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Advice for Home Buyers

Agency Explained

Realtors are governed by the legal concept of “agency.” An agent is legally obligated to look after the best interests of the person he or she represents. The agent must be loyal to that person.

A real estate brokerage may be your agent – if you have clearly established an agency relationship with that realtor with a representation agreement. But often, you may assume such an obligation exists when it does not. It is important that you understand when an agency relationship exists and when it does not – and understand what it means.

There are three types of agency:

  1. Seller Agency
    When a real estate agent represents a seller, the agent must do what is best for the seller of a property. The real estate agent represent the seller exclusively and it is the agent's job to get the best offer on the home. The agent is legally obliged to tell the seller anything known about a buyer. For instance, if a seller’s agent knows a buyer will pay more for a property, they must tell the seller.  
  2. Buyer Agency
    A real estate agent representing a buyer must do what is best for the buyer. A written contract, called a buyer representation agreement, creates an agency relationship between the buyer and the brokerage, and establishes buyer representation. It also explains services the brokerage will provide, establishes a fee arrangement for the agent's services and specifies what obligations a buyer may have. Typically, buyers will be obliged to work exclusively with that brokerage for a period of time. Confidences a buyer shares with the buyer’s agent must be kept confidential. Although confidential information about the buyer cannot be disclosed, a seller working with a buyer’s agent can expect to be treated fairly and honestly.  
  3. Dual Agency
    Sometimes, an agent may have an agency relationship with the buyer and the seller. Both the seller and the buyer must give their informed consent, and the agent must always provide full and timely disclosure of all pertinent information to both parties. Since the brokerage’s loyalty is divided between the buyer and the seller who have conflicting interests, it is absolutely essential that a dual representation relationship be properly documented. Representation agreements specifically describe the rights and duties of everyone involved and any limitations to those rights and duties.