What is a real estate agency?

Q: Marsha, I don’t understand the term “agency” in California real estate. I’m involved in buying a house and I keep signing “agency disclosures”. What do I sign?

A: Good question! Join the club of not understanding what agency means in real estate. It seems like the relatively benign concept of who works for whom should be easily understood and clear. Wrong! Most civil lawsuits in real estate involve an agency: negligent misrepresentation, breaches of fiduciary duty by real estate licensees, and failure to disclose professional relationships. Note: I’m not a lawyer, so don’t take what I say as legal advice.

One of the forms you have no doubt signed is the “Realtorship Relationship Disclosure”. This form defines different agency configurations and what are the obligations of the real estate agent vis-à-vis the main stakeholders. There is the seller’s agent, the owner of the property, the buyer’s agent, the buyer of the property, or a real estate agent or a company representing both parties.

It is essential to know who the principals are and who represents them in the transaction. Agents have a fiduciary duty to their principals. This means that they must put their principal’s financial concerns ahead of their own.

Confuses? It’s easy to get bogged down in terminology. California has worked tirelessly over the years to provide transparency and clarity on the subject. Agents are required to have potential and new clients sign agency disclosure forms as soon as they begin a real estate relationship with a buyer or seller.

A few years ago, the California Association of Realtors (CAR) updated the Residential Purchase Agreement to put more emphasis on the agency. The first paragraph of the purchase agreement indicates the names of the buyers, the address of the property and the proposed purchase price. The second paragraph discloses and confirms who is representing whom. The agency is indicated as soon as possible; it’s so important.

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The traditional way real estate agents are paid has created much of the mystification. Real estate commissions are always negotiable. In Santa Barbara, commissions are usually 5 or 6% of the final purchase price. The listing agent presents the house for sale in the multiple listing service and agrees to share the commission with the buyer’s agent. Looks like the seller is paying for both agents. So aren’t the two agents working for the seller? But wait, an argument can be made that the buyer actually pays the commissions. The seller settles all the debts of the transaction from the buyer’s purchase price. This is an ongoing discussion in real estate.

What matters is not who pays the agents; that’s what agents represent. Agents owe their loyalty and fiduciary responsibility to their primary clients. They owe honesty, ethical behavior and full disclosure to the other agent’s client. If dual agency occurs, the agent, who now represents both seller and buyer, has a fiduciary duty to both principals.

I hope this gives you some understanding of what agency means in real estate. It is a fundamental and essential concept in residential real estate transactions. Who looks out for your best interests? It better be your agent.

Marsha Gray, DRE # 012102130, NMLS # 1982164, has been a real estate broker in Santa Barbara for over 20 years. She works at Allyn & Associates, real estate services and loans. To read more Q&A articles, visit MarshaGraySBhomes.com. She will research and answer all questions submitted. Contact Marsha at (805) 252-7093 or [email protected].

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