Real Estate Basics – Understanding Agency and Customer Relationships

Posted by admin on May 26, 2010 under Real Estate License Basics | Be the First to Comment

An agency is a fiduciary agreement between two individuals in which the party known as the agent is in control of the other party, the principle. An agency relationship in real estate is defined as one between a broker (agent), the client (principle) and the customer (a third party). Each state has its own laws that apply to this relationship known as the laws of agency.  In a real estate transaction the agent is hired by, and therefore works for, the client. The customer in this relationship is the third party that is not represented by the agent.

An agency relationship is created most often by way of a written or an oral agreement. A listing agreement establishes an agency relationship for a specific transaction. A listing agreement should contain the details of the transaction, including the compensation required and the contract expiration date. An agency relationship can also be implied. Implied agency can be intentional or unintentional when the parties involved behave as though an agreement is in place.

There are three types of agency agreement between an agent and a client, each representing different levels of authority given the agent. Universal agency is given through a Power of Attorney. This gives the agent the authority to perform all of the actions that an agent can perform within the scope of the law. General agency provides the agent the authority to complete specific tasks and duties to be carried out on an on-going basis, such as entering into contracts. The largest percentage of real estate business is conducted under a special or limited agency. Special agency authorizes the agent to perform a specific transaction and the relationship is terminated upon completion of that transaction.

There are three main forms of agency relationship. Single agency is an agent representing a single client. This form of agency relationship can be either a buyer’s agency or a seller’s agency. A sub agency relationship is formed when there is a licensed agent or broker employed by the broker that is the client’s agent.  In a dual agency relationship, the agent represents both the buyer and the seller. Where this form of agency relationship is allowed, it must be voluntary and disclosed to all parties.

Once an agency relationship has been created, there are a limited number of ways in which to terminate it. Completing the contract and closing the sale can terminate an agency relationship. Expiration of the contract without renewal also terminates the relationship. The parties involved in the agreement can mutually decide to terminate a contract as well. Agency relationships can be terminated involuntarily as well under specific circumstances; however this could create legal and/or financial ramifications for whoever initiates the termination of the contract.

The agent has responsibilities to both the client and the customer. The agent’s duties to the client include skill, due diligence, obedience, loyalty, confidentiality, financial accountability, and full disclosure. In return, the customer duties to the agent are availability, information and compensation. The agent’s duties to the customer are honesty and fair dealings, reasonable care and proper disclosure. The customer has no duties to the agent in a contract.

Real estate courses will cover these relationships in depth in order to prepare individuals for the real estate license examination. No matter what state in the nation you attend real estate school, you can be certain that agency and customer relationships are a critical part of real estate training.