Sometimes people expect more of a real estate agent than they ought to. This is not just a comment about agents' abilities; it also has to do with their allegiances. It is an issue of agency.

There are two common instances where misperceptions may occur. One is where an unrepresented buyer engages an agent of the seller. The other is when an unrepresented seller is approached by an agent of a buyer.

Typically, the former might occur when a buyer comes into an open house. He or she shows an interest in the property; discusses it with the listing agent who is holding the open house; and then writes up an offer with that agent. The buyer might even confide in the agent that he or she would be willing to go higher, but prefers to try for a lower price. This all might take place with the buyer assuming that the agent was working on his behalf as well as that of the seller. But, in fact, it might be the case that the agent was representing the seller exclusively.

Conversely, there is the not-uncommon situation of an agent, who represents a buyer, bringing an offer to a For Sale by Owner. The offer might include a provision – agreeable to the seller – that the agent will receive a commission from the proceeds of the sale. In this situation, the seller – especially because he has agreed to a commission – might think that the agent will be looking out for his interests. Not necessarily so.

At this point many readers may be protesting, "That couldn't happen here, in our state, because we have laws requiring the disclosure of agency relationships." A point well taken, to be sure. Although it might be something like saying, "No one would drive 80 miles per hour in this state, because we have a speed limit lower than that." Consider the following from Realtor® Magazine Online:

"Despite nearly two decades of effort to clarify agency laws at the state level, agency issues continue to create risk for sales practitioners.

"According to the National Association of Realtors® 2009 Legal Scan, agency issues … are among the biggest sources of legal disputes involving real estate professionals and are expected to become more prevalent in the courts in the next two years.

"The report also cited problems with disclosure of agency relationship. Practitioners are supposed to disclose agency relationships at their first substantive contact with customers, but the disclosure is 'often overlooked and not sufficiently explained to prospects,' one respondent said.

"At the statutory level, states continue to heavily regulate agency relationships. The Legal Scan identifies 144 agency-related statutes enacted in the last two years, by far the highest number among all legal topics and about the same number as in the 2007 report. That suggests a persistent level of uncertainty about requirements."

California, which has agency disclosure laws such as those mentioned in the Legal Scan, allows for dual agency (which must, of course, be disclosed to all parties). But not everyone wants to be a dual agent. Thus it is that the California Association of Realtors® produces two forms for possible use: one is the Buyer Non-Agency Agreement; the other is the Seller Non-Agency Agreement. The Buyer version contains the following language:

Listing Broker does NOT represent Buyer and Listing Broker will NOT be Buyer's agent during any negotiation or transaction that results between Buyer and Seller regarding the Property. All acts of Listing Broker, even those that assist Buyer in entering into a transaction or performing or completing any of Buyer's contractual or legal obligations, are for the benefit of Seller exclusively. Any information that Buyer reveals to Listing Broker may be conveyed to Seller.

The Seller Non-Agency Agreement contains similar language, only with the shoe on the other foot, so to speak.

The importance of such forms was illustrated recently in the case of Miller v. London Properties heard in the Fifth Appellate District of California's Court of Appeal. The Millers had sought to purchase a business listed by Agent Donna Pride of London Properties. Pride told the Millers that she was willing to assist them in a non-agency capacity by filling out a standard form purchase agreement. But she emphasized that she was the exclusive agent of the seller. She gave them all the required agency disclosure forms, and she even had them sign a company-generated form similar to the CAR Buyer Non-Agency Agreement.

Later, when things went sour, the Millers sued Pride and London Properties. Among other things, they alleged breach of fiduciary duty because Pride had not advised them of the significance of the wording in a covenant not to compete. The trial court concluded that there was no agency relationship and therefore no fiduciary duty.

The appellate court upheld the trial court's decision. Moreover, it was unmoved by the Miller's argument that the subsequent conduct of the parties was sufficient to create an agency relationship, notwithstanding the disclosure forms. (On a couple of occasions Pride had acted as an intermediary between the Millers and the Seller.)

The Miller v. London Properties opinion is unpublished and therefore does not stand as a precedent. Nonetheless, it is refreshing to see a court uphold a broker's clearly-stated rejection of an agency relationship.

Published: September 28, 2010

Use of this article without permission is a violation of federal copyright laws.

Bob Hunt is a former director of the National Association of Realtors and is author of the recently published book, "Real Estate the Ethical Way." A graduate of Princeton with a master's degree from UCLA in philosophy, Hunt has served as a U.S. Marine, Realtor association president in South Orange County, and director of the California Association of Realtors, and is an award-winning Realtor. Contact Bob at .