Do You Know What Type of Agency Relationship You Have?

Hello and thank you for visiting my Google Business Listing and coming to this special web page. Chances are you're looking for a real estate agent correct? Did you know when you’re buying or selling real estate in Florida you can enter in to one of three agency relationships with that REALTOR ® or real estate agent? With three types of relationships, when selecting a real estate agency to work with, it can become confusing.

What I want to do on this web page is help you understand the difference in these relationships and what this means for you.  Since buying a home or selling one is the largest financial transaction many of us make during our lifetime, it's very important to know what’s going to be the best way for you.

When a person hires a real estate agent in Florida, the three choices in agency relationships are:

Since each relationship varies in the level of representation, you have a right under the laws in Florida to know the differences so you can make an educated choice.

Please allow me to introduce myself and tell you why I created this web page. My name is Jeff Ragan, I'm a Real Estate Broker in Tallahassee FL and I'm a licensed real estate instructor in the state of Florida. I regularly teach, Florida real estate license law along with principals and practices.

What the majority of people do not realize is that you have a choice when hiring a realtor. I teach others about these agency relationships so they can get their license. One day I thought, why not teach the public about this! As the actual consumer you have a right to know what type of business relationship choices you have.

I’ll try to explain each relationship, what the duties are, and how you can make an educated decision about which is best for you.

I believe it’s safe to say, many buyers and sellers are confused about the role that a realtor has in real estate negotiations on their behalf. Most sellers, since they are paying the Commission think that the real estate licensee works for them. However, under Florida law the payment of a Commission or even a promise for compensation, does not determine if a brokerage relationship exists.

Also, most buyers think that the realtor works for them even though the seller is paying the Commission. With the different choices before you, let's take each relationship one at a time.

Here’s what the Florida Statue 475.278 says about brokerage relationships: CLICK HERE FOR FULL STATUTE if you want to read the actual law.

First let’s talk about a No Brokerage Relationship or in other words Non-Representation. Then we’ll go on and talk about the Transaction Broker Relationship and finally a Single Agent Relationship.

NO BROKERAGE RELATIONSHIP

A provision under Florida law allows prospective buyers and sellers to totally opt out of representation. If a broker/agent is in a No Brokerage Relationship he is not an agent for either party in the transaction. So, a broker or sales associate can enter into a listing agreement with a seller and be paid a Commission while working in a Non-Representation capacity.

A good example of when this kind of relationship might benefit you is when you’re a “For Sale By Owner”. A realtor could bring you a buyer, offer you a No Brokerage Relationship along with a commission agreement and help you sell your house without paying a large commission. He/she would negotiate with you a flat fee payment or a commission for the services rendered.

Furthermore, a brokerage firm can be in a No Brokerage Relationship with the buyer. Basically this means the agent/broker does nothing more than relay information to the parties in the transaction.  Under this arrangement the broker cannot negotiate on behalf of either party. According to Florida chapter 475 it defines a member of the public no matter if he is a buyer or a seller of real property as a customer. He/she may choose to be represented under an authorized brokerage relationship or not.

Going back to the “For Sale by Owner” example, if the broker has a buyer who wants to purchase your home, he can help with the transaction by relaying the information between a buyer and seller and then collect a commission/fee from the buyer. There would be a contractual agreement between the buyer and the broker.

While working in a No Brokerage Relationship with the parties in a transaction there are only three duties that are owed to the customers. Under this relationship the duties must be disclosed and in writing signed by either a seller or a buyer.  Here are the duties owed to you:

1. 1. Account for all funds
   2. Deal honestly and fairly
   3. Disclose all known facts that materially affect the value of residential real property and are not readily observable to the buyer.

Now if the broker felt your offer was unfair or a lowball offer they can refuse to submit it to a seller. In the other two brokerage relationships described below, by law he has to “present all offers” in a timely manner.

The three duties listed above are fundamental to honest, fair business dealings. So Real Estate licensees are bound to these three duties in each of the three types of brokerage relationships.  Now let's go on and talk about the Transaction Brokerage Relationship.

TRANSACTION BROKERAGE RELATIONSHIP

“Under Florida law, it is presumed that all licensees are operating as transaction brokers unless one of the other two brokerage relationships are established, in writing, with the customer.”

So what does this law mean to you? If you recall in the No Brokerage Relationship the broker just facilitates the transaction without representing or negotiating for either of the parties. In the Transaction Brokerage Relationship to avoid any issues of an illegal dual agency, this type of relationship was developed to give both buyers and sellers what is called limited representation. This way a real estate agent can work for both parties.

However, the transaction broker provides limited representation which means they do not represent either party in a fiduciary capacity. We will discuss what fiduciary capacity a little later.  Under this brokerage relationship both the buyer and the seller can use the same real estate agent in a single transaction within the same brokerage firm.

Under this arrangement the parties involved in the real estate transaction give up their rights to the undivided loyalty of a real estate licensee. So under limited representation a broker is basically facilitating the real estate transaction by assisting a buyer and a seller who are parties to the transaction. Even helping with the negotiations.  But once again because the real estate agent represents both buyers and sellers it can become confusing when it comes to the loyalty issue.

Here's a list of the duties the transaction broker is obligated to perform:

1. 1. Account for all funds
   2. Deal honestly and fairly
   3. Disclose all known facts that materially affect the value of residential property and are not readily observable to the buyer
   4. Use skill, care, and diligence in the transaction
   5. Present all offers and counteroffers in a timely manner
   6. Exercise limited confidentiality, unless waived in writing by a party
   7. Perform any additional duties that are mutually agreed to with the party

If you notice the first three duties are the same duties in the No Brokerage Relationship. Now two of the duties #4 and #5 are also required of single agent brokers as we will discuss later. The #6 and #7 duties enable the broker to provide a nonfiduciary limited representation.

This type of brokerage relationship came about as the result of a series of class action lawsuits back in the mid 1990s. Some of these lawsuits had as many as 20,000 claimants that protested the problems with the practice of a dual agency. Buyers and sellers experienced problems when the same firm represented both sides of a transaction.  I'm sure you can see some of the problems that could arise. Buyers might claim they should have paid less, at the same time sellers claim they should have gotten higher prices for their properties. Customers on both sides often felt rushed to the closing table and many problems resulted.

As I mentioned a transaction broker must exercise limited confidentiality. Here are a few of the key things under this arrangement. A broker cannot disclose the following:

• • A seller will accept a price that is less than the asking or listed price
  • That a buyer will pay a greater price then the price submitted in an offer
  • The motivation of the parties no matter if selling or buying
  • That a seller or a buyer will agree to financing terms other than those previously disclosed in writing
  • Any other information requested by a party to remain confidential

So, because of limited confidentiality a buyer or seller cannot get 100% loyalty from their Real Estate broker. Basically, the broker has 50% loyalty to the buyer and 50% to the seller.

One other feature of the transaction broker relationship is a customer is not responsible for the acts of a licensee. Under the Single Agent Relationship the principal might be responsible for the acts of a licensee.

Since Florida law presumes that buyers and sellers when engaging the services of a real estate company are under a Transaction Brokerage Relationship it does not have to be disclosed in writing.

So now let's go on and talk about the Single Agent Relationship.

SINGLE AGENT RELATIONSHIP

The definition of a single agent under Florida law describes a broker that represents either a buyer or seller (but never both) is a fiduciary.  If you recall in the No Brokerage Relationship the broker did not represent either party. But the uniqueness of a Single Agent Relationship is that only one party can be represented by the brokerage in that fiduciary capacity.

A fiduciary capacity or relationship means this: Relationship of trust and confidence. So, the broker is the person who was delegated authority by the principal. The principal would be a buyer or seller. The terms principal and client can only be used when entering into a Single Agent Relationship.

A broker may represent as a single agent either a buyer or seller in a transaction but never both. Otherwise a dual agency would exist if a brokerage firm tries to represent as fiduciary the buyer and the seller in the same transaction.

This type of relationship creates 100% loyalty to either a buyer or a seller. All of the agents in the same brokerage firm must represent the principal in the same capacity. Many larger brokerage firms do not allow this type of relationship because of the confusion this may cause. The sales associate's all work for the principal as sub agents of the agent or broker who was hired by the principal.

So now let's talk about the nine duties that a single agent owes to their principal:

1. 1. Account for all funds
   2. Deal honestly and fairly
   3. Disclose all known facts that materially affect the value of residential real property and are not readily observable to the buyer
   4. Use skill, care, and diligence
   5. Present all offers and counteroffers in a timely manner
   6. Confidentiality
   7. Obedience
   8. Loyalty
   9. Disclosure (full)

It’s the last four duties (COLD) that makes the Single Agent Relationship something to consider for buyers and sellers.  Let's talk about them in greater detail.

Confidentiality: A lot of information is gained when a broker is employed by a principal. For example, it may be the reason a person is selling because of poor health or loss of a job. An agent in this capacity cannot reveal without permission personal and private information like this which may lessen a principals bargaining position. Also, a broker may not reveal information that is learned during the course of this single agency relationship even after the transaction is concluded. The broker can never use such confidential information and cause harm to the principal. He’s sort of bound to privacy like a doctor or lawyer.

Obedience:  As long as the instructions provided by the principal are lawful, the single agent is obligated to act in good faith. At all times that broker is to conform with the principals instructions as long as they are legal and relevant to the contractual relationship.  If the broker feels the instructions by the principal (which are legal) will harm him, he must inform that principal of the facts along with his opinion. If the principal does not want to change the instructions, the broker may either withdraw from the relationship or carry them out as instructed.

An example of this, if the principal is selling a home and he/she gives instructions to the broker to tell people I’m going through a messy divorce, this could harm the negotiations. As you can tell it may cause lowball offers to come in because the potential buyer knows it must be a quick sale. The broker is obligated to inform the principal of this. Then carry out the instructions or withdraw. Most brokers would carry them out just knowing the price they could have gotten for the seller could have been higher.

An example of instructions provided by a principal for selling a listing might be the broker is told not to show the property to a member of a particular minority or ethnic group. The broker cannot obey the principals instructions.  In a case such as this, the broker must inform that principal that to do so could result in violations a fair housing laws. If the principal insists, the broker would have to withdraw from the agency relationship because of the potential lawsuit for him and the principal since he is responsible for the acts of the single agent. Brokers may not violate the law.

Loyalty: This is where the rubber meets the road in agency relationships. As a single agent the broker must avoid any situations that may breach the duty of undivided loyalty to a principal.  In a large way this means that brokers cannot adopt any type of attitude that may be adverse to the interests of the principal they are working for.

So then loyalty means that a broker will always place the principals interest above those of all other parties to the transaction including himself. So many court cases have been fought and won that established a broker's loyalty to the principal means they cannot exercise their duties in a way that they profit themselves or anyone else at the expense of their principal.

Here are some examples of the duty of loyalty:

• • Getting the most favorable price and terms for the principal
  • Always acting on behalf of the principal
  • Not acting for parties that have adverse interests within the same transaction
  • Never to conceal the identity of a purchaser just to induce the principal to sell
  • Disclose to the principal if an agent becomes personally interested in their property
  • Never advancing the agent’s or another person’s interest at the expense of a principal

As you can see the duty of loyalty means that you will get the utmost service that you deserve. Even though you may have felt that was the case in the other relationships, it really is not.

Disclosure: Full disclosure pretty much means exactly that. The principal in this case must be kept fully informed at all times of each and every fact or bit of information that may affect the transaction or even the value of the property. Also, the agent is obligated to disclose any and all facts regarding that properties true worth. In addition to this, the agent may be held responsible for material facts that they knew about but did not communicate to the principal.

Now if the principal is a seller, the agent is responsible to inform them of the buyer's financial condition, the status of all earnest money, and if a personal relationship exists between the agent and the buyer.  When it comes to the material facts that can affect the value of the property, the principal must be informed even if it could cause the transaction to fail.

Last and certainly not least the principal must be informed if the agent is personally interested in buying a listed property. In a case such as that, the broker must terminate the agent-principal relationship and inform him of the facts regarding the property he learned while serving in an agent’s capacity. You can see how this would protect the principal because otherwise a broker could buy from him and sell the property at a much higher price generating a secret Commission or secret profit.

By now, hopefully you can see that hiring a real estate agent or broker in the single agency relationship offers to you 100% loyalty unlike any of the other relationships. Since so many larger firms shy away from this type of agency relationship, it makes it easier for smaller boutique brokerage firms to offer these Single Agency Services.

As with the No Brokerage Relationship the Single Agent Relationship must be disclosed in writing and signed.

TRANSITION FROM SINGLE AGENT TO TRANSACTION BROKER   

So when a broker begins a relationship with a principal, no matter if it's a buyer or a seller, the broker and all of those working in that brokerage firm are bound to the same fiduciary relationship with the principal. So that means if a broker has a Single Agent Relationship with the seller he cannot be a single agent for a buyer. In a case such as that, the broker would not be able sell the listing to his buyer. Because to have a Single Agent Relationship with a buyer and a seller would create the illegal dual agency.

Now to facilitate a situation like this, the buyer and the seller would have to consent to transition to a transaction broker. This is the only way a broker can sell the principals listing to someone that is a buyer from within the same brokerage firm. This is another reason that large brokerage firms may hesitate to offer the Single Agent Relationship. They want to sell their own listings , that way they make a Commission on the selling side and the buying side.

In most cases the written document which allows the change in agency relationships is discussed up front with a person that is about to enter into a single agency relationship. Again working with a smaller firm that does not have lots of real estate agents could be beneficial to you as a seller or even a buyer. Again this must be in writing and signed before a change can be made.

IN CONCLUSION

Now I realize this is a lot of information for you as a buyer or seller. As I said in the beginning, the majority of the public are not aware of these three types of agency relationships. So now you have a great deal of information and can make an educated decision. You know the duties that are owed to you depending on which relationship you choose.

At Friendly Real Estate Group we’re happy to work with you in any one of the three agency relationships discussed above. But I think you can see that working in a Single Agent Relationship would be far more beneficial to you as a principal rather than just a customer. You get our undivided attention, yes 100% loyalty at all times.

Please feel free to contact us at any time to discuss in greater detail how we can help you. Just click here to call. Or if you want to make an appointment to have coffee during a Zoom meeting we can both respect the Covid-19 guidelines from the CDC and safely meet face to face.

Also, watch my little 5 minute video below to learn more about the benefits of working with us as in a Single Agent Relationship.