REALTOR® Magazine Online: Agency Options: Risks and Rewards

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			*Risk management* Controlling Transaction Risks
	Three Lines of Defense Against Risk Keeping Risks Under Control Controlling Transaction Risks Agency Disclosure Avoiding Antitrust Risks Minimizing Liability from Contracts Fair Housing Risks Controlling Personnel Risks Communications Policies to Minimize Risks Insuring Against Risks More Resources: Controlling Business Risks Code of Ethics: Controlling Business Risks		Agency is a relationship between a principal (seller or buyer) and an agent (broker) who acts on behalf of the principal in dealing with a third party. Most agency relationships in real estate are created by written agreement, but a formal document is not required in all states. Agency relationships also can be created by the words, actions, or deeds of the parties, and don't require any form of compensation. The agency relationships created between the broker and consumers typically extend to the broker’s sales associates. Agency Options: Risks and Rewards To help your sales associates understand the ramifications of the agency relationships you choose, hold a sales meeting on agency, using the Prepackaged Sales Meetings on Understanding Agency . Your options when choosing agency relationships are limited to those available to you under your state’s statutes. Typically state statutes allow: 1. Single representation. An agent represents either a seller or a buyer, but never both in the same transaction. Pros: A clear-cut line of responsibility for the associate with no chance of a conflict of interest between the buyer and the seller that might occur during the transaction. Cons: A rigid structure that may necessitate referring a client to another brokerage if conflicts arise. 2. Exclusive seller representation. An agent represents only sellers, never buyers. Licensees work with buyers as customers, but remain agents of the seller. Pros: A familiar structure to most real estate professionals, which accommodates the sale of in-house listings. Cons: Buyers working with the company don't have the option of full representation. The chance of creating undisclosed dual agency is increased unless care is taken in both words and conduct to ensure that buyers understand that the sales associate doesn't represent them. 3. Exclusive buyer representation. An agent represents only buyers and never lists properties. Pros: A more natural relationship with the buyers is created and the risk of inadvertent dual agency is minimized. Cons: A loss of potentially significant revenues from listings, as well as a possible increase in conflicts over compensation when the sellers pay it. 4. Buyer and seller representation with disclosed dual agency. An agent may represent both the buyer and the seller in the same transaction, with the informed consent of both. Not permitted in all states. Pros: A option that permits the benefits of an agent’s advice to both parties, this representation can usually be introduced in a company that formerly did exclusive seller representation without many changes in procedure. Cons: Full representation is not available to either buyer or seller. Conflicts may be created if buyers refuse dual agency or the nature of dual agency is not clear to the parties. 5. Designated representation. One agent in the brokerage company may be designated to represent the buyer and another agent to represent the seller. Only available if expressly authorized by a state’s law. Pros: The opportunity to offer both buyer and seller services with representation while avoiding the possible pitfalls of dual agency . Cons: The need to establish careful guidelines for handling the confidential information of both parties in the same company TIP: Some states also permit licensees to have non-agency, “facilitator” relationships with parties to a real estate transaction. Such “transaction broker” relationships may include many of the same functions as a traditional agency one, but the licensee typically owes reduced duties to the parties. For example, facilitator relationships often do not have the duty of absolute loyalty. Dual Agency Do's and Don'ts >		Keep It Ethical Be sure that agents advise clients about which parties they are representing under company agency policy and how they will be compensated. (Standards of Practice 1-12 and 1-13 )

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