Everyday, thousands, if not millions of Americans decide to enter the real estate market. They may be looking to buy or sell commercial property for a new business, or property to hold as an investment, like rental property. More often than not, though, people are trying to buy or sell a home.

To help them navigate the market, people often get some help from a professional, such as a real estate agent or broker. It's not uncommon, though, for buyers and sellers to work with an agent without asking a critical question: Who does the agent or broker represent? Sometimes the agent works for the seller, sometimes for the buyer, and sometimes for both. Sometimes, a buyer thinks the agent is working for him when in fact the agent's working for the seller.

Whether buying or selling, to protect your interests and to make sure you get the best possible deal, it's important that you know exactly for whom a broker or agent is working.

Agent and Broker Basics

In many states, anyone who charges a fee or commission to help buy or sell real property for another person must be licensed as a real estate broker by the state where the property is located. Typically, the broker acts as the agent for the property owner, that is, he has a legal relationship with and acts for and on behalf the property owner.

Even though the terms are often used interchangeably, real estate brokers aren't necessarily the same as real estate agents. Generally, real estate agents must work with or work for brokers, and they essentially act as salespersons. Any commissions and fees that result from a sale by the agent are actually paid to the broker.

The states use these terms differently in their real estate laws, but generally the person who's actually paid the commission on the sale is the person who's required to be licensed. And it's about her that you need ask: Who is she representing? To avoid confusion here, we'll use "agent" to describe the real estate licensee who's entitled to the commission for selling a home or finding a home for a buyer.

Types of Agents

Generally, the question as to who an agent represents depends on who hired the agent, and who has a representation agreement with the agent. There are four main types of real estate agents you may come across:

  • Listing or seller's agents
  • Buyer's agents
  • Cooperating agents, and
  • Dual agents

Seller's Agent

In many states, when a seller hires an agent to assist in the sale and signs a listing agreement, the agent is known as the listing agent. A listing agreement can give the agent the exclusive right to list the property for sale for a specific period of time, usually three to six months. The seller pays the agent's commission when the sale is made.

This type agent represents the seller only. She has a "duty of loyalty" to the seller, meaning that she has to keep the seller's best interests in mind when trying to sell the property. Her top priority is to sell the property at the highest possible price. She can't do anything to jeopardize that, either. For example, if the house is listed for $225,000, she can't tell you, as a buyer, that she knows that the seller is willing to take $215,000 (unless, of course, the seller has given her permission to do so).

In some states there are seller's agents, who typically work for the listing agent or the real estate company that has the listing agreement for the property. These agents also represent the seller and owe a duty of loyalty to him.

Buyer's Agent

Just because you walk into a real estate agent's office and say, "I'm looking to buy a house," doesn't mean that the agent will act as your agent. Odds are, he'll show you houses that he has under listing agreements (so that he can collect the commission), and so he's actually an agent for the seller. Although, in some states, an agent in this situation can't show you properties that are listed with his real estate company or brokerage.

The one sure way for you have an agent that has your best interests in mind is to sign an agreement or contract that states that the agent is your agent, as the buyer. As your agent, he has the duty to find the house that's "right" for you, negotiate the best price for you, and discover anything negative about any property he shows to you. He has no duty to the seller; his main objective is to get you a good deal on the right property.

You pay for this agent's services, and the contract you sign will state the price for his services.

Be careful, though. In some states, a "selling agent" can be the same as a "listing agent," or an agent who works with a listing agent. In these states, the agent is acting on behalf of the seller. So, you need to check the laws in your area to see what "buyer's agent" means before you assume that she's working for you. Again, the best practice is for you, the buyer, to sign agreement stating that the agent is your agent.

It's easy for consumers to be confused. Most states do have laws or rules about a real estate licensee's duty to disclose who he represents and what type of agency arrangements are possible. Where required, disclosures can be verbal - sometimes as early as your first phone contact with an agent - or written. Many states require licensees to give disclosure brochures to consumers. Don't hesitate to ask the real estate agent. If there are further questions or doubts, a good agent will seek guidance from her broker.

Cooperating Agents

These are agents that are separate from the listing agent but nonetheless work for the seller or the seller's listing agent. In some states these types of agents are called "showing agents" or "cooperating agents." They show the seller's property to potential buyers, and if sale is made, they get paid by the listing agent.

Most buyers are unaware that a cooperating agent actually works for the seller, and so many states now have laws stating that if a cooperating agent shows property to a buyer, she's the buyer's agent. Some states, however, stick with the old rule that the cooperating agent at all times works for seller.

Dual Agent

If an agent works for both the buyer and the seller, she's a dual agent. Although it may be convenient to have only one agent working on a deal, there's a potential danger. Because the dual agent works for both parties, he has no clear-cut duty of loyalty to either. So, what happens if the parties' interests are different, which is almost always the case? For example, a dual agent may try to talk you into taking less money for your home because he knows his potential buyer can't afford or get financing for the full asking price.

Because a dual agent may earn a commission from both parties, the risk is that his focus may be on making sale, and not necessarily the best deal for both parties.

In the vast majority of states, an agent can represent both a buyer and seller only with parties' full knowledge and consent. In fact, most states have standard real estate forms where an agent must explain if she's a dual agent. Also, in most states, an agent's real estate license may be suspended or revoked if he acts as dual agent without both parties' knowledge and consent. Most states also have laws or rules stating what a dual agent's duties are to both parties.

Questions for Your Attorney

  • A seller and I agreed to a dual agency and agreed to split the agent's commission. I paid my share immediately, but I just got a letter from the agent telling me that the seller hasn't paid. Can the agent sue me for seller's share?
  • Is there a way to check if an agent's license has ever been suspended or if it's still valid?
  • Can you act as my real estate agent for a house I want to buy?

Tagged as: Real Estate, Residential Real Estate, agent representation, buyer representation, seller representation