times solely in the best interests of his or her principal to the exclusion of all other interests, including the agentʼs own self-interest.
An agent is obligated to obey promptly and efficiently all lawful instructions of his her her principal, within the scope of the agency agreement.
An agent is obligated to disclose to his or her principal all relevant and material information known to the agent (except if it is confidential information obtained through another fiduciary relationship).
Your agent is obligated to safeguard your confidential information, and to disclose to you any sensitive information that s/he learns about the other party. Any of your “secrets” that your agent learns during the time of the agency relationship continues to be confidential — forever — even after the agency relationship ends.
Reasonable Care and Due Diligence
An agent is obligated to use reasonable care and diligence in pursuing the principalʼs affairs.
An agent is obligated to account for all money or property belonging to the principal which is entrusted to the agent.
Who Represents Whom?
(Is the agent your Realtor. . . or someone else’s?)
… and does it matter?
The details of agency may seem tedious, but agency relationships can have serious consequences.
For example: One day, years ago when I worked for a large agency, I was showing property to a commercial investor. Even though I had properly disclosed that I was working for the seller, and even though she was a sophisticated business person: Nonetheless, tired and with her guard down after a long afternoon of viewing properties, speaking with her partner in my presence. she gave me critical information about her negotiating strategy.
Regardless of how I might feel personally, my professional responsibility required me to disclose what I had learned to the seller.
When you, the buyer, is with the sellerʼs agent, be careful what you say. But when the agent you are working with is your fiduciary: A slip of the lip need not sink your ship. Not having to worry about saying the wrong thing makes the whole experience more comfortable.
Let us look at how agency is practiced in Vermont
[warning – It gets a bit complicated]:
If the real estate agentʼs principal is the seller, then the agentʼs assignment is to sell the sellerʼs property, and that agent owes fiduciary responsibility to the seller.
If the principal is the buyer, then the real estate agentʼs assignment is to help the buyer procure property, and that agent owes fiduciary responsibility to the buyer.
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, working in the best interest of that firmʼs principals. Thus, if agent Mary of ABC Realty has listed a house at 1,400 Elm Terrace, and Tom of ABC Realty represents a buyer who is interested in 1,400 Elm Terrace, there is a conflict of interest which must be resolved in some fashion.
Subagency has been eliminated in Vermont. Previously, if ABC Realty represented the seller, then ABC could delegate authority to XYZ Real Estate to be a sub-agent, acting on behalf of the seller, even though the sellerʼs contract was with ABC, not with XYZ (I warned you it gets complicated). Since a Vermont real estate agent involved in a transaction must represent someone, sub-agency would allow XYZ to bring an unrepresented buyer to see one of ABCʼs listings by providing a legal fiction that XYZ was representing the seller as a subagent (even though XYZ and the seller had never even met one another).
(Donʼt blame me, it gets even more complicated now)
Sub-agency has been eliminated in Vermont by the Real Estate Commission. In Vermont, a “Brokerʼs Broker” now performs the functions which would otherwise be performed by a sub-agent. The technical difference is that a brokerʼs broker is an agent of the sellerʼs broker, but not an agent, or subagent, of the seller. The reason this category was created was to eliminate the sellerʼs liability for actions by a sub- agent. Thus if a brokerʼs broker were to make a fraudulent representation regarding a property, the buyerʼs legal cause of action would be against the brokerʼs broker and against the listing agency, but not against the seller. In day-to-day practice, a brokerʼs broker walks like a subagent, talks like a subagent, and acts like a subagent.
Under certain conditions, an agent and the agentʼs principal can be liable for one anotherʼs misdeeds. Thus 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 sellerʼs statements were fraudulent. Likewise, the seller can be liable for misrepresentations by her or his agent. The same is true regarding buyers and buyersʼ 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 agentʼs client. When an agent works with a non-cient — for example a sellerʼs 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 sellerʼs agent may provide listing sheets, area information, etc., to a customer. However, if that sellerʼs 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 customerʼs agent.
Implied or Inadvertent Agency
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.” 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 to buyers and sellers explaining the difference between being a client vs. a customer. 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. Of course, 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.
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