Agency Relations Should be Clear to Unrepresented Parties

Written by Posted On Monday, 16 September 2013 10:44

Sometimes it happens that only one party in a real estate transaction is represented by an agent. In such a situation it is important for the agent to make clear to the other party that he or she (the agent, that is) is not going to be acting as the agent of both. If this doesn't happen, it is pretty easy for the (actually) unrepresented party to come to believe that he or she is being represented too. This can be the cause of problems down the road.

The situation we have in mind probably arises most often in the case when an agent who is representing a buyer conducts negotiations - on the buyer's behalf - with a for-sale-by-owner (FSBO). When an agreement is reached, it is likely to be the agent who will oversee the ensuing paperwork and actions necessary to proceed to closing. The agent might very well assist the owner in preparing various mandated disclosures and in obtaining other documents that will be needed. The seller could easily think that the agent was now acting as a dual agent, representing his interests as well as those of the buyer.

While it is probably less common, there are certainly cases where, conversely, an agent may be representing the seller only and not the buyer. Suppose you have been talking with a potential seller about listing his house. Then, one day he calls you and says, "Look, I just found out that my neighbor wants to buy my house. In fact we have talked it over and have agreed on price and terms. Still, I want you to represent me [probably at reduced compensation] and to make sure that everything is done right. I will pay you for representing me, but you won't represent him nor will you receive any compensation for his side of the transaction."

Actually, that sort of situation might be more common than most would think.

Again, the same sort of misunderstanding is liable to occur. You might do a number of things that would help the buyer move the transaction forward. You might recommend lenders or home inspectors and even the provision of a home warranty policy. While the motivation for doing so could well be to protect your seller's interest, the buyer might easily get the notion that you are looking out for him too.

In many states the creation of an agency relationship does not require a writing. Nor is agency determined by compensation or the source of compensation. An agency relation can arise out of facts and circumstances. You can imagine, then, that a jury might be sympathetic to a principal's claim that he thought someone was acting as his agent and that, to his detriment, he relied on that person to look after his interests.

The California Association of Realtors® (CAR) provides two forms which, though relatively simple, can be extremely valuable in these sorts of situations. One is the Buyer Non-Agency Agreement (BNA); the other is the Seller Non-Agency Agreement (SNA). Both forms spell out that the broker is not and will not be the other party's agent "during any negotiation or transaction" that results between the two parties regarding the property in question. They also make clear that the agent's actions, "even those that assist (the other party) in entering into a transaction or performing or completing any of (the other party's) contractual or legal obligations" are for the benefit of the agent's principal exclusively.

Also, the non-agency agreements note that the other party "has the right to enter into an agency relationship with a real estate licensee, other than Broker, at any time during any negotiation or transaction regarding the Property."

When an agent is asked to represent one party, and the other is not represented, use of a non-agency agreement is highly recommended.

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Bob Hunt

Bob Hunt is a former director of the National Association of Realtors and is author of Ethics at Work and 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 scbhunt@aol.com.

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