Select Page

Books could be written about agency law in California, but in this post I will try to make the explanation concise and understandable. Please know that agency is different from state to state, so your experience of it outside of CA may be very different from it here.

An agent is essentially a person who or entity which acts on behalf of another in a transaction involving a third party.  In most residential real estate transaction in Silicon Valley, real estate agents are involved.

An agent has not just a duty of “fair and honest dealing”, but much more. The agent has a fiduciary relationship with the client. That is, the agent (or agency or licensee) must do what is in the client’s best interest (even if it is not in the agent’s best interest). It is as if the agent is an informed clone of the client, almost like a power of attorney but without signing ability.  The agent’s job is to protect the client and to negotiate for the client the best possible deal, the smallest possible risk, and so on.

To non-clients (that is, to customers), the agent still has a duty of fair and honest dealing. So the agent should not lie or mislead, but the agent doesn’t have to educate or strategize for the other size. When a Realtor has an open house at his or her listing, for instance, he or she has an affirmative obligation to try to get the client’s home sold at the best possible price. The Realtor may not tell a buyer the lowest amount a seller might take for the property unless the seller has expressly given that permission (preferably in writing).

 

fiduciary-duties

 

Who is the agent?

To begin, the real estate “agent” is actually the real estate company or brokerage (not just the individual licensee). The duties that an agent has really are the company’s duties.  Often people think of “the agent” as the person whom they know, not the company, but actually it’s the company with which he or she works. (In some states, the “agent” is the individual licensee, but that is not the case in CA.)

So for example, if XYZ Realty has a licensee name Mary and she takes a listing on 123 Main Street in San Jose, that listing actually belongs to XYZ Realty, not to Mary.

Furthermore, the company may not just be the same name of the company, but rather the company owned by the same broker of record. For example, there are many franchises; if each office bearing the same name has a different broker of record, then they are truly separate companies, even if they bear the same name.

Some real estate firms have both company owned branches and also franchise branches. This is true of Intero, for instance: some offices are all owned by the parent company (e.g., Los Gatos), and others are franchises (e.g., Cambrian Park), which are independently owned.  At Keller Williams, many offices are independently owned (e.g., Los Gatos and Campbell are not under the same ownership) but sometimes one office will have the same broker of record as another, making it all the same company. It is difficult for the clients to know, and sometimes even for the agents to figure out the difference in larger companies and therefore to understand when dual agency might or might not be happening.

What about dual agency?

In California, dual agency is legal when disclosed. Because the “agent” is the company, it may be difficult for large brokerages to avoid dual agency. For instance, let’s say you have a Realtor from 123 Realty Group in Almaden Valley who’s working with a seller, and another Realtor from the same company in Saratoga, Cupertino or Palo Alto who’s working with the buyer. These individual Realtors may not know the other one representing the other party, but if each works for the same broker of record, it is dual agency.

Naturally, when there’s dual agency, there’s increased liability for the agent. So much more so when the dual agency is also the same individual licensee representing both parties.

Stickier still….

Agency gets murkier still when the market is “hot” and there are multiple offers on a home. A lawsuit resulted after one multiple-offer situation when a buyer was upset to later learn that his same agent, that is the brokerage, had represented several buyers competing for the same property. The argument was made that the buyer thought that his agent (a huge brokerage) was working exclusively on his behalf. Naturally none of the individual licensees had the slightest idea that anyone else working with the same firm was writing an offer, but to keep buyers fully informed we now have a disclosure form stating that we may not know if the same agent (brokerage) is representing more than one buyer in a possible transaction.

This is just the tip of the agency iceburg. There are many more minefields with agency when agents begin “acting” as an agent even though there’s no formal hiring or payment. Then you may have “implied agency” which has all of the risks but none of the perks of being a paid, express agent!

If you’d like to read more, please continue on at the California Deparment of Real Estate’s website section on agency here:
http://www.dre.ca.gov/pdf_docs/ref10.pdf

 

For related reading on agency on this blog:

What is implied agency in real estate?

Do You Need a Buyer’s Agent? Or Should You Find a Home, Then Use the Listing Agent?

Agency Question: “Do I have to buy the house from the Realtor who showed it to me?”