Understanding the Options
What you should know about brokerage relationships
When dealing with a REALTOR®, in a real estate transaction, you are usually either a client or a customer of that REALTOR®. A client is someone who has formed a brokerage relationship with a REALTOR®, usually by signing a contract and the REALTOR® is their agent. Parties who do not have a brokerage relationship with the REALTOR® are customers.
When acting as a standard agent, a REALTOR® has certain duties and obligations. The basic duties are defined in Virginia Law (see especially Section 54.1, Chapter 21, Article 3), and additional duties can be created by a brokerage agreement with a client, usually in writing. REALTORS® are also governed by a strict Code of Ethics, which applies only to members of our association.
A REALTOR® you choose as your agent will fully represent your best interests. An agent owes first allegiance to his or her client. There are some limits when an agent has two clients in the same transaction (see overlapping brokerage relationships). Brokerage relationships with an individual REALTOR® also bind the other employees of the same real estate company. Among the standard duties a REALTOR® owes a client are:
- Perform the terms of the brokerage agreement.
- Promote the client’s best interests by seeking a transaction acceptable to the client.
- Provide financial accounting.
- Disclose known material facts about the property or the transaction.
- Exercise ordinary care.
- Maintain client confidentiality, unless the information is required by law to be disclosed.
An Agent does have duties to a customer, as well. Standard agents must:
- Treat all parties honestly and not knowingly give false information.
- Inform all customers and potential customers of the nature of their brokerage relationships, if any.
- Disclose material adverse facts pertaining to the physical condition of the property of which the REALTOR® is actually aware.
- Comply with the law, including the Fair Housing Act.
There are limits on what an agent must tell a customer. Customers may wish to look to other sources of information important to their decisions.
If you are selling property or offering it for lease, and sign a listing agreement with a REALTOR®, then the REALTOR® and his or her brokerage firm become your agent and you are their client. Salespersons for other companies who are cooperating with the listing company and showing it to prospective buyers or tenants may also be your agents. Their goal is to seek a transaction on terms acceptable to you, and they owe you the standard agent duties outlined above.
If you are a prospective buyer or tenant who is dealing with a REALTOR® who represents the seller or landlord, remember that you are a customer of that REALTOR® and not a client.
A seller’s representative can still provide valuable services to customers – showing property, preparing and presenting any offers and counteroffers, comparing financing alternatives, and disclosing known adverse material facts about the condition of the property. All agents in a transaction must be truthful with all parties, but the seller representative’s highest duty is to the client.
Standard Buyer Representation
Prospective buyers and tenants have realized in recent years that they may want to have a REALTOR® of their own representing them in a transaction. They do this by forming their own brokerage relationship, usually by written agreement, with a REALTOR® who becomes their agent and owes them the duties of a standard agent. A representative for the prospective buyer or tenant can freely advise the buyer-client about all aspects of the property.
A seller dealing with a buyer’s agent should remember that in this relationship, the seller is the customer and the REALTOR® is working for the buyer. In many cases, the listing agent will share the commission with the buyer’s representative, but that doesn’t diminish the buyer representative’s obligation to the buyer.
Overlapping Brokerage Relationships
The increasing popularity of buyer representation has increased the number of transactions where a REALTOR® might have overlapping brokerage relationships.
This happens when a buyer or tenant client of a real estate company wants to buy or rent one of the company’s listings. Even if different REALTORS® are working with the different clients, their dual loyalties are created through their company, which has legal and contractual obligations to both clients.
In dealing with these situations, there are two ways for the transaction to proceed:
Standard Dual Representation
Virginia law allows a real estate firm or salesperson to represent both sides of a real estate transaction as long as all parties give consent. Because the company has a legal obligation to represent both parties, and may know confidential information about one party of value to the other party, there are limits on what the company or salesperson may do in dual representation cases.
The company or salesperson must not disclose information that is confidential or would create a negotiating advantage for either client, such as whether the seller will take a lower price, or the buyer will pay a higher price. Generally, information about the motivations of the parties must also be kept confidential. In effect, dual representation limits the REALTOR® to a neutral role.
If all parties agree, a real estate company can designate one of its REALTORS® to represent the seller or landlord and a second REALTOR® to represent the buyer or tenant in the same transaction. A supervising broker in the company will oversee the transaction and that person will still be the representative of each party. However, each of the designated representatives will be able to offer full service to his or her assigned client.
The supervising broker will need to maintain the confidentiality of any client information which could be of value during negotiations. The two designated representatives must not share confidential information with each other. But when working with their individual clients, they are free to gather important information from outside sources, free to help with negotiations, and will be thinking first of the client’s needs and wishes.
You are not required to agree to either of these dual representation situations. If you refuse the dual agency relationship or the designated representative relationship, the real estate licensee must choose which party to represent, and the other party is free to arrange other representation for that transaction.
One of these standard brokerage relationships — seller representation, buyer representation or some form of dual representation — should be right for you. No matter which you choose, thank you for working with a REALTOR®. That is always a right decision.