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Real estate agency is not a complicated relationship, but it is often misunderstood. The following explanations should clarify the relationship between sellers or buyers and the agents who may or may not represent them. Further information ia also available in the Wikipedia "Real estate broker" and "Agency (law)" pages.
The information available on or through this page is provided for informational purposes only, and should not be construed to provide legal advice. It also specifically addresses agency relationships in Texas, and may not be applicable elsewhere. If you have any questions regarding the law of agency, please consult with an attorney.
The explanations are in two parts:
The people that most home sellers and buyers meet and think of as real estate agents should probably be called real estate licensees, but let's refer to them as agents, because they are—but they are agents for the broker.
Licensed agents (real estate licensees) represent their sponsoring broker in dealings with the public. When an agent forms an agency relationship with a home seller or buyer, the relationship they form is between that seller or buyer and the broker. That is, the broker is actually the agent for the seller or buyer, the client, but the seller or buyer is being served by one of the broker's agents.
As agents for the broker, real estate licensees have the authority, responsibility and obligations of the broker in their dealings with the public. Specific terms within the written agreement between the broker and the agent may impose limits to their authority, but the responsibility and obligations to the seller or buyer whom they may represent on behalf of the broker are a matter of law. If the agent is also a REALTOR®**, they are also subject to their professional code of ethics.
The FindLaw.com Web site discusses the concept of Dual Agency, in additon to the following. Under the concept of dual agency, a single agent would theoretically represent both the interests of both buyer and seller. Since price is usually the primary bargaining concern of both buyer and seller, it should be obvious that the concept borders at the least on being an oxymoron. A far better relationship for both buyer and seller is Buyer Agency, as explained on About.com and in the following paragraph.
Buyer agency is established by a clear agreement, usually in writing, between a buyer and a licensed agent, and obligates the agent to serve exclusively the best interests of the buyer. Without such an agreement, real estate agents are obligated to serve the seller, regardless of the agent's relationship to the listing agency. In example: An agent with Agency A who does not have a buyer agency agreement with the Homebuyer family, and shows them a home listed by the Homeseller family with Agency B, is obligated to to serve the interests of Agency B's clients, the Homesellers. The agent must deal honestly and fairly with the Homebuyer family, and disclose all material facts about the property condition known to the agent, but cannot give the Homebuyers advice or disclose information that may compromise the Homesellers bargaining position.
On occasion, and agent will find a buyer for one of their own listings or a buyer for one of the brokerage's listings. If a buyer agency relationship exists between the buyer and agent serving the buyer, such a transaction would constitute a clear conflict of interests. The law provides in such instances that the broker may act as an intermediary. In practice, the broker typically assigns an agent to represent each, buyer and seller, exclusively. Such an intermediary agency requires great care and constraint on the part of the agents involved not to reveal material information that may tend to compromise the position to either party to the transaction.
The following is a transcript of the Information About Brokerage Services (IBS) form (TREC No. OP-K), which thoroughly explains whom a broker represents at each end of a real estate transaction. Note especially that sellers are almost always represented, but buyers may not be if they do not formalize the agency relationship.
Download a copy of Information About Brokerage Services in PDF, or it is also available from the Texas Real Estate Commission Web site, or you download
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Texas law requires all real estate licensees to provide the following information about brokerage services to prospective buyers, tenants, sellers and landlords. The following information is provided by the Texas Real Estate Commission (TREC).
INFORMATION ABOUT BROKERAGE SERVICES
Before working with a real estate broker, you should know that the duties of a broker depend on whom the broker represents. If you are a prospective seller or landlord (owner) or a prospective buyer or tenant (buyer), you should know that the broker who lists the property for sale or lease is the owner’s agent. A broker who acts as a subagent represents the owner in cooperation with the listing broker. A broker who acts as a buyer’s agent represents the buyer. A broker may act as an intermediary between the parties if the parties consent in writing. A broker can assist you in locating a property, preparing a contract or lease, or obtaining financing without representing you. A broker is obligated by law to treat you honestly.
IF THE BROKER REPRESENTS THE OWNER:
The broker becomes the owner’s agent by entering into an agreement with the owner, usually through a written - listing agreement, or by agreeing to act as a subagent by accepting an offer of subagency from the listing broker. A subagent may work in a different real estate office. A listing broker or subagent can assist the buyer but does not represent the buyer and must place the interests of the owner first. The buyer should not tell the owner’s agent anything the buyer would not want the owner to know because an owner’s agent must disclose to the owner any material information known to the agent.
IF THE BROKER REPRESENTS THE BUYER:
The broker becomes the buyer’s agent by entering into an agreement to represent the buyer, usually through a written buyer representation agreement. A buyer’s agent can assist the owner but does not represent the owner and must place the interests of the buyer first. The owner should not tell a buyer’s agent anything the owner would not want the buyer to know because a buyer’s agent must disclose to the buyer any material information known to the agent.
IF THE BROKER ACTS AS AN INTERMEDIARY:
A broker may act as an intermediary between the parties if the broker complies with The Texas Real Estate License Act. The broker must obtain the written consent of each party to the transaction to act as an intermediary. The written consent must state who will pay the broker and, in conspicuous bold or underlined print, set forth the broker’s obligations as an intermediary. The broker is required to treat each party honestly and fairly and to comply with The Texas Real Estate License Act. A broker who acts as an intermediary in a transaction:
(1) shall treat all parties honestly;
(2) may not disclose that the owner will accept a price less than the asking price unless authorized in writing to do so by the owner;
(3) may not disclose that the buyer will pay a price greater than the price submitted in a written offer unless authorized in writing to do so by the buyer; and
(4) may not disclose any confidential information or any information that a party specifically instructs the broker in writing not to disclose unless authorized in writing to disclose the information or required to do so by The Texas Real Estate License Act or a court order or if the information materially relates to the condition of the property.
With the parties’ consent, a broker acting as an intermediary between the parties may appoint a person who is licensed under The Texas Real Estate License Act and associated with the broker to communicate with and carry out instructions of one party and another person who is licensed under that Act and associated with the broker to communicate with and carry out instructions of the other party.
If you choose to have a broker represent you, you should enter into a written agreement with the broker that clearly establishes the broker’s obligations and your obligations. The agreement should state how and by whom the broker will be paid. You have the right to choose the type of representation, if any, you wish to receive. Your payment of a fee to a broker does not necessarily establish that the broker represents you. If you have any questions regarding the duties and responsibilities of the broker, you should resolve those questions before proceeding.
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Contact me if you feel that you would benefit from professional representation.
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* The relationship between a broker and landlord or tenant whom they may represent is essentially the same.
** Not every real estate agents is a REALTOR. Only members of the National Association of REALTORS® (NAR) can use the designation. The Association has a high standard of professional excellence and ethical conduct that often exceeds the requirements of law.
