Real estate licensees in most all States deal with guidelines and regulations by Offices of the Attorney General and/or the State Real Estate Commission and Division. There are approved and required documents for practitioners to use and usually the failure to do so places the licensee in violation of license requirements. One exception to this general requirement is if the parties, particularly the buyer since the buyer usually originates the offer for purchase, uses a document prepared by an attorney. The objective of providing these kinds of documents was to achieve greater fairness for all parties to the agreement, as well as efficiency for the contract process and protection to practitioners.

In addition to the elements required in most Real Estate Purchase Contracts, the states have also taken bold measures requiring “Written Agency Disclosure” to aid in the disclosure process and the work-a-day relationships with real estate practitioners.

Administrative rules or legislative mandates were passed to guide licensees during their disclosures of agency. Licensees are generally required to have a written agency agreement with their principals. This has been standard practice for some time when contracting with a seller to market a property. There has been a formal contract between agent and the seller for a specific period of time, to do certain things, and for the payment of particular fees or commission. But licensees had been hesitant to ask buyers to sign buyer agency agreements. However, this practice is now mandated by most state rules. Licensees are required to have written agency agreements with Buyer Clients as well. In Utah, the administrative rule even states that "the failure to define an agency relationship in writing will be considered unprofessional conduct and grounds for disciplinary action by the Division.”

The agency rules define what a licensee's fiduciary duties are in any agency relationship. There are also very strict and very clear mandates of what a licensee is to do in the event of representing more than one party, both seller and buyer, in the same transaction. This requires written, informed consent by the parties for the agent to so act.

When a buyer actually contracts with a licensee to create an agency relationship, tremendous benefits come to the parties to the agreement. First of all, it clarifies the relationship and defines the ground rules for the work to be done and the legal consequences and opportunities of the relationship. Then, when properly communicated and explained, the buyer will have greater confidence in the agent, for the agent is now the buyer's agent.
In years past, and to some extent even today, prior to “Buyer Agency Representation and Disclosure,” it was often assumed by the buyer that the licensee was the buyer's agent. In fact, in many cases due to statements or conduct of the licensee, the buyer concluded that the licensee was the buyer’s agent. But in most cases, the licensee was legally the agent or sub-agent of a seller.

This is now changed in most jurisdictions. The parties are to be who the parties are, and disclose properly; then act accordingly. With the agency rules what they are today, especially dealing with buyer-agency relationships, licensees are required to give the proper disclosure prior to the writing of an offer leading to the contract for purchase. It seems important that the buyer and licensee have this vital agency disclosure discussion early in the relationship, before either party, buyer or licensee, divulge or obtain information that could create an inadvertent implied agency if in fact agency is not desired.

Buyers should not only be aware, but also expect that a real estate licensee who is doing his or her job professionally, will address this topic and deal with this process early in the relationship. It is becoming more common that buyers not only want, but demand representation.

Author
Jim Coleman writes a weekly real estate issues column for THE DAILY SPECTRUM. He is Associate Broker at ERA Brokers Consolidated and the owner of Real Estate Specialist, the RealtyU® Affiliate in Utah.