Agency Relationships

As they relate to real estate, the terms customer and client, also known as a principal, often get confused. The differences are subtle, but important. So let's look at them a little closer.

A customer is someone who is not represented by a real estate broker. A customer can expect an agent to provide all information honestly, but can't expect an agent to work in their best interest because there's no agency. The agent doesn't represent them. That doesn't mean a customer is on their own, though - any dishonesty committed can be a base of litigation from the customer.

Becoming a client means you have formed an agency relationship, which entails a fiduciary responsibility from an agent to their client. This means an agent is expected to exercise discretion when acting on your behalf, and they must adhere to very specific responsibilities, obligations, and high standards of good faith and loyalty.

In some transactions, a broker represents both the seller and the buyer. This is known as dual agency.  Most people prefer not to work with dual agents because of the difficulty in maintaining a fiduciary relationship with both parties. A dual agent can't negotiate for either party. Due to this conflict, many states no longer allow dual agencies to be formed.

The responsibilities of an agency relationship can be remembered with the acronym OLD CAR:

  • Obedience
  • Loyalty
  • Disclosure
  • Confidentiality
  • Accountability
  • Reasonable Care

When discussing an agency relationship, you may hear the terms special agent, general agent, and universal agent.

In real estate, a special agent is an agent hired to perform a specific duty for a client. The real estate agent's authority is limited to the specific job for which they are hired. For example, when you list a house on behalf of a seller, you are hired for the one act of finding a buyer for them. Once that act is complete, then the agency relationship is over.

A general agent is one who can perform any and all acts associated with the ongoing business that a principal has appointed the agent to act in. An example of this would be a property manager, as the relationship is continuous and ongoing.

A universal agent can act on behalf of a principal with full power. Many times, a universal agent has power of attorney to act on their principal's behalf. A universal agent can, in a sense, act like they are the principal. They can even sign legal documents for the principal, as well as purchase and/or sell property for them. Universal agents are powerful but rare - there aren't many of them.