Implied agency and agency relationships
Before explaining implied agency, it’s best to start with what an agency relationship is or means. If you hire a real estate licensee or Realtor to assist you in buying or selling a home, normally you and he or she create an agency relationship.
In California, a licensed real estate professional can be a buyer’s agent, a seller’s agent, or, if disclosed, a dual agent – representing both parties, both buyer and seller. The agent, by the way, references both the individual real estate licensee as well as the broker. If the same broker of record represents both the home buyer and seller, it’s a dual agency situation, even if there are different Realtors involved.
Here, we use a disclosure form (see link at bottom of article for the full text of it) which spells out the agency relationship and duties – it is statutory, meaning that the state dictates the words to be used on the form, whether it’s published by the California Association of Realtors, the Peninsula Real Estate Date Services or any other entity. An agency relationship means several things, but above all, it means that the real estate professional has fiduciary obligations to the seller or buyer being represented, including those of of “utmost care, integrity, honesty, and loyalty” to that client.
Most of the time, when an agency relationship has been created, there’s a meeting of the minds between consumer and real estate professional that they will be working together. The relationship is not accidental, but intended and explicit.
Sometimes, though, in the course of casual conversation, it may be possible to accidentally create an agency relationship. If this happens, it is referred to as “implied agency“. How can this be? This may occur when the real estate professional casually provides the type of guidance and advice that would be reserved for clients, but that consumer relies upon that advice.
For instance, tonight someone I do not know, not a client, phoned me to discuss home buying generally. In the course of our conversation, he asked what I thought of a listing’s price. That’s the kind of question I cannot casually answer, and cannot risk answering with someone who is not my client. (Also note: with my clients, I will pull the comps and crunch numbers before stating what I think of a price. It is too important to be sloppy in this regard.)
Implied agency example
Think of it this way – what if I asserted that the price was low, and that it should sell for more. Perhaps that consumer would then go and write an offer, perhaps directly with the listing agent, but not with me, at full price. Later, though, maybe the house doesn’t appraise and this same home buyer is now out the cost of inspections and appraisal – because he relied upon my comment in saying that the price was good. Here there is no express relationship, just a casual conversation, but if he relies on my words, then I become an accidental or implied agent and risk liability. If that risk isn’t enough of a negative, at the same time I have no chance to be compensated should the sale go through because of my advice either. For the real estate professional, it’s all bad!
In my two plus decades of selling real estate in Silicon Valley, I have come across many buyers who want to pump me (or others in the business) for information, but at the end of the day do not want to hire me or anyone else, but instead go to a listing agent to purchase the property they want and instead have a dual agency situation. That is certainly their right, to hire whomever they want, but there is no reason for real estate professionals to spend a lot of time with people who are not looking to hire a Realtor or other licensee and create an explicit agency relationship. This can happen with sellers too, who request a market analysis but whose intent is to sell to someone they already know. That is tricky since part of a listing presentation is clearly to provide some guidance and advice – which we would give to clients – even though the seller at that point is only a potential client.
Sometimes consumers may wonder why they cannot get all kinds of serious questions answered by a Realtor who’s not their agent. It’s not that we, as professionals, don’t want to help – we do. Real estate sales is a supremely help-centered profession. But there are professional liabilities that come with giving actionable information, so it’s a balancing act. My suggestion to buyers and sellers both is to interview a few agents, then hire one and work with him or her. Most of the time, you will find that a highly experienced and knowledgeable agent is happy to provide a wealth of information to you once there is that express or explicit agency relationship created.
For more reading:
You can read the wording of the Agency Relationship Form online here:
DISCLOSURE REGARDING REAL ESTATE AGENCY RELATIONSHIP CAL. CIV. CODE § 2079.16 : California Code – Section 2079.16 o
What is the difference between a Realtor and a real estate licensee? (on my popehandy.com website)