undivided loyalty Flashcards
Exclusive Agency
There are different types of agency, and, therefore, a number of roles you, as an agent, can fill during your time as a license holder.
In this chapter, we’ll be covering the types of exclusive agency in which the fiduciary duty of loyalty is clear and undivided:
Single agency
Subagency
Single Agency
Single agency, which I’ve described for you before, is an exclusive agency arrangement in which one agent represents one party in a real estate transaction.
That’s what makes them exclusive, right? The agent is exclusively responsible for and loyal to their client and their client only.
This goes a long way in reducing the likelihood of conflicts of interest for the agent, and it provides the client with a stronger sense of trust in the person they’ve chosen to handle their business.
And, as is the case for every type of agency, your brokerage will provide you with guidelines as to how to carry out your responsibilities in single agency if they choose to practice it.
Single Agent
Now that you know that the single agent represents only one party to the transaction, let’s look at who that party might be:
Sellers or buyers
Landlords or tenants
Two Sides to Every Story (Transaction)
That makes sense, right? Every transaction has two sides, which means there is a choice of two parties for the agent to represent in single agency.
If you’re working on the sale/lease side, you’re going to represent a seller or a landlord. Conversely, if you’re working on the purchase/rent side, your client will be a buyer or tenant.
Sellers and Landlords vs. Buyers and Tenants
If you think about it for a moment, it does make sense that sellers and landlords are paired together, and that buyers and tenants are likewise paired. The two pairs represent opposites sides of the transaction from each other.
And although each party within these pairs differs a little from one another, they share a similar goal:
Both a seller and a landlord are looking to put their property in someone else’s hands, hopefully making money off of the transaction.
Both a buyer and a tenant are looking to procure properties for their use.
Types of Single Agents
So, depending on who single agents represent, they can look like:
Seller’s or landlord’s agents
Buyer’s or tenant’s agents
These agency relationships are documented with either a listing agreement or a buyer-broker agreement, depending on the client represented.
We’ll go over these agency arrangement contracts elsewhere in the course.
Agencies notes
The seller’s agent, also called a listing agent, is a single agent who has agreed to represent the seller’s interests in a real estate transaction. This is sometimes called seller agency.
With seller agency:
The seller is the principal/client of the seller’s agent
The seller’s agent owes all fiduciary duties to the seller
The agency relationship between the seller and the seller’s agent is documented in a listing agreement. The agreement outlines that the seller’s agent works for the seller and with the buyer. There is no confusion about what fiduciary duties are owed to whom.
Scenario: Diego and Marlo
Diego has owned a condo for nineteen years but has decided he would like to start a tomato garden. He decides to sell his property so he can purchase a home with a small yard.
Diego seeks out a seller’s agent to help him sell his property. He wants someone to look out for exclusively for his interests, show the condo to potential buyers, and market the property effectively. He decides to enter into a single agency agreement with Marlo, a local agent.
Once Diego and Marlo enter into a single agency relationship, Marlo owes Diego all the fiduciary duties a client deserves. And, because this is single agency, Marlo never has to worry about Diego owing fiduciary duties to any potential buyers – or anyone else at all, for that matter!
Marlo will need to disclose to Diego their agency relationship on their first substantive contact. Marlo will also need to get informed consent from Diego, in writing, before proceeding with any transactional activity. In doing so, Marlo will be protecting himself, his broker, and Diego.
Seller’s Agent
Seller’s Agent Responsibilities
Once the fiduciary duties of the agency relationship have been established, a seller’s agent will be responsible for:
Locating a Suitable Buyer
Sellers have something to sell, so that means they need people willing to buy! A seller’s agent will want to leverage their MLS and marketing efforts to procure a great buyer for their (equally great) seller.
Negotiating Offers
Ever been to a garage sale? Haggled over some vintage Pyrex? If so, you’ll make a great agent.
Part of an agent’s role is negotiating the best possible offer. This will look different depending on factors such as the property itself, your seller, and the market. You want the best deal for your seller, and it will be your job to represent their best interests.
A handshake seals the deal between two tough negotiators.
Disclosure of Property Value
Seller’s agents are responsible for making several disclosures, but it is especially important for a seller’s agent to disclose the value of the property to the seller.
Why? Because the seller’s evaluation of an appropriate listing price hinges on this information.
Agents will typically provide disclosure of property value with a competitive market analysis (CMA). A CMA is a report that compares the prices of recently sold or listed homes (“comparables”) in order to estimate the market value of a similar property (the “subject property”) located in the same area.
Preparing for Closing
Seller’s agents will need to prepare the seller for closing. They’ll need to guide them through the closing process and ensure all the proper documentation has been filled out.
Seller’s Agent: Bottom Line
In essence, a seller’s agent is a single agent who does everything they can to help the seller walk away from a transaction happy.
Johnny Come Lately
Seller’s agents have been around since the dawn of time (think dinosaur era, Anthony). But the buyer’s agent is a relatively recent phenomenon. The new kid on the block.
Buyer’s agents were part of the effort to clarify the agency representation issues that came to a head in the early 1980s.
Up until that point, buyers did not have any representation in the transaction, even if they weren’t fully aware of it.
This was a significant issue for buyers. I mean, when a friendly agent drives a buyer around and shows them properties, it’s kinda easy for the buyer to get lulled into believing that agent is on their side, ya know?
But, laws being what they were at the time, ALL agents were actually contractually bound to represent the seller’s best interests. (Good to see those days in the rearview mirror!)
The listing agent? Represented the seller. The agent that brought the buyer to the transaction? Represented the seller.
This led to lots of problems in the real estate world. That’s why, nowadays, there are seller’s agents and buyer’s agents. Both sides are being equally represented. Yay for clarity!
Who They Are Today
Back to the present day.
The buyer’s agent is a single agent who has agreed to represent the buyer’s interests in a real estate transaction. This means they do NOT owe the seller fiduciary duties.
The agency relationship between the buyer and the buyer’s agent is documented in a buyer-broker agreement.
The agreement outlines that the buyer’s agent works for the buyer and with the seller. Absent that agreement, a buyer who is brought to a transaction is a customer to any and all agents or brokers involved — just like in the not-so-good ol’ days.
So, hurrah for the buyer’s agent who looks out for the best interests of the buyer!
A buyer’s agent is the hero all buyers deserve! An buyer’s agent is surrounded by word bubbles explaining their superpowers.
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Buyer’s Agent = Selling Agent
For some reason, in some parts of the industry, you might hear a buyer’s agent being referred to as a selling agent. That’s because the agent is assisting the listing agent in selling the property by representing a buyer.
Personally, I think it’s confusing and would advise you to stay away from that term. But you should be aware that it exists.
Buyer’s Agents
A seller’s agent receives compensation from the proceeds of the seller’s property. But if the seller side is where all the money is being made from the transaction, how does a buyer’s agent get paid?
The buyer-broker agreement, like the listing agreement, spells out how the buyer’s agent is to be compensated.
Typically, a buyer-broker agreement states the buyer’s agent receives compensation by:
First looking to the seller’s offer to cooperating brokers, via the MLS
Secondly, to the buyer, who is held responsible for any monetary shortfall
Seller Default
A monetary shortfall could occur if the seller either fails to pay or pays less than the full amount the buyer agreed upon. (Sneaky seller, not cool.)
But the buyer’s agent should and will be paid. Life would be hard if you were expected to work for free! Not to mention the fact that there would be very little incentive to be a buyer’s agent.
More on Money
Who likes money? Everyone! Even robots need cashola to buy breakfast pastries and top off our space ships with gas. That’s why we’ll go over all the details of compensation in a separate level.
Here, I’m just be giving you a general sense of the role agents play regarding compensation as they see their real estate
Buyer’s Agent: Compensation
Locating a Property
In the same way seller’s agents are responsible for finding a buyer, buyer’s agents are responsible for finding a suitable seller whose property fits their buyer’s needs.
And once a property is found, the buyer’s agent should provide the buyer with data that indicates the property’s value. This will help the buyer determine what kind of offer they wish to make.
Explain Due Diligence
Related to the responsibility to locate a suitable property, the buyer’s agent should educate the buyer regarding their responsibility of due diligence as they consider the purchase. Specific to this activity would be getting a professional inspection done.
Negotiating Offers
Buyer’s agents need to negotiate the best possible offer for their buyer. At the same time, a seller’s agent has the same responsibility on behalf of the seller. This means that you’ll be negotiating with other savvy agents who also want to fulfill their duties to their client.
As you approach this task, avoid making guarantees regarding the price you’ll be able to get for the buyer. Regardless of your negotiating skills, you cannot predict how the other side will respond.
Disclosure of Financial Condition
A buyer’s agent needs to take care regarding what they disclose about their client’s financial status. It should be limited to the fact that the buyer has the ability to get the financing needed to make the purchase. Beyond that, little could be shared that wouldn’t serve to weaken the buyer’s leverage in the negotiations. You don’t want to do that, right?
Preparing for Closing
Buyer’s agents will need to prepare their buyer for closing, making sure all the necessary steps have been taken to facilitate the transaction.
Buyer’s Agent: Responsibilities
Some agents practicing single agency choose to narrow their focus even further by operating exclusively as a landlord’s agent or tenant’s agent.
Landlord’s Agent
A landlord’s agent is similar to a seller’s agent.
The landlord’s agent is a single agent who has agreed to represent the landlord’s interests in a real estate transaction. This involves leasing the landlord’s property rather than selling it.
The landlord is the principal (client) of the landlord’s agent, and the landlord’s agent owes all fiduciary duties to the landlord.
The agency relationship between the landlord and the landlord’s agent is documented in a listing agreement. The landlord’s agent works for the landlord and with the tenant.
A landlord’s agent can also be involved in property management, which is something we’ll talk about later.
Tenant’s Agent
A tenant’s agent, also known as a tenant representative, is similar to a buyer’s agent.
The tenant’s agent is a single agent who has agreed to represent the tenant’s interests in a real estate transaction to rent rather than buy a property.
The tenant is the principal/client of the tenant’s agent, and the tenant’s agent owes all fiduciary duties to the tenant.
The agency relationship between the tenant and the tenant’s agent is documented in a tenant-broker agreement. The tenant’s agent works for the tenant and with the landlord.
A tenant’s agent is very similar to a buyer’s agent, but tenant’s agents will need to have a slightly different area of expertise. They’ll have to know the specifics of leasing agreements and tenant rights. That’s something that wouldn’t be as important for an agent who only represents buyers.
Single Agency Specializations
Single agency can take many forms. You just learned:
A seller’s agent, a.k.a. listing agent, owes fiduciary duties to ONLY the seller.
A buyer’s agent owes fiduciary duties to ONLY the buyer.
A landlord’s agent owes fiduciary duties to ONLY the landlord.
A tenant’s agent owes fiduciary duties to ONLY the tenant.
Most clients seek single agency because they know they will receive the most pure delivery of fiduciary duties and they know their interests are always being looked out for. So you, as a license holder, will need to make sure you are living up to those fiduciary duties with undivided loyalty.
Forms of Single Agency Recap
Let’s look at some of the possible variations single agency can take at a brokerage.
A brokerage, operating under single agency, could choose to:
Represent sellers, landlords, buyers, and tenants (but not both sides of the same transaction)
Represent sellers only, landlords only, buyers only, or renters only
Represent sellers and landlords only or buyers and renters only
Here’s what that could look like:
Cloe’s Brokerage
Cloe’s brokerage practices single agency and will take on seller, landlord, buyer, and tenant clients. But her brokerage will never represent both sides of the same transaction.
Joey’s Brokerage
Joey doesn’t like to get involved in property management or leases. He prefers to deal with sales contracts. So his brokerage practices single agency but will only represent sellers or buyers and will never represent both sides of the same transaction.
Candi’s Brokerage
Candi’s brokerage has chosen to represent sellers only. She believes in the old saying, listers last! And, like Joey, she stays away from leases. For her it’s sell-sell-sell! And because Candi’s niched her brokerage this way, she never has to even worry about the conflict of representing two sides of a transaction.
Randy’s Brokerage
Randy remembers when buyers were taken advantage of in the old days, so when he opened his own brokerage, he decided it would be a buyers-only brokerage. This would give him the marketing advantage of demonstrating his loyalty to the buyer prospect, showing them how they had every reason to trust in Randy and his associated licensees. And like Candi, Randy never has to even worry about the conflict of representing two sides of a transaction.
Representing Both Sides Not Always a Conflict
I want to be clear that representing both sides of a transaction does not necessarily pose a conflict, rather it’s the representing of both sides of the same contract that could be problematic. And, problematic or not, it would certainly NOT fall within what is considered the practice of single agency.
EXAMPLE
Imani and Molly are agents at Regal Realty.
Imani is representing Hila, a seller who is trying to sell her three-bedroom home.
Molly is about to enter into a fiduciary relationship with Nia, a buyer who is new to town and is looking to purchase a condominium.
Imani and Molly work for the same brokerage (Regal Realty) but they are assisting both sellers and buyers.
The fact that Imani’s transaction and Molly’s transaction are completely separate makes this single agency. There is no overlap of principals, properties, or interests.
Regal Realty represents both sellers and buyers but just not in the same transaction.
Variations of Single Agency
Remember the concept of first substantive contact you learned about in the last chapter? Well, even though single agency relationships are pretty clear cut, agency disclosure and first substantive contact are still important.
Regardless the type of agency offered, once first substantive contact has occurred, agency disclosure must be made.
Seller’s and Landlord’s Agents
For an agent supporting a seller or landlord, first substantive contact would probably take the form of:
Discussing confidential, and potentially compromising, information with the seller or landlord
Drawing up a contract to sell or lease a property
EXAMPLE
Esme is an agent who focuses primarily on selling houses. She has been talking with Marita, a customer, about selling her home.
No agency relationship is established on their first face-to-face meeting because no confidential information is shared. (Marita just wanted more information about the process.)
However, if Marita and Esme continue to meet, it is Esme’s responsibility to obtain informed consent in writing as their conversations are moving swiftly in the direction of what would be considered their first substantive contact.
This responsibility falls to Agent Esme and not Marita.
Buyer’s and Tenant’s Agents
For an agent supporting a buyer or tenant, first substantive contact would probably take the form of:
Discussing a buyer or tenant’s motivations or confidential information
Showing the buyer or tenant a property
EXAMPLE
Agent Elton shows three condominiums to a couple looking to purchase. The couple are customers, not clients as they have not signed any agency agreements.
It is Agent Elton’s responsibility to clarify the agency relationship through informed consent right away. Otherwise, the couple might assume an agency relationship exists.
In truth, most brokers would frown on a sponsored agent taking anyone out to look at properties until after a representation agreement had been signed.
Agency Disclosure and Informed Consent
Informed consent should be documented in writing during the first substantive contact. This is accomplished by having the party sign the agency disclosure form. After that, a representation agreement can be drawn up and signed.
These two concepts go hand-in-hand, one follows on the heels of the other.
First Substantive Contact
In the previous level, I told you that subagency is a form of agency that arises when an agent enlists the use of other agents to accomplish a client’s goal.
The simplest definition (that I shared with you) is that a subagent is an agent of an agent.
Therefore, subagents can be:
Sponsored license holders — associated licensees and brokers — working under a designated broker on behalf of the clients of that broker
Unaffiliated cooperating brokers assisting a broker on behalf of the clients of that broker
The practice of subagency via cooperating brokers from an unaffiliated brokerage is becoming rarer by the day, but we’ll still take a peek at what that looks like in just a moment.
In Either Case
Subagents always owe the principals the same fiduciary duties the broker owes the principal.
Subagents work for the principal and with the customer. That never changes.
Subagency in Arizona
Different states define subagency a little differently. And many outlaw it completely.
In Arizona, subagency is allowed. However, cooperating brokers rarely operate as subagents these days. If they bring a buyer to a real estate transaction, they usually do so as that buyer’s broker.
This is likely because subagency via cooperating brokers is discouraged by most in the industry.
Subagency
Cooperating brokerage is an agency arrangement in which two unaffiliated brokerages work together to achieve a real estate transaction for a specific piece of property.
So, an unaffiliated broker who brings a buyer to a listing broker’s transaction is a cooperating broker.
Cooperating Brokers and Subagency
A cooperating broker can be a subagent if the listing broker allows subagency via an unaffiliated cooperating broker.
In this instance, the cooperating broker is not operating as a buyer’s agent, but has a customer relationship with the buyer. The cooperating broker, as a subagent of the listing broker, owes fiduciary duties to the seller.
It’s Buyer Agent OR Subagent
It’s one or the other. An unaffiliated cooperating broker is either:
A buyer’s agent working for the buyer-client, or
A subagent working for the seller-client of the broker-in-charge and working with the buyer-customer
Scenario: Casa Brokerage and Haus Brokerage
Breck, a broker, works for Casa Brokerage
Breck is the listing agent for his client, Seller Simone
Dillon, a broker, works for Haus Brokerage
Dillon has a customer relationship Buyer Janine
Broker Dillon sees Seller Simone’s property and just knows that Buyer Janine will love it. Broker Dillon enters into a subagency agreement with Broker Breck to help bring Buyer Janine, a customer, to the transaction.
Working Together
This all sounds pretty good, right?
Seller Simone sells his house, Buyer Janine buys a house she loves, and both brokers help fulfill both parties’ goals. What could be bad about that?
Well, it’s all good as long as the parties to the transaction understand throughout the transaction who is representing whom.
When Broker Dillon entered into a subagency relationship with Broker Breck, Broker Dillon became a subagent with fiduciary duties owed to Seller Simone. So, hopefully, Buyer Janine was made aware early on that she was NOT represented in the transaction.
Remember: A buyer brought to a real estate transaction by a seller’s subagent has no one looking out for their interests.
Here’s what that looks like.
An animation illustrates the relationships and duties owed in a cooperating brokerage subagency situation.
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Subagency via Cooperating Brokerage
The concepts of disclosure and compensation require special attention when it comes to cooperating brokers and subagency.
Disclosure
As we saw in the earlier scenario about subagency involving cooperating brokers, things get a little complicated. For that reason, it is critical that agents disclose agency relationships and obtain informed consent before taking any action.
The parties must always know who is representing whom and to what extent.
EXAMPLE
Drake is a buyer who meets Licensee Leah at her brokerage office and expresses a desire to look at properties for sale.
Leah discloses to Drake that they presently do NOT have an agency relationship and provides Drake with the Arizona agency disclosure form. Leah then explains that without a buyer-broker agreement in place, Drake would remain a customer and not a client of Leah’s.
Drake understands and selects a home to tour that is listed by another brokerage that is offering subagency to cooperating brokers. Leah explains this to Drake and indicates that, if he wants Leah to show him the home, she will do so as a subagent, representing the interests of the seller.
Compensation
Compensation can be a bit funky when it comes to cooperating brokers and subagency, as well. Compensation arrangements should be laid out in writing before pursuing a transaction.
Whether or not cooperating brokers are operating as subagents of a seller, they can still get compensated for bringing a buyer to the transaction. It is hard work, after all!
All licensees should make sure they know what compensation terms are BEFORE putting in hours and hours of work on a transaction.
Cooperating Brokerage: Disclosure and Compensation
Unaffiliated brokers might find each other by chance. Perhaps they’ll see an advertisement for a property their client will like or hear about a property while hanging around the proverbial water cooler. However, more often than not, unaffiliated brokers find each other through their local multiple listing service (MLS).
Just What IS an MLS?
An MLS is a collective internet database that lists an area’s available properties. It’s kind of like a matchmaking service for brokerages. It’s an easy way to connect buyers with sellers and vice versa.
The MLS is regulated: Each broker is held accountable for the accuracy of their listings. They also make sure it reflects the instructions and intentions of the seller clients they represent.
A mockup of a page of the MLS. A map pinpoints houses for sale and their asking prices. On the side are the listings.
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Why MLS?
This is important because:
Clear Communication: What if two agents were selling the same property, and what if both were successful at finding buyers? Only one potential buyer would get the property but which one?
Agent Protection: If two agents attempt to sell the same house, they could both end up wasting their time on something that will never bring about a sale.
Commission: In more complicated transactions, commissions can get confusing. MLS agreements help solve any potential confusion by clarifying who pays whom and where money can and should flow during a transaction.
Agency Relationships: The MLS will also specify what agency relationships are permitted, such as subagency, in relationships that involve cooperating brokers.
Scenario: MLS and the BBQ Pit
Broker Jana is Anne’s listing agent.
Remi is Omar’s buyer’s agent.
Remi finds the property Anne listed through the MLS. He shows it to Omar, and Omar loves it (he can’t resist the BBQ pit in the backyard).
Remi checks the MLS and, sure enough, it outlines what types of agency relationships are allowed. The MLS listing says that cooperating brokers, while operating either as a buyer’s agent or as a subagent can bring a buyer to the transaction and will be compensated for doing this.
Remi has already committed to an agency relationship as a buyer’s agent with Omar, so he discloses this to Jana when he makes an appointment to see the property.
In the end, Remi, operating as a buyer’s agent, looks after Omar’s interests, but helps Anne out, too, by finding a buyer for her home. So, per the MLS listing, Broker Jana will compensate Remi with a percentage of the commission that Anna pays to Jana.
Yay for commission!
Behold: The MLS
Cooperative Sales
As you now know, subagency is not required to participate in a cooperative sale. Cooperative sales can also include cooperating brokers working as buyer’s agents when they represent the buyer’s side of the transaction.
In fact, this is the most common way unaffiliated brokers work together these days. This is often referred to as co-brokerage.
Remember the Unrepresented Buyer
In cooperative sales, it’s important to look out for those dear buyer customers.
If a cooperating broker is operating as a subagent of the seller and shows a buyer a property, this means that no one is representing that buyer. Instead, both the broker and the cooperating broker are representing the seller.
The broker or agent, operating as a subagent, is working with the buyer, but for the seller.
Agents need to ensure that buyers understand that they are NOT represented.
Seller’s Choice
Ultimately, though, it is the seller who stipulates which types of cooperative brokers they are willing to work with. The seller’s intent is then communicated through an MLS listing created by the listing broker.
When a cooperating broker responds to such a listing, they should immediately disclose the role they will play.
