As a Buyer or Seller, your success depends, in part, upon how well you understand what I consider to be one of the most essential aspects of real estate: agency relationships.
Unless you are experienced in real estate transactions, the term and its meaning are a bit foreign (and, admittedly, the term sounds completely boring and bureaucratic). In fact, you may be tempted to just gloss over understanding it when your agent introduces you to the concept.
Warning: when it comes to agency/fiduciary relationships, what you do not know can, in fact, hurt you. So let’s dive in and see what all the fuss is about.
What exactly does agency relationships mean? In its most simple form, agency relationships explain for whom the real estate agent/firm works – Buyer or Seller (or both). In other words, to whom does the agent owe her or his loyalties and advocacy, and what is the agent permitted or required to do for each party?
Let’s say you want to sell your property, and you decide to interview several firms as a part of your decision-making process. Upon meeting the agents, one of the very first items an agent should discuss with you (as required by law) is agency relationships. Not only should you understand how the agent may bring Buyers to you (as an agent of the Seller, as a Buyer’s agent, or as a dual agent), but also you should be aware that until you have a signed listing agreement in place, your confidentiality is not protected.
For example, let’s say you sit down with Agent A and immediately begin talking about your need to sell quickly and what you want to net out of the sale. You delve into personal and financial matters and before you know it, Agent A knows considerable sensitive information about your situation. (Now an ethical Agent A would stop you immediately before you disclosed anything and would carefully explain agency relationships at that point so that you would be protected. For purposes of this explanation, let’s assume Agent A does not provide the required disclosure to you.)
You meet with two other agents (say Agent B and Agent C) and repeat the process with both (and assume again that neither provide the required disclosure). Now there are 3 agents who possess this information. You decide upon Agent B and sign listing documents.
Soon after you list the property, Agent A shows your property to a Buyer as a Buyer’s Agent (in this instance, Agent A’s loyalties lie solely with the Buyer, not you). Agent A has a fiduciary relationship to the Buyer and by law, must disclose everything she or he knows about your property and your situation. The Buyer now knows your level of motivation, as well as precisely what you would accept in an Offer. Needless to say, your ability to negotiate with strength and receive top dollar for your property and best terms has been severely compromised.
Remember: as a Seller, do not disclose anything other than material facts about the property or your personal situation to prospective listing agents. Once you have a signed agreement in place, everything you disclose must be protected as confidential.
Another area of confusion in the agency relationships realm is dual agency. Dual agency comes into play when the Seller has sanctioned the listing firm to act in that capacity which enables the firm to represent both the Seller and the Buyer. The key difference in a dual agency role is that the firm may not advocate for one party at the other’s expense and must remain neutral throughout the entire process (from writing the Offer to communicating the Offer to closing the transaction).
This type of agency requires additional focus and finesse from the agent, and if handled professionally and properly, can prove to work exceedingly well for all parties in the transaction. If you sanction dual agency, continue to ask your agent for clarification throughout the process when any questions arise. A key point to remember: if any agent (not just your listing agent) within your listing firm brings you a Buyer as a Buyer’s Agent, dual agency is in play.
To learn more about agency relationships, please reference the NC Real Estate Commission’s brochure entitled “Working with Real Estate Agents.” You may download a copy from the Commission’s website, or feel free to stop by our office anytime to pick up a copy and ask us questions.
Knowledge is power. Understanding fully who is representing whom in a real estate transaction places you on the path to success.