Agency, which creates a legally binding relationship between the real estate agent and their client during the buying and selling process, is one of the most important aspects of the real estate profession. Because of agency, real estate agents to act in their client’s best interest. Agents can have single or double agency, but their status must always be disclosed.
Like many parts of the real estate buying and selling process, keeping documentation of agency disclosure is of the utmost importance. In real estate transactions, agency is often formed without the signature of the client, so it is up to the real estate professional to keep track of your disclosure. Keeping both paper and digital copies of important documents is always a safe idea!
Dual agency occurs when an agent is representing both the buyer and the seller. Disclosure is of the utmost importance in cases of dual agency, as it is still the fiduciary duty of the agent to represent the interest of both clients. Dual agency is illegal in some states.
Each state has different disclosure laws, controlling everything from agency disclosure, dual agency legality, and what sellers must disclose about their home when selling. It is imperative that, as a real estate agent, you study the laws of your state and make sure your clients are fully aware of any pertinent details.
To help better understand the legal issues surrounding agency and disclosure, we have compiled a verity of recent legal cases for you to study.
See References for more information.
REALTORS® shall not engage in any practice or take any action inconsistent with exclusive representation or exclusive brokerage relationship.
Case Interpretations Related to Article 16 January 1, 2024Respect the exclusive representation or exclusive brokerage relationship agreements that other REALTORS® have with their clients.
NAR Library & Archives has already done the research for you. References (formerly Field Guides) offer links to articles, eBooks, websites, statistics, and more to provide a comprehensive overview of perspectives. EBSCO articles ( E ) are available only to NAR members and require the member's nar.realtor login.
“Article 4 of the NAR Code of Ethics states the following: “REALTORS® shall not acquire an interest in or buy or present offers from themselves, any member of their immediate families, their firms or any member thereof, or any entities in which they have any ownership interest, any real property without making their true position known to the owner or the owner’s agent or broker. In selling property they own, or in which they have any interest, REALTORS® shall reveal their ownership or interest in writing to the purchaser or the purchaser’s representative.”
“Many states require that agents give buyers and sellers an agency disclosure form to sign, which clears up these questions. The form used in California, for example, is not a contract between two parties but rather a disclosure from one to the other. It clarifies the many types of agency functions that may come up when buying or selling a home and specifies the rules agents must adhere to. All parties must read it so they know what to expect from each other; the form also allows them to select the type of agency relationship they prefer”
“The National Association of Realtors indicates that fiduciary duties cover six distinct areas: loyalty, confidentiality, disclosure, obedience, reasonable care and diligence, and accounting. Some—but not all—of these duties are self-explanatory.”
Not only there different types of agency – think single vs. dual – but there are also different ways to disclose and express your agency. Express agency is explicitly state in a written or oral contract, while implied agency is exactly that, implied by actions but not words. No matter what, sure you explicitly disclose if you are a dual agent.
Before writing a purchase agreement, homebuyers usually sign a contract with their agent known as “buyer representation agreements.” The three most common types of buyer representation agreements are; non-exclusive/not-for-compensation agreement, the non-exclusive/right to represent agreement, and the exclusive right to represent agreement. Non-exclusive agreements usually last a few months, while exclusive agreements sometimes last up to a year.
“A New York federal district court granted summary judgment in favor of a seller, ruling against a business broker’s breach of contract and commission claim because New Jersey law requires business brokers to adhere to the Statute of Frauds and to explicitly stipulate if a broker is to receive commissions for a sale they did not cause.”
“So, how do you create a document retention program? First, understand that a record retention policy pertains to “business records”. A business record is something that has operational, legal, fiscal, or historical value to the business. A business record is not limited to just paper files, but it could be something in any format- a data file, voicemail, or video recording.”
The law is a living and breathing organism that is always changing, so be sure to check with your state or territory’s statutory code for the most up-to-date information on agency laws in your state. Or, if you are a REALTOR®, contact your state association of REALTORS®’ legal hotline. To find your state association, please visit this page and select your state from the list.
“Whether you’re the buyer or the seller, it’s important to understand how you’re being represented in the transaction. Both parties must agree to a dual agency arrangement, notes Than Merrill, a real estate investor and founder of FortuneBuilders. “For an agent to represent both sides in a real estate transaction, they must receive informed consent from the buyer and the seller,” he says. “If either the buyer or seller isn’t comfortable with the idea of using a dual agent, they reserve the right to opt out of the deal.”
According to a report published in 2019 by the Consumer Federation of America, more than half of homebuyers and sellers in America are unaware that there are different types of agencies for real estate agents. Dual agency is regulated by law and is illegal in some states, but often comes down to what the homebuyer or seller is comfortable with, after the real estate agent has disclosed their agency type.
“Illinois has three different types of agency relationships with consumers: No Agency, Designated Agency and Dual Agency. It is important to know that no matter which agency relationship you have with a client or consumer, all of them have a requirement of written disclosure or notice. Further, while we will discuss this from a for sale transaction scenario, everything being mentioned also pertains to rental transactions. The License Act and agency disclosure requirements make no distinction between the two.”
“Opponents of dual agency don’t believe an agent can represent both the seller and the buyer without compromising the best interests of one, or both parties. Among those opponents are the eight states that have made dual agency illegal: Alaska, Colorado, Florida, Kansas, Maryland, Texas, Wyoming, and Vermont. Proponents do not believe that dual agency inherently compromises consumers’ interests. They even argue that dual agency can make a transaction more efficient.”
The laws and regulations for agency disclosure may vary from state to state. As a member of the National Association of REALTORS®, you can contact your State Association of REALTORS® for specific details on your state's disclosure requirements. The National Association of REALTORS® collects information on state specific legal issues in the State Issues Tracker:
Some state real estate commissions have included helpful materials on their websites regarding agency disclosure. A few examples:
The below cases all address agency issues in some way, often dealing with the breach of fiduciary duty and/or buyer representation.
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