Agency is defined as “one who is authorized to act in the place of another, specifically an official business representative.” This definition is where real estate agency gets its roots. When a home buyer or seller hires a broker or agent, that person acts as an authorized person on behalf of the buyer or seller. Knowing the different types of real estate agency relationships will ensure you know what your rights and obligations are during the home buying and selling experience.
Over the years, the agency relationship has changed. The real estate market has become much more sophisticated, and we’ve needed ways to define different agency relationships. Below, we’ll explain the differences between the types of agents you may encounter and how they work for you. (I also recently wrote about the difference between mortgage brokers vs bankers vs direct lenders.)
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- What is it? A listing agent works with the homeowner who is selling their home. These real estate agents represent only the seller. All fiduciary duties are owed to the seller in this case, regardless of whether the agent was working with the buyer (this is done through sub-agency). We hold the position that most sellers need a listing agent but some sellers utilize For Sale By Owner (FSBO).
- What are the duties and responsibilities? When the agent is a listing agent, they are responsible to the seller, and all duties are done for the seller’s benefits. This means loyalty, diligence, confidentiality, obedience, disclosure, accounting, and care are between the seller’s agent and the seller. Read more about what a good seller’s agent does.
- Is there exclusivity? According to the National Association of Realtors, when a seller signs a “right-to-sell” agreement with their listing agent, they agree to compensate the agent “regardless of whether the property is sold through the efforts of the listing broker, the seller, or anyone else.” This means, there is exclusivity between homeseller and their agent (i.e., the seller cannot hire a second listing agent to attempt to sell their property).
- How do they get paid? Seller agents get paid on commission. In many cases, the listing agent and buyer’s agent will split the commission to cover many costs. Agent fees are often up for negotiation, so make sure you’re looking for the best option for you if you’re selling your home.
- What is it? A buyer’s agent helps the homebuyer. They are there to help you find homes that fit your budget and criteria, and you can work with them to get through the home buying process smoothly and effectively. Even though the internet democratized the home buying experience, most homebuyers still need a buyer’s agent.
- What are the duties and responsibilities? A good buyer’s agent should protect the buyer’s best interests, working to find the right home, inspector, and negotiate with the sellers to get the best price possible.
- Is there exclusivity? Unless a buyer signs an exclusivity contract with their agent, there is no exclusivity between them. With the agreement, a buyer can go find a new agent, and an agent can represent both the buyer and seller. It also means that if a buyer finds a home they like that wasn’t provided to them by the buyer’s agent, the agent will not receive a commission. This is why buyer agents prefer to have their clients sign exclusivity documents.
- How do they get paid? Similar to a seller’s agent, a buyer’s agent most often receives a commission as payment. In some situations, the listing agent pays the brokerage, which ends up becoming the buyer’s agent’s commission.
- What is it? A dual real estate agency is one that helps both the buyer and seller, representing them equally. Typically, the agency may start by establishing a relationship with a seller. Still, once the buyer is interested in purchasing the property under the same broker, the situation becomes a dual agency.
- What are the duties and responsibilities? In a dual agency, the seller and buyer agree to terms that prevent information from being spread to give one side an advantage over the other.
- Is there exclusivity? There’s no exclusivity, but the agent must agree to terms with the buyer and seller that they won’t disclose information that creates advantages or disadvantages for either party.
- How do they get paid? Dual agents typically receive double the commission because they are representing both sides in the transaction.
Designated Agency (or, Cooperating agency)
- What is it? A designated agency is when two different agents represent the buyer and seller, but both agents belong to the same real estate brokerage firm. The buyer has their agent, the seller has theirs, and both agents are employed by the same brokerage.
- What are the duties and responsibilities? Designated agencies should hold the same commitment to the buyer and seller, protecting information and preventing one side from having an advantage or disadvantage.
- Is there exclusivity? The agency itself doesn’t exclusively represent one party over the other. Instead, the individual agent for each party holds exclusivity to the person they are representing.
- How do they get paid? Like a dual agency, the broker receives a double commission because they have agents representing buyers and sellers.
The Difference Between a Broker vs. Real Estate Agent vs. Realtor
You may hear numerous titles during the process, and it can get confusing if you don’t know what they mean. Three different terms you may hear are broker, realtor, and real estate agent. While most people throw these terms out in the same context, there are some differences that you should know about as you go through the home buying or selling process.
- A real estate agent is a specific person with a professional license who can help buyers or sellers. A real estate agent undergoes significant training and coursework to become licensed.
- A broker is someone who goes beyond the education of becoming a real estate agent. They learn about legal issues, run a brokerage or property management group, and understand legal matters concerning construction and real estate investments.
- A realtor is a particular and prestigious title that real estate agents can use when they become members of the National Association of Realtors. Realtors must meet the standards set forth by the association, including their code of ethics, meaning buyers and sellers can have peace of mind when buying or selling with a realtor.
Whether you’re buying or selling a home, working with a specific agent can benefit your needs. Agencies can help through the negotiation and, more, easing you through an otherwise lengthy process. You can feel confident in protecting your best interests with the right agency, whether you are buying a home with a buyer’s agent or selling your home through a seller’s agent.