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How Does Agency in Real Estate Work: A Comprehensive Guide

By Bill Gassett | September 20, 2023

Real estate transactions involve complex legal and financial processes that require the involvement of professionals who act on behalf of clients. Real Estate agents play a crucial role in facilitating the buying and selling of properties.

Understanding the various types of agency relationships in real estate is essential for buyers and sellers to navigate the intricacies of the market effectively.

Unfortunately, many consumers have no idea how our business works. As agents, we often assume they do, which is a mistake.

In my experience as a Realtor for the past three decades, many buyers and sellers are clueless about agency in real estate. We will take an in-depth look at what you should know.

You will get a more comprehensive understanding of the types of real estate agents and agency agreements.

Agency in Real Estate

In real estate, the term "agency" refers to a legal relationship between a client and an agent, where the agent represents the client's interests in a transaction. This relationship is based on trust and comes with specific duties and responsibilities that the agent owes to the client.

Most real estate companies in the US practice designated agency whereby agents represent buyers and sellers. Maximum Real Estate Exposure has an excellent article that discusses everything you should know about designated agents. It is worth your time reading.

Types of Agency in Real Estate

There are several agency relationships in real estate, each with its characteristics and implications. These agency relationships can be broadly categorized into three main types:

Seller's Agent (Listing Agent)

A seller's agent represents the seller in a real estate transaction. They are also called listing agents. Their primary duty is to promote the seller's interests and help them achieve the highest possible price for their property.

Seller's agents are responsible for marketing the property, negotiating offers, and guiding the seller through selling. They owe their loyalty and confidentiality to the seller.

Their ultimate goal is to get a home sold for the best terms and conditions for a seller.

Buyer's Agent

Conversely, a buyer's agent exclusively represents the buyer's interests. Their primary role is to assist the buyer in finding suitable properties, evaluating them, and negotiating the best deal on behalf of the buyer.

Buyer's agents owe their loyalty and confidentiality to the buyer and work to protect the buyer's interests throughout the transaction.

Many years ago, buyer's agency didn't exist. Every real estate agent represented the seller. Outside real estate agencies would be considered sub-agents to the listing brokerage. In the 90's, agency law changed, and consumers were allowed to have representation. It was a great move to level the playing field in real estate.

Today, most real estate companies have agents that practice buyer's agency. Some companies even work exclusively with buyers. It is called an exclusive buyer's agency. They do not list properties or work with sellers.

The listing agency typically compensates buyer's agents. However, in cases where a buyer's agent finds an off-market home or FSBO, they may need to pay their agent.

Dual Agency

Sometimes, a real estate agent or brokerage may act as a double agent, representing both the seller and the buyer in a single transaction. It is called dual agency.

Dual agency is legal in some states but heavily regulated. When a dual agency occurs, the agent must remain impartial, treating both parties fairly and honestly.

However, this type of agency relationship can present potential conflicts of interest, so it's essential for both parties to be aware of the arrangement and seek legal advice if necessary.

Frankly, dual agency is one of the dumbest things in real estate. Real Estate agents become neutral parties in this arrangement. By law, they are not allowed to give either party any advice. Doing so would conflict with the other party.

The reason why consumers have a real estate agent is for guidance and advice. That goes out the window when you participate in dual agency.

Buyers and sellers should avoid dual agency. Otherwise, you risk having a terrible real estate transaction.

Types of Agents in Real Estate

Within these agency relationships are various types of real estate agents, each specializing in different aspects of the industry.

Let's review each type of agent:

Listing Agent

Listing agents, also known as seller's agents, work with property sellers. Their primary role is to help homeowners sell their properties. They provide valuable services such as conducting market analyses to determine the property's value, developing marketing strategies, and promoting the property to potential buyers.

Listing agents work diligently to secure their clients' best possible sale price.

Buyer's Agent

Buyer's agents assist individuals or families looking to purchase real estate. They focus on the buyer's needs and preferences, helping them find suitable properties, scheduling property viewings, and guiding them through purchasing.

Buyer's agents use their local market knowledge to negotiate favorable terms and prices for their clients.

Real Estate Broker

Real estate brokers are highly experienced agents who have completed additional education and licensing requirements beyond that of a standard real estate agent. They often lead teams of agents and may own or manage their brokerages.

Brokers understand real estate laws and regulations and can handle more complex transactions. Depending on the situation, they can also act as listing agents, buyer's agents, or dual agents.

Transaction Coordinator

Transaction coordinators are not agents in the traditional sense, but they play a crucial role in managing the administrative aspects of real estate transactions. They help ensure that all necessary paperwork is completed accurately and submitted on time. This role is precious in providing a smooth and organized transaction process.

Some transaction coordinators are licensed agents, while others are not.

Property Manager

Property managers are responsible for managing rental properties on behalf of property owners. Their duties include finding and screening tenants, handling maintenance and repairs, collecting rent, and addressing tenant issues.

Property managers are vital for property owners who want a hands-off approach to rental property ownership. A property manager may or may not be licensed.

Commercial Real Estate Agent

Commercial real estate agents specialize in the buying, selling, or leasing commercial properties, such as office buildings, retail spaces, warehouses, and industrial facilities. They deeply understand the commercial real estate market and work with businesses and investors to meet their property needs.

Real Estate Appraiser

Real estate appraisers are professionals trained to determine the market value of properties. They thoroughly assess property condition, location, comparable sales, and market trends.

Lenders, buyers, and sellers rely on appraisers' expertise to establish fair and accurate property values. Some appraisers are also licensed real estate agents.

Final Thoughts

In real estate, agency relationships are fundamental to the buying and selling. Clients rely on agents to provide expert guidance and represent their interests effectively.

Understanding the types of agency relationships and the roles of different agents can empower buyers and sellers to make informed decisions and confidently navigate the complex real estate market.

Whether you are a buyer or a seller, choosing an agent who can best meet your needs and goals in the real estate transaction is essential.

Bill Gassett is an authority in the real estate industry with 38 years of experience. Bill is well respected for his informative articles for buyers, sellers, and fellow real estate agents to make sound decisions. His work has been featured on RIS Media, the National Association of Realtors, Inman News, Newsbreak, Credit Sesame, Realty Biz News, and his own authoritative resource, Maximum Real Estate Exposure. He has been on of the top RE/MAX agents in New England over the last two decades.
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