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What's this Representation Disclosure All About?

Updated: Jun 12




On February 12, 1995, a combined $19.9 million settlement was reached that ended three lawsuits brought against Edina Realty over "dual agency" status, the situation that arises when the same real estate firm represents both buyer and seller. In this landmark case, the plaintiffs alleged that Edina Real Estate Company failed to adequately disclose the consequence of dual agency to consumers, including that buyers could become privy to confidential information passed on by the seller's agents. In addition, the plaintiffs felt that the laws governing real estate licensees failed to address and provide rules and regulations regarding disclosure to consumers regarding who an agent was actually representing.


As a result, most states and Canadian Provinces have enacted laws which requires real estate licensees to disclose, before any confidential information is shared, how they can work with a buyer or seller.


So, what does this have to do with us? The answer is that we, as buyers and sellers (and tenants and landlords), are entitled to know what representation and Agency Laws (that governs representation), means to you, the consumer. To accomplish this, most state and provincial real estate laws require disclosure and explanations of how a real estate agent can work with a buyer before talking about what could be confidential information.


First, some definitions you will see in agency disclosure documents


Law of Agency – This covers how a real estate agent can work with you. As defined here by The National Association of Realtors® , “The law of agency in a real estate transaction defines the legal relationship between real estate professionals and their clients". Each state has its own agency laws that set forth the duties that real estate professionals owe to their clients and customers as well as what disclosures need to be made to these buyers and sellers. Traditionally, most states relied upon the common law of agency to define the scope of the agency relationship, but in recent years some states have adopted the “transactional brokerage model” where the agency relationship is defined by statute. A majority of states allow a real estate professional to represent both sides in the transaction as a “dual agent” if the clients consent to the relationship”.


Client - Refers to someone who has entered into a written agreement with a real estate broker to represent them in the purchase and/or sale of a property.


The real estate agent that represents you has a fiduciary duty ( in some states Fiduciary Responsibility) to their client which includes –


Confidentiality - A real estate agent can not disclose to others anything said in confidence, as long as it is legal. As an example, the listing agent has been told by his seller that he will take $10,000 less. An agent representing the buyer asks if the seller will take less? The listing agent is obliged to tell the buyer's agent that the seller will accept the listing price. The same goes for a buyer that tells their agent they will go higher, if necessary. The buyer agent can not disclose this to the seller or listing agent.

Care (reasonable) – The real estate agent must use reasonable care to protect a client’s property and/or information shared with the real estate agent.


Obedience - The real estate agent must follow lawful instructions of your client so when a buyer agent asks the listing agent “ how much will their seller take”, your answer is “the listed price” as this follows the lawful instructions as outlined in the seller’s listing agreement with the listing agent. Unfortunately, this is not always the case.


Accounting An agent is responsible for the safe keeping of money of others. This includes depositing the funds of others in a “trust” or “escrow” account as dictated by state and local real estate laws.

Loyalty Your client comes first!


Disclosure - You are obligated to provide all information to your client which would influence the buyer’s decision to go forward on the purchase or sale of a property. As an example, you represent a buyer and just learned that zoning was approved for a proposed quarry on land near the home your client is interested in purchasing.


CustomerSomeone who has not entered into a representation agreement with a real estate licensee.


Dual Agent (Agency)This is where the real estate firm represents both buyer and seller such as when a buyer is interested in a home listed by the same firm (or branch office, in some states).


In such instances, the dual agent’s loyalty would be divided between both clients of the firm (buyer and seller). Under these circumstances, your agent would be obliged to treat both buyer and seller fairly and equally and cannot help you gain an advantage over the other party. In other words, they can not advise you or represent you, except for accountability, as defined above, and honestly. For buyers, this is a very important factor when you work with an agents whose firm also represents sellers.


Designated Agent (Agency) – This is an expansion of Dual Agency, where by the broker in charge can “designate” an agent to represent the buyer and another agent to represent the seller, allowing each client the benefits of full representation. In most states, the real estate firm must have a written Designated Agency policy in place.


Transaction Agents -Transaction agents assist buyers and sellers in real estate transactions without representing any party's financial interests. They act as neutral third parties in real estate deals but are still bound to act according to the law and industry ethical principles. This option is not available in all states.

Some things you need to consider


Now that you understand the basic terms you will see in agency disclosure documents, here are some tips that you should consider.


Most state real estate regulations require a broker to furnish and review the real estate commission approved disclosure statement at the first “substantial” contact, before asking for or receiving your confidential information.


If the form requires your signature, it is not a binding contract, its’ simply an acknowledgement that you received and reviewed this document. It’s for your protection only.


If a real estate agent does not represent you, anything you say to the agent, will be shared with the other party, as most states require a licensed real estate agent to represent at least one party in a real estate transaction.


Most established real estate agents will not work with buyers without an exclusive buyer representation agreement. Just like listing agents, their time and experience will be a positive benefit for you. With that said, a professional agent will work without a contract for a few hours based on the expectation that they will be considered as your buyer agent.


If you are buying a home, use an Exclusive Buyer Agent ( go to NAEBA.Com or let us do this for you through our concierge services) to find those working in your area. This will avoid the inherent conflict of interest associated with a real estate firm that also represents sellers. Just like all real estate agents, they are compensated by the seller.


If the state where you plan to buy a home permits transactional brokerage, go online, and review the actual law and disclosure rules to protect yourself from conveying information to the other party.


In closing, please make sure that your agent reviews these disclosures with you before sharing any confidential information with them.



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