Concept of agency representation often misunderstood
In Arkansas, the principal broker of a real estate rm ultimately holds the agency relationship with a seller or buyer. Consumers are often familiar with the ‘frontline’ agents rather than the principal broker, and can safely have the same expectations of those agents as they would of the rm’s principal broker.”
This week’s column was written by Andrea Alford, deputy executive director of the Arkansas Real Estate Commission.
In the real estate business, the concept of agency representation — who represents whom in a real estate transaction — is often misunderstood.
In 1978, the Federal Trade Commission conducted a study that showed most consumers had no idea whether the real estate agent with whom they worked represented them, the opposite party, or both. To make matters worse, many real estate agents themselves were unclear about which party was entitled to their absolute loyalty as agents.
This study prompted real estate practitioners, regulators and educators to work toward establishing a greater understanding of agency representation. Among consumers and practitioners alike, awareness of this concept seems to have improved in recent years. Nonetheless, it is a topic that always bears revisiting.
In Arkansas, the principal broker of a real estate firm ultimately holds the agency relationship with a seller or buyer. The agents licensed with that principal broker enter into that agency relationship by way of the broker to represent the broker’s clients. Consumers are often familiar with the “frontline” agents rather than the principal broker, and can safely have the same expectations of those agents as they would of the firm’s principal broker.
Keep in mind that this model is specific to Arkansas — other states’ laws may differ.
Since, to some extent, a consumer is represented by every agent licensed with the real estate firm that is representing him or her, we’ll focus this article mainly on the real estate firm through which a consumer sells or purchases property.
Perhaps the most straightforward and easily understood form of agency is single agency.
In single agency, a consumer can expect the highest degree of loyalty from a real estate agent. Single agency typically occurs when the seller has a property listed with one real estate firm and the buyer is working with another real estate firm. In that situation, every person licensed with the firm listing the property represents the seller, and every person licensed with the other firm represents the buyer.
As single agents, the agents of each firm can feel free to share with their respective client any and all information learned about either the property or the other party to the transaction. This could include the reasons the sellers want to sell and how much they’ll accept, or what the buyer is hoping to purchase and how much he or she is willing to pay.
The next level of agency relationship many consumers experience is referred to as dual agency. This typically occurs when a single real estate firm represents both the seller and the buyer in the same transaction. In this situation, the agents in the transaction represent both parties equally, but in a limited capacity.
As a general rule, dual agents stick to talking about the property, not the people. A dual agent cannot share information about the seller or buyer’s motivations or price thresholds with the other party because of the limited allegiance the agent has to both parties in the transaction.
Dual agency carries with it certain disclosure requirements. In fact, an agent can’t really operate as a dual agent without first making the appropriate disclosures and obtaining both parties’ consent to dual agency.
The Arkansas Realtors Association develops the real estate forms most commonly used in real estate transactions in our state. These forms allow the parties to provide their consent to dual agency on both the seller’s listing agreement and the buyer representation agreement.
A seller or buyer may initially think he or she doesn’t want to allow their agent to represent both parties; however, most agents will advise clients that by not consenting to dual agency, they may lose out on potential buyers or sellers represented by the same real estate firm.
For more information on agency representation, visit the Arkansas Real Estate Commission website at www.arec.arkansas.gov or email questions to arec@arkansas.gov.