For years and years (“good ole days”) buying a home through a real estate agent was similar to going to Sears to buy a stove: you were not legally represented by the agent with whom you were working. Since the Seller usually paid the commission and the listing broker shared that commission with the selling broker, the buyer’s “agent” was in fact a subagent of the Seller. In the 90′s a class action law suit (dual agency) involving one of the largest brokerage firms in the country resulted in a settlement rumored to be a bunch of money. Agency immediately became of great interest and concern for both real estate companies looking to avoid similar problems and state governments.
Today all states have laws defining real estate agency: buyer agency, seller agency, and dual agency, although some still allow for “facilitators,” where no agency has been established. Agency laws define the relationship between the agent and his client, or principle, and the duties of each. Illinois has, by statute, established the duties of the agent to the clients: care, obedience, accounting, loyalty, confidentiality, and disclosure (remember the Boy Scout oath?). The simple rule is that, excepting unlawful demands, the client’s interest must be placed above the agent’s interest. The client would be obligated to treat the agent honestly, cooperate toward fulfilling the goal for which the agency was formed, and to compensate the agent as agreed.
Establishing agency requires competent parties, a lawful purpose, and agreement between the parties. An agency can be express (written or oral, but written is pretty important) or implied (by words or actions) and once established must be taken very seriously. Obviously if an agent has discussed the job, duties, objectives, compensation, etc. with a prospective client or customer, and they have agreed to work together, an agency relationship has been created. Some acts can be performed without creating an agency: things like answering questions without giving advice. Just answering questions about a home, for instance at an open house, is considered “ministerial” and does not create agency: the other party is considered a consumer: a potential client. A problem can arise if the agent begins to give the consumer advice or moves beyond providing information about a specific home. The Illinois law says, “Licensees shall be considered to be representing the consumer they are working with …,” so an unintended agency relationship may be created.
While most agents will represent either a buyer or seller in a transaction, Illinois license law allows Dual Agency in which the same agent “represents” both buyer and seller. As an example, if an agent had a listed property (a seller client) and a buyer for whom the listing seemed perfect, with the informed written consent of both clients, the agent could show and perhaps negotiate a contract between his/her two clients. It’s difficult to understand the term Dual Agency in this transaction: by definition, agency demands working in the best interest of the client and the two clients have opposing interests (purchase price). The agent in this case more intermediates than advocates. The potential for claims of unfair representation are much greater in this type of transaction and utmost care must be taken to insure that both parties are fully informed and agree before any showing takes place. (Undisclosed dual agency is the basis for the law suit mentioned in the first paragraph.) While most agents would like to receive both ends of the commission, it is probably safer from a legal perspective and certainly better service to the client, to avoid dual agency. Illinois uses the “designated agent” approach to allow a Broker to appoint one agent to represent a Seller and another to represent a Buyer in the same transaction without creating a dual agency within the same brokerage.
When beginning to work with a client, get the relationship in writing (if at all possible). It is mandatory for a listing, but sometimes buyers are reticent to sign agency agreements. That may be because the agreement is not properly explained. The Illinois buyer agency forms are pretty non-threatening if explained correctly. Always disclose your position and any information (other than confidential) you have about the property or the agency relationship. If a potential buyer at an open house expresses interest in the property, for example, make certain to disclose that you represent the Seller and that the “buyer” should not rely on your assistance for other than ministerial acts.
Disclosure, agreements in writing, and making sure the client’s interest always comes first are the main points, but training and study of agency law is extremely important.
The State of Texas, for instance, requires 30 hours of Agency in its pre-license course.
Illinois includes it in core curriculum for continuing education. The Illinois License Act of 2000 (Article 15) lays it out in detail and can be found most easily at http://law.justia.com/illinois/codes/chapter24/23835.html (it took me quite a while to find it at the State of Illinois General Assembly site and the URL runs off the page).