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A Comprehensive Guide to Two Types of Agency in Real Estate

Aug 16, 2023  
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In the realm of common law agency, the agency relationship typically exists between the client (buyer or seller) and the real estate brokerage (company). However, when both parties in a transaction are represented by the same brokerage, it can lead to conflicts of interest. To address this issue, designated agency was introduced as an alternative approach to traditional common law agency practices. In designated agency, the agency relationship is established between the client and specific designated agent(s) within a particular brokerage, rather than the brokerage as a whole. The implementation of designated agency effectively eliminates conflicts of interest that commonly arise in brokerages when two Real Estate Agents from the same firm represent both the buyer and seller in the same transaction. This model allows industry members to act as sole agents and fulfill full fiduciary duties to their clients, except in situations where the same designated agent(s) represents both the buyer and seller in the same transaction.
In situations where the designated agent represents the other party in the transaction, this creates the same conflict as seen in common law agency (i.e., the same agent represents both parties). In designated agency, there are additional options to resolve the conflict, similar to those identified in common law. For instance, the client can be referred to another designated agent within the brokerage who can provide sole agency representation.
Real estate agents under designated agency have a set of legal and ethical duties to their clients, which include:
Loyalty: To protect their client’s negotiating position and act honestly in their best interests.
Obedience: To carry out all lawful instructions given by their client.
Confidentiality: To maintain the confidentiality of their client’s information.
Competence: To exercise reasonable care and skill in performing their duties.
Disclosure: To disclose any relevant information known to the agent that may impact their client’s decisions.
Accounting: To keep proper records and account for all money and property held on behalf of their client.
Finally, it is the client’s duty to pay any agreed-upon compensation to the brokerage for their services.

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