Understanding Agency Relationships in Real Estate
When buying or selling a home, understanding agency relationships is fundamental to navigating the real estate transaction successfully. An agency relationship is a legal agreement that defines the role and responsibilities a real estate professional owes to you and other parties involved in the transaction. The term “agency” in real estate determines what legal responsibilities your real estate professional has and who they represent during the buying or selling process.
Real estate agents are licensed by the state to represent individuals in the purchase, sale, exchange, or lease of real property. The relationship between an agent and their client is called a fiduciary relationship, which is based on trust and requires the agent to act in the best interests of their client. This foundational understanding helps both buyers and sellers make informed decisions and have smoother transactions.
What Is a Fiduciary Relationship?
A fiduciary relationship is one of the most important concepts in real estate. In this type of relationship, the agent (also called the fiduciary) is legally obligated to act in the best interests of the client (called the principal). The fiduciary relationship is governed by state law, the REALTORS® Code of Ethics, and general principles of agency law.
When an agent enters into a fiduciary relationship with a client, they owe specific duties to that client. These duties include:
- Loyalty: The agent must prioritize the client’s interests above all others.
- Obedience: The agent must follow the client’s lawful instructions.
- Diligence: The agent must work actively and persistently on the client’s behalf.
- Disclosure: The agent must reveal all material facts relevant to the transaction.
- Confidentiality: The agent must keep the client’s sensitive information private.
- Accountability: The agent must be responsible for their actions and those of their associates.
- Reasonable Skill & Care: The agent must perform their duties with competence and professionalism.
Types of Real Estate Agency Relationships
There are several distinct types of agency relationships in real estate, each with unique characteristics and implications for buyers and sellers. Understanding these differences is crucial for protecting your interests in a real estate transaction.
Seller’s Representative (Listing Agent)
A seller’s representative, also known as a listing agent or seller’s agent, is hired by and represents the seller. All fiduciary duties are owed to the seller, meaning this person’s primary job is to get the best price and terms for the seller. The agency relationship is usually created by a signed listing contract.
As a seller’s agent, the professional will:
- Prepare a competitive market analysis of the seller’s home or property
- Develop and implement effective marketing strategies, including asking price, staging, and positioning
- Inform the seller how much other homes and properties have sold for in the area
- Present all offers and counsel the seller on what price to accept
- Negotiate exclusively on the seller’s behalf
- Update the seller on market conditions
- Work closely with the seller to ensure a smooth closing
- Monitor all dates, events, and requirements for the seller
- Represent the seller’s interest at the buyer’s walk-through inspection
Buyer’s Agent
A buyer’s agent represents the interests exclusively of the buyer in a real estate transaction. This professional is hired by the buyer and works to ensure the buyer’s needs are met throughout the purchasing process.
A buyer’s agent typically performs the following functions:
- Arranges property showings that meet the buyer’s specific needs
- Provides comprehensive information about the home, property, community, schools, taxes, utilities, and zoning
- Discovers information about the property that can be obtained from public sources
- Counsels the buyer on what price to offer the seller
- Shows what other buyers are paying for property in the area
- Assists in writing an offer with the buyer’s interests in mind
- Negotiates the best price and terms for the buyer
- Keeps the buyer’s price capabilities and objectives confidential and maintains anonymity if desired
- Assists with the loan application process
- Monitors all dates, events, and requirements
Subagent
A subagent owes the same fiduciary duties to the agent’s customer as the agent does. Subagency usually arises when a cooperating sales associate from another brokerage, who is not the buyer’s agent, shows property to a buyer. The subagent works with the buyer to show the property but owes fiduciary duties to the listing broker and the seller.
It is important to note that although a subagent cannot assist the buyer in any way that would be detrimental to the seller, a buyer customer can expect to be treated honestly by the subagent. States that permit subagency may require authorization from the seller and disclosure to be provided to the buyer.
Dual Agency
A disclosed dual agent represents both the buyer and the seller in the same real estate transaction. Dual agency occurs when a buyer’s agent shows a property to a buyer that is also represented by that realtor’s firm, or when the listing agency shows real estate to a buyer that is also represented by the same firm. In such relationships, dual agents owe limited fiduciary duties to both buyer and seller clients.
Because of the potential for conflicts of interest in a dual-agency relationship, all parties must give their informed consent. Disclosed dual agency is legal in all 50 states, but often requires written consent from all parties. In dual agency situations, both the buyer and seller will be asked to sign a consent agreement. A dual agent owes both the buyer and seller equal representation and must maintain impartiality throughout the transaction.
Designated Agency
Designated agents, also called appointed agents, are chosen by a managing broker to act as an exclusive agent of the seller or buyer. This arrangement allows the brokerage to avoid problems arising from dual-agency relationships for licensees at the brokerage. The designated agents give their clients full representation, with all of the attendant fiduciary duties.
In designated agency, the real estate brokerage firm will designate a salesperson to represent the buyer and another salesperson to represent the seller. The designated buyer’s agent will act as an agent for the buyer with full fiduciary duties. The designated seller’s agent will act as an agent for the seller with full fiduciary duties. This arrangement is permitted in many states and may require disclosure and consent from both the buyer and seller.
Comparison of Agency Relationships
To better understand the differences between agency relationships, consider the following comparison table:
| Agency Type | Who Represents | Fiduciary Duties To | Consent Required | Potential Conflicts |
|---|---|---|---|---|
| Seller’s Agency | Seller Only | Seller | No (separate contracts) | Low |
| Buyer’s Agency | Buyer Only | Buyer | No (separate contracts) | Low |
| Subagency | Both (but primarily Seller) | Seller | May be required | Medium |
| Dual Agency | Both Buyer and Seller | Both (limited) | Yes, Written Consent | High |
| Designated Agency | Different agents within same firm | Their respective clients | Yes, typically required | Low |
The Role of Brokers and Agents
Real estate professionals have defined roles and responsibilities that are critical to successful transactions. Understanding the distinction between agents and brokers helps clarify the hierarchy of responsibility in real estate transactions.
Agents: Real estate agents act on a client’s behalf or support transaction closure. Agents must understand agency laws and complete continuing education requirements to maintain their licenses and stay current with changing regulations.
Brokers: Brokers designate agents to specific buyers or sellers and manage the overall brokerage operations. They ensure agents understand agency laws, oversee market analysis, and manage required disclosures. Brokers also stay updated on legal changes impacting real estate practices and are ultimately responsible for ensuring compliance with all applicable laws and regulations.
State Variations in Agency Relationships
It is important to note that state laws dictate which agency relationships are permitted and which are not. Some states prohibit certain types of agency relationships, such as subagency, while others allow all forms. The permitted agency relationships vary significantly from state to state, making it essential for both real estate professionals and consumers to understand their state’s specific regulations.
Defined roles and disclosures are essential for compliance and transparency across all agency relationships. When entering into any agency relationship, consumers should ask their real estate professional about their state’s laws and the specific terms of the relationship being proposed.
Frequently Asked Questions
Q: What is the difference between an agent and a broker?
A: An agent is a licensed individual who works with clients to buy, sell, or lease property. A broker is a licensed professional who oversees agents and manages a real estate firm. Brokers have additional responsibilities, including designating agents to specific transactions and ensuring compliance with all applicable laws.
Q: Can an agent represent both the buyer and seller?
A: Yes, but only with the informed, written consent of both parties. This arrangement is called dual agency. However, dual agents have limited fiduciary duties to each party due to the potential for conflicts of interest. Designated agency is an alternative that assigns different agents within the same firm to represent each party.
Q: What should I do if I suspect my agent has a conflict of interest?
A: Contact your agent’s broker immediately to report your concerns. Brokers are responsible for monitoring their agents and ensuring compliance with all agency laws and ethical standards. You can also file a complaint with your state’s real estate regulatory board if you believe a violation has occurred.
Q: Is subagency allowed in all states?
A: No. Subagency is only permitted in certain states. Some states have eliminated subagency entirely. It is important to understand your state’s specific regulations regarding subagency and the disclosure requirements that may apply.
Q: What are the main fiduciary duties an agent owes their client?
A: The main fiduciary duties include loyalty, obedience, diligence, disclosure, confidentiality, accountability, and reasonable skill and care. These duties require the agent to prioritize the client’s interests, follow lawful instructions, work actively on behalf of the client, reveal all material facts, maintain confidentiality, act responsibly, and perform their duties with competence.
Q: How is an agency relationship established?
A: Agency relationships are typically established through written contracts. For sellers, this is usually a listing agreement. For buyers, this is typically a buyer representation agreement. These written agreements clearly outline the terms of the relationship, the duties of the agent, and the compensation arrangement.
References
- Vocabulary: Agency & Agency Relationships — National Association of REALTORS®. Updated 2025. https://www.nar.realtor/magazine/tools/client-education/handouts-for-sellers/vocabulary-agency-agency-relationships
- The Fiduciary Relationship — Who’s Got Your Back? — KMS Compass. Updated 2025. https://kmscompass.com/real-estate-agency-relationships-defined
- Your Guide to Real Estate Agency Relationships for Buyers — Spyglass Realty. Updated 2025. https://www.spyglassrealty.com/blog/real-estate-agency-relationships-for-buyers.html
- Consumer Guide: Agency and Non-Agency Relationships — National Association of REALTORS®. Updated 2025. https://www.nar.realtor/the-facts/consumer-guide-agency-and-non-agency-relationships
This article is general information, not personal financial advice. Consider your own situation, or speak with a licensed adviser, before acting on it.
