Does the real estate agent you hired work strictly for you or does a Designated Agency or Multi Agency relationship exist? Those relationships are common in real estate sales. This week’s question focuses on contractual relationships between buyers, sellers and their agents.
“I’ve heard the term dual agency before, but recently I read about sales that involved Designated Agency and Multi Agency. What are they?” N.C., Danville, CA
Before I explain Designated Agency and Multi Agency, we need to understand that when we hire a real estate agent, our contract (listing agreement, buyer’s representative agreement, etc.) is an agreement between ourselves and our agent’s broker – not necessarily the agent who does the work for us. This situation may not apply in all states (check with a local real estate professional for how things work in your area), but in most states there are two licenses available to those who work in real estate sales: Broker and Salesperson. A Broker may work on their own or they may be employed by another Broker. They are also authorized to hire other Brokers and Salespersons to solicit and represent clients on their behalf. A Salesperson may not work on their own, they must be employed by a person or company holding a Broker license. Any real estate contract signed by a Salesperson or by a Broker who is employed by another Broker is subject to review and acceptance by the employing Broker. I briefly touched on this in last week’s question (Who Signs Reviewed By?).
Client/agent relationships are typically Single Agency or Dual Agency. Single Agency occurs when the buyer and seller in a real estate sale each have their own agent and those agents are not employed by the same Broker. Dual Agency occurs when the buyer and seller are represented by the same agent or when both agents work for the same Broker. Designated Agency and Multi Agency are subsets of Dual Agency, let’s look at how.
What if the buyer and seller involved in a sale each hired their own agent, but both agents are employed by the same Broker (“work in the same office”)? In many states, this relationship is simply called Dual Agency. In some states it is a form of Dual Agency more specifically called Multi Agency.
For example, let’s say you hire Agent A, who is employed by Broker John at XYZ Realty’s local office, to list your property for sale. Agent A informs you that he has received an offer from a buyer represented by Agent B, who is also employed by Broker John. Because Broker John supervises both agents, the situation could be considered either Dual Agency or Multi Agency.
Now let’s say that Agent A has listed a house for sale. A former client calls and wants Agent A to submit an offer to buy the property on his behalf. Agent A informs Broker John that he has a potential Dual Agency situation. Broker John could attempt to avoid the conflicts of interest inherent in Dual Agency by designating (assigning) another agent in the office to represent either the buyer or seller in the transaction. This would create a Designated Agency situation. It is still Dual Agency, since both agents work for the same Broker and the Broker is not relieved of statutory requirements to properly supervise the agents who work for him.
A common misconception is that Dual Agency, Designated Agency or Multi Agency could exist if the buyer’s and seller’s agents work for the same franchise. Let’s say that Broker John owns and operates the XYZ Realty franchise in Big City. Agent A in the previous example works for Broker John. But now let’s say Agent B works for the XYZ Realty franchise in neighboring Little City, which is owned and operated by Broker Geraldine. Could Dual, Designated or Multi Agency exist because both agents work for XYZ Realty (substitute if you wish Century 21, Coldwell Banker or any of the other fine nationally-franchised real estate brands you’ve seen around town)? No, the client/agent relationships are Single Agency because each agent is supervised by a different Broker in an office that is separately owned and operated.
What happens if Broker John retires and sells the Big City franchise office to Broker Geraldine? If Geraldine supervises agents in both offices herself, the potential for creating Dual, Designated or Multi Agency relationships exists if both buyer and seller are represented by agents who work in either office.
Are Dual, Designated or Multi Agency relationships in the best interest of the client? That’s a question often debated among real estate professionals due to potential conflicts of interest. Eighteen states currently have restrictions on various forms of Dual Agency. Some sellers specify in their listing agreement that any form of Dual Agency is not acceptable in their sale. Discuss your specific situation with your agent to make sure you understand agency relationships and any potential conflicts of interest that could be exist in your transaction.
You may also see the term Transaction Brokers, which are specifically regulated in Kansas, Florida and Oklahoma. A Transaction Broker may represent both buyer and seller in the same transaction, but the scope of their services is reduced to remove most potential conflicts of interest created by Dual Agency. Brokerages in most other states offer similar services.
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NOTE: Real estate questions are answered within the scope of real estate broker expertise and no legal or tax advice is provided. Contact a qualified legal or tax professional for questions regarding those issues.
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