Types of Real Estate Agencies

Instructor: Deborah Miller

Deborah is a licensed Real Estate Broker. She has a Post Master's Certificate in college teaching with all but the dissertation of her doctorate in philosophy complete.

In real estate agency and brokerage, the agent has the authority to act on behalf of the client. This lesson will help to identify the various types of agencies available in agency relationships and the power of authority an agent can have as a representative of the client.

Agency Relationships

In real estate practice, the duties of an agent are clearly defined. The agent (a term generally applied to both broker and salesperson) represents the interests of the principal (also known as the client) in a real estate transaction. The relationship that exists between the principal and the agent representing them is called agency. In seller agency, the agent represents the seller in a real estate transaction, while in buyer agency, the agent represents the buyer. A situation in which both buyer and seller are represented by the same agent is called a dual agency transaction.

Agency Relationships in Real Estate Transactions
Agency Relationships

An agency relationship is a fiduciary relationship of trust between the broker and the principal created by contractual agreement. As a fiduciary or person of trust, the agent owes the principal the specific duties of diligent care, obedience to lawful instructions, accounting for all funds received or dispersed, loyalty to the interests of the principal, and disclosure that is informative and influential to the decision-making process. In dealing with third parties, the agent must obey the principal's instruction, act in good faith, and use professional judgement and ethical practice. They must also promote and protect the interests of the principal, avoid misrepresentations, and comply with federal housing regulations. In return, the duties of the principal include compensating the broker, disclosing material facts, avoiding misrepresentation, and complying with federal housing regulations.

Real Estate Brokerage
Real Estate Brokerage

Real Estate Agency

Often called a real estate agency, a brokerage is the business of uniting buyers with sellers in the lease, exchange, management, or purchase of real property. Brokerages may be established as a sole proprietorship, a limited liability company, a corporation, or a partnership. Regulated by the law of agency, the real estate broker is licensed to operate a brokerage, to employ agents, to provide agency, and to facilitate real estate transactions for a fee.

The broker has a fiduciary relationship with the principal that entitles trust, loyalty, and confidence in the agency relationship, the administration of services, the management of funds, and the management of property. As the agent of record in all transactions, the broker is liable for the actions of all agents hired as independent contractors under the broker's supervision.

The licensed agents that represent the broker cannot act without the supervision of the broker. The broker is the agent of the principal, while the salesperson is the agent of the broker and a subagent of the principal. The principal, also known as the client, employs the broker and has a contractual agreement for agency representation, while the customer does not. For example, a buyer who contacts a broker about a property listing is a customer. A customer may call to inquire about a home and nothing more. The agent may respond with information, but no further obligation to a customer is required until an agency agreement is signed. In some states, an agent is required by law to provide the client a copy of the 'Consumer Guide to Agency Relationships' and the 'Agency Disclosure Statement'. These documents are designed to inform readers about agency relationships, the role of the agent, and the types of transactions proposed. The Agency Disclosure Statement, otherwise known as the agency agreement serves as an acknowledgement between the agents and the principals that agents have particular duties and responsibilities toward their clients.

The creation of agency between the principal and agent may be expressed or implied by the actions of the parties. Implied agency is created by the words or acts of a principal or agent operating under the guise of a formal agency agreement that does not exist. For example, a For Sale By Owner allowing a broker to market their property without authorization is a relationship implied by ostensible agency. Here, an unauthorized agent acts on behalf of a principal that allows the appearance of agency when no formal agency agreement exist. On the other hand, express agency is created by oral or written agency agreement. For example, a buyer agency can be created by oral agreement between the buyer and the agent prior to a written agreement being signed. An oral agency agreement is a verbal agreement expressing offer and acceptance by words spoken between a principal and agent. By law, an agent's duty is to create written agency, an agreement in writing signed by both parties disclosing the agency relationship between the principal and the agent. Until an agency agreement is created between the principal and agent, agency does not exist. A customer only becomes a client by agency agreement.

Real Property
Real Property

Types of Agencies

Under the law of agency, the body of law that governs the rights and obligations of agents to the principal and third parties, an agent has the authority to act on behalf of the principal. What the agent does depends on the authority granted by the principal. For example, a real estate broker instructed by the principal to locate property is a special agent authorized to perform specific acts under limited authority, but cannot bind the principal. However, the general agent has broad authority to sign documents, transact business, and act for the principal in all matters within the scope of the trade.

Signature Required For Power of Attorney
Signature Required for Power of Attorney

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