Real Estate Agency Law: How Agency is Created
A Status That Defines the Duties of the Agents and Rights of the Client
Express agency is created by either an oral or a written agreement between the principal and the agent. It indicates their express intent for this representational status.
In real estate, agency is normally created by either a written listing agreement with a seller or a buyer agency agreement with a buyer. Some states allow verbal agreements, but most do not.
It is also possible to create an agency relationship by the actions of the parties. If a real estate agent takes on responsibilities that are normally those of an agent, but hasn't signed an agency agreement, she may still be considered an agent via implied agency. By the same token, if the customer asks the agent for advice or actions that are normally those in agency, then an implied agency could be created.
Some states have created specific legislation that states that no agency can exist without a written agency agreement. This helps to avoid accidental implied agency.
In the states that haven't ruled out implied agency, if you have an agency representation status with your listing client, be careful what you do if you are working with a buyer interested in that listing. First, you would need to disclose the agency status to the buyer and then not undertake duties that would imply that you are also their agent.
The Way It's Mostly Done Today
My license hangs in New Mexico, but I've also held broker licenses in Texas and Colorado in the past. Many states now have documents and disclosures that support "transaction brokerage," or called by other names, the representation of a buyer or seller without "agency." The term real estate agent rarely means that anymore these days.
So, I can take a listing and not be an agent for the seller, and that's exactly what I always did. The only time the question of agency ever came up with a buyer or a seller was if I was working with an attorney or a judge. For some reason, I attracted them with my website. They did not want me to be their agent due to vicarious liability.
Vicarious liability puts the agent's client at risk for the activities of their agent. So, if I were to do something wrong or make a mistake, my client would be held liable as well. These legal people knew that they didn't want that risk, even though they knew I followed the rules carefully.
When I worked with buyers, I always worked as a transaction broker, never an agent. They almost never asked, and our state disclosure form clearly set out my duties to my customer. Here they are straight from the law:
A. honesty and reasonable care as set forth in the provisions of this section;
B. compliance with local, state, and federal fair housing and anti-discrimination laws, the New Mexico real estate license law and the real estate commission rules, and other applicable local, state, and federal laws and regulations;
C. performance of any and all written agreements made with the customer or client;
D. assistance to the broker’s customer or client in completing the transaction, unless otherwise agreed to in writing by the customer or client, including:
- presentation of all offers or counter-offers in a timely manner; and
- assistance in complying with the terms and conditions of the contract and with the closing of the transaction; if the broker in the transaction is not providing the service, advice or assistance described in Paragraphs (1) and (2) of Subsection D of 22.214.171.124 NMAC, the customer or client must agree in writing that the broker is not expected to provide such service, advice or assistance, and the broker shall disclose the existence of such agreement in writing to the other brokers involved in the transaction;
E. acknowledgement by the broker that there may be matters related to the transaction that are outside the associate broker's or qualifying broker's knowledge or expertise and that the associate broker or qualifying broker will suggest that the customer or client seek expert advice on these matters;
F. prompt accounting for all money or property received by the broker;
G. written disclosure to their client or customer and to other brokers involved in the transaction of any potential conflict of interest that the broker has in the transaction including but not limited to:
- any written brokerage relationship the broker has with any other parties to the transaction or;
- any material interest or relationship of a business, personal, or family nature that the broker has in the transaction;
- other brokerage relationship options available in New Mexico;
H. written disclosure of any adverse material facts actually known by the associate broker or qualifying broker about the property or the transaction, or about the financial ability of the parties to the transaction to complete the transaction; adverse material facts requiring disclosure do not include any information covered by federal fair housing laws or the New Mexico Human Rights Act;
I. maintenance of any confidential information learned in the course of any prior agency relationship unless the disclosure is with the former client's consent or is required by law;
J. unless otherwise authorized in writing, an associate broker or qualifying broker shall not disclose to their customer or client during the transaction that their seller client or customer has previously indicated they will accept a sales price less than the asking or listed price of a property; that their buyer client or customer has previously indicated they will pay a price greater than the price submitted in a written offer; the motivation of their client or customer for selling or buying property; that their seller client or customer or their buyer client or customer will agree to financing terms other than those offered; or any other information requested in writing by the associate broker's or the qualifying broker's customer or client to remain confidential, unless disclosure is required by law.
That takes care of any concerns my customers may have had.