Implied Agency

When you decide to work with a real estate agent, you want and expect her to always look out for your best interests. An agent is defined as someone who acts on your behalf. The process of acting on behalf of you is referred to as agency. This agency relationship is at the heart of most laws governing real estate agents.

Real estate agents are required to provide their clients with an agency disclosure. There are two common sources for purchase agreement forms and disclosures: CAR (California Association of Realtors) and PRDS (Peninsula Regional Data Services). The two sets of forms have different default requirements but are quite similar because they specify a standard way to meet California real estate laws.

The CAR agency disclosure for buyers specifies that an agent representing a buyer has "A fiduciary duty of utmost care, integrity, honesty and loyalty in dealings with the Buyer." A similar requirement is required from the seller's agent to the seller.

Definition Of Implied Agency

The obligation of a real estate agent to her client is stated in the agency disclosure. The disclosure needs to be provided to the client before any purchase offer or listing agreement is signed. There would be little doubt that the real estate agent is required to act in her client's best interests.

However, it is possible for a real estate agent to provide advice or act in a way which might lead a home buyer/seller to think the agent is acting to help him. The buyer/seller might then assume the agent is looking out for his best interests and rely upon those actions. It is possible for the agent to then become bound by the agency requirements even though nothing was signed nor even agreed to while talking. The buyer/seller may have even told the agent that he is working with his own agent or that he did not want to be represented by an agent. This obligation, although never explicitly agreed to, is called implied agency.

Basically, performing actions of an agent for a buyer or seller, can impose agency requirements on the agent which is then called implied agency. Only a licensed attorney can give you advice as to what forms an implied agency relationship.

Problems And Risks Due To Implied Agency

Suppose a homeowner told me that they don't want to hire a real estate agent to sell their home, but they would pay me a commission, if I found a buyer who buys their home. If I help the homeowner fill out any of the forms or disclosures, the homeowner might assume I was acting in his best interests and thus I may accidentally create an implied agency requirement, equal to a signed agency agreement. Even though it was verbally stated that I would not be paid any commission for representing the seller, he may bring legal action against me with a claim of implied agency if the seller feels the sale could have given him better results.

Similarly a home buyer may not want to work with a real estate agent, thinking he will have an advantage competing with other buyers because either the sellers' agent will get more money or he will have to pay less to buy the home. However, the sellers' agent will probably be concerned an implied agency relationship could be created imposing significantly extra risk or that her sellers may think she is not completely representing their best interests.

Both examples may seem easy for a real estate agent to spot and deal with. In general, the process of getting a purchase offer accepted and then getting all problems resolved so that escrow can be closed, involves many actions. There are many events which could trigger a claim of implied agency by either a buyer or a seller especially if they do not have their own real estate agent working for them. Typically, a real estate agent would much rather work with another agent than with an unrepresented buyer or seller.

What If Advice Is Wanted For Family Or Friends To Sell To Each Other

Suppose advice was wanted so that one descendant could buy out another descendant's share of an estate. It might seem simple to ask a real estate agent how much the property is worth. Normally a real estate agent provides an expected sale price to a potential seller but following the marketing plan provides opportunities to refine the price. The price the real estate agent gives is what she feels is most likely to result from her marketing, but it is not a rigorous procedure. The presentation is designed to show the potential seller why they can expect the best price and what the best method to achieve that price is.

A sale with no agent involved would not have the opportunity to refine the price. The best solution for the two descendants is to hire an appraiser. Appraisers are licensed, trained and experienced to follow detailed steps for establishing an opinion of the home's market value. The price given is done with an express agency agreement.