Agency Disclosure

Definition

Agency Disclosure is a formal, written document that informs a prospective buyer or seller about the nature of the agency relationship that the real estate broker has in a transaction. This document must be signed by the client and is designed to clarify whether the broker represents the buyer, the seller, both parties (known as dual agency), or if the broker is acting as a subagent for another broker. This clarity helps ensure that the client is aware of to which party the broker owes their fiduciary duty and loyalty.

Examples

Example 1: Jane Buyer looks at a house with Realtor Rick. Realtor Rick presents Jane with an agency disclosure form stating that he represents the seller of the house. This disclosure helps Jane understand that Realtor Rick’s primary loyalty is to the seller, not to her as a buyer.
Example 2: Agent Angela meets with Homeowner Hector who wants to sell his house. Before signing the listing agreement, Angela provides Hector with an agency disclosure form stating that she will act as his agent, representing his interests during any potential negotiations with buyers.

Frequently Asked Questions

Q1: Why is agency disclosure important?
Agency disclosure is crucial as it informs the client who the broker represents and to whom the broker owes fiduciary duties, which include loyalty, obedience, disclosure, confidentiality, accounting, and reasonable care.

Q2: What are fiduciary duties?
Fiduciary duties are the obligations that an agent owes to their client, such as loyalty, care, confidentiality, disclosure, and obedience.

Q3: What is dual agency?
Dual agency occurs when a broker represents both the buyer and the seller in the same transaction. This relationship can only proceed with the informed consent of both parties involved.

Q4: What is a subagent?
A subagent is an agent who works for another agent representing the seller. The subagent is typically employed by the seller’s broker and brings potential buyers to the property.

Q5: Can I refuse to sign an agency disclosure?
While you can refuse to sign an agency disclosure, it may lead to complications or even prevent the continuation of certain real estate services, as it’s a legal requirement in many states.

Fiduciary Duty: Legal obligation of one party to act in the best interest of another. The fiduciary is entrusted with duties such as care, loyalty, disclosure, obedience, and accounting.
Exclusive Agency: A relationship in which a broker represents the seller and the seller agrees not to list the property with any other broker. However, the seller maintains the right to sell the property themselves without paying a commission.
Exclusive Authorization to Sell: A contractual agreement between a listing broker and a property owner where the broker has the exclusive right to earn a commission if the property is sold, regardless of how the buyer was found.
Buyer Representation Agreement: A document establishing a formal agency relationship between a buyer and a broker, outlining the duties and obligations.
Dual Agency: A situation where a single broker represents both the buyer and the seller in a real estate transaction, requiring clear consent from both parties.

Online Resources

References

National Association of Realtors. “Code of Ethics and Standards of Practice.” NAR
Real Estate Commission Policies on Agency Disclosure. State of — Insert your state— Department of Commerce.

Suggested Books for Further Studies

“Your Agent Toolkit: What Every Agent Should Know About Real Estate Transactions” by Dirk Zeller
“Real Estate Agency Law” by Kathryn Haupt and David Rockey
“Modern Real Estate Practice” by Filmore W. Galaty, Wellington J. Allaway, Robert C. Kyle
“The Real Estate Wholesaling Bible: The Fastest, Easiest Way to Get Started in Real Estate Investing” by Than Merrill
“Essentials of Real Estate Finance” by David Sirota

Real Estate Basics: Agency Disclosure Fundamentals Quiz

### Why is agency disclosure important in a real estate transaction? - [x] To inform the client who the broker represents - [ ] To hide the broker's true intentions - [ ] To increase the property's market value - [ ] To expedite the transaction process > **Explanation:** Agency disclosure is important because it informs the client about the broker’s representation and to whom the broker owes their fiduciary duties. ### What does dual agency mean? - [x] The broker represents both the buyer and seller - [ ] The broker represents only the buyer - [ ] The broker represents only the seller - [ ] Two different brokers are involved in the same transaction > **Explanation:** Dual agency occurs when a single broker represents both the buyer and the seller in the same transaction. ### To whom do fiduciary duties apply? - [ ] The general public - [x] The broker's client - [ ] The broker’s colleague - [ ] The lending institution > **Explanation:** Fiduciary duties apply to the broker’s client, encompassing responsibilities like loyalty, confidentiality, and reasonable care. ### What must a client receive before signing a contract with a broker? - [ ] Financial statements of the broker - [ ] Details about other clients - [x] Agency disclosure form - [ ] Market analysis report > **Explanation:** Clients must receive an agency disclosure form before signing a contract to inform them about the nature of the broker’s relationship and representation. ### Can a broker conceal the agency disclosure from a client? - [x] No, it is a legal requirement - [ ] Yes, if the client trusts the broker - [ ] Yes, to make the deal smoother - [ ] No, only in dual agency scenarios > **Explanation:** Concealing agency disclosure is contrary to legal requirements and ethical standards, which mandate transparency. ### What happens if the client refuses to sign the agency disclosure? - [ ] The transaction continues smoothly - [ ] The broker earns a higher commission - [x] It may lead to complications or halt the process - [ ] The property value increases automatically > **Explanation:** If a client refuses to sign the agency disclosure, it may complicate or halt the transaction, as the form is often a legal necessity. ### What is a subagent? - [ ] A primary broker - [x] An agent working on behalf of another agent's client - [ ] A broker in a different market - [ ] A client with agency rights > **Explanation:** A subagent works on behalf of another agent and typically assists in representing the agent’s client. ### How often should agency disclosure be updated? - [ ] Every month - [ ] Annually - [x] Each time a new client begins a transaction - [ ] Whenever asked by the client > **Explanation:** Agency disclosure should be provided each time a new client begins a transaction to clearly explain the nature of the brokerage relationship. ### Why should buyers understand the importance of signing an agency disclosure form? - [ ] To make higher bids - [x] To understand the broker's loyalty and representation - [ ] To secure better financing - [ ] To bypass legal requirements > **Explanation:** Understanding and signing an agency disclosure form helps buyers understand who the broker is representing, ensuring transparency about where the broker’s loyalties lie. ### What term describes an agent working with both the seller and the buyer in the same deal? - [ ] Buyer agent - [x] Dual agent - [ ] Exclusive agent - [ ] Subagent > **Explanation:** Dual agency refers to one agent representing both the seller and the buyer in the same real estate transaction.