The Laws Of Agency In Real Estate Transactions

The Laws Of Agency In Real Estate Transactions

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Agency: most real estate agents understand this concept and most consumers do not!  But “agency” has a huge impact on the working relationships with real estate agents, sellers, and buyers.

The Laws of Agency is that body of law that covers that special relationship between a principal (also known as a “client”) and their agent.   This special relationship – where the agent agrees to work in the best interest of the other- is an intentional relationship that is formed by the consent of both parties.  It creates heightened, legal responsibilities that are more than that of just a salesperson and a customer.

In the world of real estate, this usually means the seller signs a listing agreement or the buyer signs a buyer/broker agreement, thereby forming this exclusive, agency relationship by contract.   Consumers should never interpret a real estate agent’s behavior as implying an agency relationship.   Agency is created by signing an agreement that specifies the parties have purposely entered into this client/agent relationship, thereby creating these extra duties.

One of the biggest responsibilities an agency relationship creates is that the real estate agent must do what is best for that buyer or seller, not what the agent thinks is good for themselves.  Another responsibility is to keep confidential the sensitive information a principal/client shares with their agent.   This includes keeping confidential any private information that could adversely affect the principal’s position, like sharing information about their desperate need to buy/sell or the lowest price they would accept, etc.  Without the principal’s express permission, the agent should never share any information that could change or weaken the principal’s bargaining position.

Pennsylvania tried to educate the consumer on real estate agency when they created the Consumer Notice and required real estate agents to give this notice to consumers BEFORE the agent had any “substantive discussion about real estate”.   This Notice informs the consumer of the different relationships that can be formed and what duties are owed to them under the law. And it must happen before a consumer starts sharing sensitive information.   It is an important (and required) step that should never be missed. 

In the 3 decades that I have been involved in the real estate arena as a Broker, an Attorney, and a Real Estate Educator, I often hear agents refer to people as “my buyer” or “my seller”.  While common terminology, these terms do not describe the relationship that has (or has not) been created.   This way of talking does not describe whether a principal (client) / agent relationship has actually been formed.  And it matters!    The extra duties of level of care, financial accounting of monies, loyalty to the principal above all others, disclosure of important, need-to-know information, confidentiality of private knowledge, and obedience to the principal’s direction, are mandated at the client/agent level.   Therefore, signing on with an agent to represent you can  help to protect a buyer’s or seller’s interests.

This is only a partial discussion on agency in Pennsylvania.  It may not be reflective of the law in other states and it is too general to constitute specific legal advice for any one person.  As always, seek legal counsel for a detailed analysis of your particular situation.

Article provided courtesy of:
Kathy Connors, Esq.
RE/MAX Associates of Lancaster - RE/MAX Pinnacle In-house Legal Counsel

Tom Blefko Headshot
Phone: 717-587-6600
Dated: July 18th 2017
Views: 63
About Tom: Tom Blefko is the Vice President of Operations for RE/MAX Pinnacle. He is originally from Lancaster...

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