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Not many people realize that the real
estate agent who is showing them properties when they are looking for a home is
normally required to act in the best interest of the vendor at all times. In
fact, their agent technically is not their agent at all. This situation arises
from something called an agency relationship wherein one person, known as the
principal, asks another person, known as the agent, to act for and on the behalf
of the principal. In real estate, the agency relationship normally exists
between the vendor (who is the principal) and the Listing Broker (the agent).
The agency relationship is confirmed when
the vendor and the Listing Broker enter into an MLS Listing Agreement, and the
vendor agrees to compensate the Listing Broker for undertaking to sell the
property. The compensation is usually called commission, and is usually a fee or
payment from the vendor to the Listing Broker (agent) upon completion of the
real estate transaction. The Listing Broker invites all other co-operating
brokers to bring buyers by placing a listing on a Multiple Listing Service (MLS)
and, in return, offers to share the commission eventually paid by the vendor.
It is important, as a buyer, to
understand that contacting a realtor and asking for help in finding a home or
other piece of property does not constitute an agency relationship. Where there
is no signed agreement between the purchaser and the realtor, and where the
purchaser is not providing compensation, (either directly or through the listing
broker), the agency relationship does not exist. Nevertheless, a purchaser can
expect the seller's agent, or sub-agent, to disclose all relevant information
about a property and not misrepresent any facts. A selling agent must also
answer any questions from a purchaser honestly, but is not required to disclose
any confidential information about the vendor. Such information might include
the vendor's motivation for moving, or the fact that the vendor needs to sell
the property quickly for some reason (which could affect the selling price to
the benefit of the purchaser).
A Purchaser's Agency Agreement between a
Real Estate Broker and the purchaser normally establishes their agency
relationship. In that case, the Realtor clearly is representing and acting in
the best interests of the buyer at all times and is obligated to put the
interests of the buyer first, as their representative.
Before purchasers get
involved with a realtor, it is up to them to discuss the type of agency
relationship they want with that realtor, and to be clear about the obligations
and responsibilities of the realtor under that relationship. The job of realtors
is to bring together, in a successful transaction, willing buyers and willing
sellers. Remember, though, their first loyalty and fiduciary duty is to the
party with whom they have an agency relationship.
Real Estate Glossary
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