QUESTION: Can a brokerage operate as a designated agency on a per-transaction basis?
No, because of the way agency relationships in real estate transactions work, the type of agency a brokerage practices must be consistent for all transactions. A brokerage may elect to transition from traditional agency to designated agency, or vice versa, as an office policy, but the type of agency practiced at any given time must be consistent amongst all transactions. A brokerage may not switch the agency it practices from one transaction to the next.
In a “traditional agency” brokerage, each licensee in the office has the same relationship with each client. This means that when one agent within an office represents a seller and another agent within the same office represents a buyer, dual agency is created. In order to proceed in this scenario, both parties to the transaction must have given consent to dual agency and been provided with notice when it occurs. In dual agency, the fiduciary duties owed to each party are reduced to confidentiality of material information and accounting for funds. A dual agent cannot satisfy fully the duties of loyalty, full disclosure, and obedience to lawful instructions. Furthermore, a dual agent must remain neutral with regard to any conflicting interest of the seller and buyer.
Conversely, in a brokerage that practices designated agency, individual agents within the same office can have relationships with clients on both sides of a transaction without the individual agents becoming dual agents. Here, where one agent within a brokerage represents the seller and another represents the buyer, each as a designated agent, both agents owe the full spectrum of fiduciary duties to their respective clients. As with dual agency, both clients must have given consent to designated agency and then been provided with notice when it occurs. The appointing agent in the brokerage acts as a dual agent, however, the regulations do not require the appointing agent to receive a separate consent.
Regardless of the agency structure a brokerage elects to follow, it is recommended that the office policies include provisions related to agency relationships and office procedures related to the same.
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Written by: Justin Davidson, General Counsel; Catherine Taylor, Associate Counsel; and Jonathan Schreiber, Legislative & Regulatory Counsel.
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