Undisclosed dual agency, when a broker has an agency relationship with two competing clients but does not inform them, is still illegal in any state. And while it may seem simple enough to avoid it, a dual agency relationship can be formed unintentionally. From the previous lesson, remember that while it is always preferable to define an agency relationship through a written contract, it is also possible that an agency relationship that is legally authorized in court is formed simply on the basis of involvement. Yes, that`s right; it may take less than a verbal agreement to establish a binding agency relationship! That`s why it`s so important to be careful with dual agency. If you were to imply to a customer, a potential buyer, that you were there first to serve their best interests, then you could implicitly build a relationship. If your broker has already signed a single agency contract with the seller of the property, this can inadvertently create an undisclosed dual agency. To avoid this, it is a good idea to make it clear in writing that when you show a property to a client, you are an agent of the seller or owner and must first serve their best interest. There are three main ways to create an agency relationship that leads to the express agency, the implied agency, and the presumed agency. When creating an express agency, two main documents are used: registration contracts and buyer representation agreements. Although we will discuss them in more detail in a later lesson, now let`s look at how they are used to establish an express agency.
No matter how an implicit agency is concluded, it`s always best to avoid it, and the way to avoid this is to always make sure that you and the client are clear about the nature of the relationship. In order to completely avoid the implicit ability to act, it may also be important to indicate when there is no agency relationship. Often, a potential buyer can understand your helpful advice as meaning that you are “on their side” and owe them a fiduciary responsibility. By making it clear that you work for the seller, and while you want to help the buyer, your ultimate loyalty is with the seller, avoid accidentally entering an implied agency that would lead to an undisclosed duplicate agency. In states where dual agency is legal, the duplicate agency must be disclosed in writing. Disclosed dual representation is what allows a single agent to represent two competing clients while discharging its fiduciary responsibility. In most cases, disclosure requires both principals to agree in writing that the broker represents both principals to ensure that both principals are fully aware of the agreement. In order for dual agency to be practiced responsibly, a broker often assigns two different sub-agents to the office to each client.
The sub-agent assigned to the seller treats them as if they were the sole principal, while the sub-agent assigned to the buyer treats the buyer in the same way. These sub-agents are called designated officers. As you can well imagine, it can get complicated very easily. Since the purpose of an agent is to always act in the best interests of his principal, conflicts of interest may arise when an agent has agreed to serve the best interests of more than one principal. And if both clients are on either side of the same transaction, conflicts of interest will undoubtedly arise. It is always in the seller`s interest to get the highest price for a sale. It is always in the buyer`s interest to pay the lowest price. How can a single agent work to achieve both of these goals at the same time? Of course, this is not possible, but there are situations where it is possible to properly discharge the fiduciary responsibility to both parties, and there are situations where this is not possible. Due to the complexity of dual agency, many states have made this agency role completely illegal. In these states, being a dual agent means failing because of fiduciary responsibility. The buyer`s agent and the buyer sign a buyer`s brokerage contract, and the listing agent and seller sign a registration contract. Both agreements (or disclosures in some states such as California) list the obligations that the agent must meet.
These obligations are generally, but not limited to: care and diligence, disclosure of all material facts, as well as transparency and honesty. For example, a senior moves into a retirement community and has to sell their home. They could make one of their children their universal agent and give them all the legal rights they need to carry out the sale of the house. The manager, the person who moves into the retirement community, does not need to be consulted on any decision to sell the house, he does not have to sign a single sheet of paper and he does not need to be present at the fence. The universal agent can do all these things instead. In this particular example, it is common for the real estate seller to never meet the customer. instead, they do all business with the universal agent, although ownership and all profits from a subsequent sale are still the full property of the principal. An exclusive agency listing contract gives a broker the right to market and sell a property for a certain period of time, while the owner retains the right to find a buyer and sell the property without having to owe him a commission. The seller only has to pay a commission if the house is sold by the broker or an authorized agent or sub-agent of the broker. This type of listing is not very common in residential transactions, as it increases the likelihood of a dispute between the broker and the seller as to who the buyer of the sale actually was. Being called an agent refers to a relationship, that relationship is called an agency.
The agency is the relationship between what is called the principal and the agent. The Customer employs the Agent and the Agent performs certain actions by dealing with a third party on behalf of the Customer who employed the Agent.. . . .