Many of the cases that I have worked on as a real estate expert witness have hinged on the emergence of a dual agency relationship that has significantly changed the playing field for real estate buyers and investors. While the real estate buyer believed that the agent was working in their best interests, the reality in many of my cases was that “their agent” followed a distinctly different path. Similarly, the practices of both listing and buyer’s broker agents examined in my past cases have been found to be troubling with regard to state statutes and industry standards of practice.

Real estate agency relationships are governed by both common law and statutory agency law. The term “agency” can be defined as: the “fiduciary relationship” that arises when one person (a principal) hires an agent to act on the principal’s behalf. Agency has also been defined in Black’s Law Dictionary as: A fiduciary relationship created by an express or implied contract or by law, in which one party (an agent) acts on behalf of another party, (the principal). The fiduciary duties of an agency relationship generally require that an agent act with good faith, trust, candor, and provide a high standard of care regarding the interests of the principal.

States differ in the kinds of statutory real estate agency relationships they recognize in real estate sales and leasing transactions. Each type of agency relationship carries with it specific duties owed by the agent to the principal. In real estate transactions, agency representation includes the detailed disclosure of the agency relationship in writing to principal(s) in the transaction, and often the scope and nature of the fiduciary duties owed to the principal(s).

In general, the fiduciary duties owed by an agent to a principal in a real estate transaction can include the following:

• A duty of loyalty. This duty requires the agent to act only in the principal’s best interest and not in the agent’s own interest.
  
  
• A duty of obedience. This duty requires the agent to carry out all of the principal’s lawful instructions.
  
  
• A duty of confidentiality. This duty requires the agent to keep the principal’s confidences unless required by law to disclose specific information (such as disclosure of material facts to buyers).
  
  
• A duty of reasonable care. This duty requires the agent to use reasonable care in performing the duties of an agent.
  
  
• A duty of disclosure. This means that the agent will disclose to the principal all material facts of which the agent has or acquires knowledge that might reasonably affect the principal’s use and enjoyment of the property.
  
  
• A duty to provide an accounting. An agent has the duty to account to the principal for all client money and property received by the agent during his or her representation.
  
  

Examples of disputes involving the alleged breach of a real estate agent’s fiduciary duties could involve multiple claims involving disclosure, known negative physical conditions of the property or leasehold, an agent’s failure to recommend the use of inspectors and the like. However, many disputes between principals and real estate agents involve the role of an agent in a dual agency context. In essence, a dual agency is created when the agent representing a buyer engages in the sale or lease of a property that he or she has listed on the market or that the prospective property is listed on the market by the agent’s broker.

With the creation of a dual agency, the role and duties of the agent are significantly modified. While the agent at first is working as a buyer’s exclusive agent when a buyer inspects a property listed by their agent or their agent’s broker, the relationship moves to that of a dual agency and the expectations of the buyer for representation is negated. What is often more troubling is when the agent fails to provide proper disclosure of the agency’s relationships (or loss of same) and continues to provide services at the behest of the seller with the buyer continuing to believe that the agent is working in their best interests.

While states differ on the statutory agency disclosure laws and the structure of real estate agency relationships, four primary structures exist:

1. Quasi-Traditional Agency structure with the option for buyer representation and disclosed dual-agency representation: Quasi-traditional representation plus buyer representation and disclosed dual-agency representation. The quasi-traditional representations both represent the seller: the first is the seller’s listing agent. This person is a licensed broker or salesperson who lists the seller’s property and markets it for sale or lease. The second is a subagent of the seller’s agent. This person is usually a salesperson at the listing broker’s firm who markets the property to potential buyers. This structure also permits buyers to have their own exclusive agent to find a suitable property and represent their interests until the conclusion of the transaction. This regime also recognizes an alternative to buyer’s and seller’s agent. This person is called a dual agent. This type of agency arrangement can come about if a buyer finds a property that is listed by the same real estate brokerage firm as the buyer’s agent, and the buyer agrees to purchase the property under a dual agency relationship, the seller agrees to this as well. Consent is supposed to be informed and some states require it to be in writing. A dual agent owes the seller and buyer the same fiduciary duties and; therefore, this person cannot act exclusively for either one of them. Thus, a dual agent provides less representation to each party than do separate seller and buyer agents. Fifteen states, including California and New York, have adopted the quasi-traditional structure plus buyer’s agent and dual agent. The other states are Alaska, Arizona, Arkansas, Delaware, Hawaii, Maryland, Massachusetts, Mississippi, Nebraska, Rhode Island, Utah, Vermont , and West Virginia.
   
   
2. Designated Agency structure which also recognizes the preceding agency relationships in the Quasi-Traditional Agency structure, plus a new form of agency called a “designated agency.” Under designated agency, the buyer has the option of deciding that its agent, if affiliated with the same broker as the listing agent, can be the buyer’s “exclusive agent.” The designated buyer’s agent provides the buyer with better representation that a subagent of the seller or even a dual agent because the designated buyer’s agent’s loyalty is only to the buyer. Ten states recognized the designated agency relationship. They are Connecticut, Maine, Nevada, North Carolina, North Dakota, Ohio, Oregon, Texas, Virginia, and Washington.
   
   
3. Client-Customer Model distinguishes between “clients” (i.e., actual or potential buyers or
   sellers who are parties to an agency agreement) and “customer” (i.e.,actual or potential buyers or sellers who are not parties to an agency agreement. This structure applies in only six states—Idaho,
   Illinois, Indiana, Iowa, Louisiana, and Wisconsin. This regime uses the terms “customer” and “client” to distinguish between sellers and buyers who are parties to a brokerage agency agreement and those who are not. States that follow this regime recognize a non-agent broker relationship with a customer.  Brokers in a non-agent relationship with a customer are not permitted to negotiate on behalf of the customer.  Both non-agent brokers and agent brokers have statutory duties to perform. The duties of a non-agent broker to customers are less extensive than the broker agent’s duties to clients.  Among the shared duties of non-agent and agent brokers are the duty of confidentiality, to provide fair and honest services, reasonable care and skill, and accurate information about market conditions in a reasonable time if such information is requested, among other things.
   
   
4. Non-Agent Facilitator structure also recognizes the quasi-traditional agency representations, buyer representation, the disclosed dual agency representation and, in some states, the designated agency representation. It should be noted that even within states that employ the same regime, the definitions of the different agency relationships, and the duties that go along with them, differ. For example, some states expressly require a written agreement in order to have a dual agency relationship and some states do not.  The Non-Agent Facilitator structure is the most common statutory agency structure and is employed in 16 states: Alabama, Colorado, Florida, Georgia, Kansas, Kentucky, Michigan, Minnesota, Missouri, New Hampshire, New Jersey, New Mexico, Oklahoma, Pennsylvania, South Dakota, and Wyoming. What distinguishes this structure from the other three is that it recognizes that a broker can serve as a facilitator of the transaction without representing either party and without being considered an agent. For example, Minnesota’s statute describes a facilitator as “[a] broker or salesperson who performs services for a Buyer, a Seller, or both but does not represent either in a fiduciary capacity as a Buyer’s Broker, Seller’s Broker, or Dual Agent. There need not be a contractual relationship between the facilitator and the buyer and/or seller. The duties of a facilitator vary from state to state. In Minnesota, a facilitator “owes the duty of confidentiality to the party but owes no other duty to the party except those duties required by law or contained in a written facilitator services agreement, if any.” In Missouri a “transaction broker” has these duties:
   
   (1) protect the confidences of both parties,
   (2) exercise reasonable care and skill,
   (3) present all written offers in a timely manner,
   (4) keep the parties fully informed,
   (5) account for all money and property received,
   (6) assist the parties in complying with the terms and conditions of the contract,
   (7) disclose to each party … any adverse material facts known by the licensee [i.e., (the licensed broker], and
   (8) suggest that the parties obtain expert advice.”

In New Hampshire, the facilitator’s duties include:

(1) treating prospective buyers and sellers honestly,
(2) disclosing to a prospective buyer before an offer is made “any material physical, regulatory, mechanical, or on-site environmental condition affecting the subject property of which the facilitator has actual knowledge,”
(3) With regard to confidentiality, the statute provides: “Unless otherwise agreed, the licensee acting as a facilitator shall have no duty to keep information received from the seller … or the buyer … confidential, 
(4) A facilitator provides less representation to buyers than a buyer’s agent or a dual agent, and 
(5) In situations where an agent works with a client and no agency agreement exists, some state statutes define the agency relationship. The state definitions for the lack of agent/principal agreements range from the imposition of non-agency to traditional agency relationships.

Other states; however, have not created a default position for consumers whom have not entered into an agency agreement. These states require the consumer to select a form of agency representation: dual agency, buyer’s broker or a form of non-agency.

In conclusion, we can see that the of mandatory agency requirements, along with the required agency disclosure provisions in each state, provide a host of both complicated and confusing real estate representation possibilities for the consumer of residential property. These complications and often resulting confusion, lies at the heart of many real estate disputes.

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