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John Souerbry's Blog

By John Souerbry | Broker in Palo Alto, CA

Real Estate Agent Contractual Relationships – Slang, Truth and How Things Work

Real Estate Agent Contractual RelationshipsWelcome back to another installment of Real Estate Jargon, aka, simple explanations of sometimes confusing real estate terms.  Today, we’ll look at the simple, but often misunderstood, details of how real estate agent contractual relationships actually work.  We’ll sort out the slang, the truth and who works for whom in the normal course of typical real estate transactions.  As always, I’m going to refer to California real estate transactions and standard forms only.  If you’re in another state, you may want to speak with a qualified real estate professional to inquire as to how these things work where you are.

Let’s start by clearing up one of the most misunderstood relationships in real estate:

Your real estate agent is not your agent.

What!?  You’ve known your agent for years, bought and sold property using their services many times, so how could this person not be your agent?  No, your agent is not a mole for the NSA, FBI, CIA, IRS or Fish & Game Commission (at least we hope not…).  But your agent doesn’t work for you - he or she is an agent for their broker.  You may never meet this mysterious broker, even though this person (or company) is who you actually hired to buy or sell property for you.

Before you climb a mountain and shout to the universe that your agent is your agent and nothing can change that, let’s remember my starting premise – there is a lot of slang and jargon in the world of real estate.  No one can stop you from calling your agent your agent.  I’m not trying to change that, just clarifying the underlying contractual relationships.  Keep reading, because at the end I’m going to explain why understanding the contractual relationships I describe here can have an impact on your real estate transaction.

Real Estate Agent Contractual RelationshipsTo the right is a simple diagram that shows the contractual relationships between broker, agent and client.  The diagram sums up these facts:

  1. When you sign a real estate contract with an agent, your agent is signing on behalf of the broker they work for (unless your contract is with an independent broker who works for themselves).
  2. Your agent is authorized to sign on behalf of their broker because they have a contract with their broker that makes them their broker’s agent.  Aha!  This is why I say that – technically – your agent is not your agent.  They are an agent for the broker you hired.

Let’s look at language found in a few standard California real estate contract forms that further explain this concept.

Buyer Representation Agreement – Exclusive (CAR Form BRE).  If you hire an agent to help you find and buy a property, they may ask you to sign this form.  Section 1.C: “Broker will perform its obligations under this Agreement through the individual signing for Broker below or another real estate licensee assigned by Broker…”

Residential Listing Agreement (CAR Form RLA).  Section 17 - Management Approval.  “If an associate-licensee in Broker’s office (salesperson or broker-associate) enters into this Agreement on Broker’s behalf and Broker or Manager does not approve of its terms, Broker or Manager has the right to cancel this Agreement, in writing, within 5 Days After its execution.”

Independent Contractor Agreement (CAR Form ICA).  Section 4.A – Licensed Activity.  “All listings of property and all agreements, acts, or actions for performance of licensed acts, which are taken or performed in connection with this Agreement shall be taken and performed in the name of Broker.  Associate-Licensee agrees to and does hereby contribute all right and title to such listings to Broker for the benefit and use of Broker, Associate-Licensee, and other licensees associated with Broker.”  Note:  Not all brokerages use this standard form and contractual agreements between agents and brokers vary.

OK, so what does this all mean?  Refer back to the diagram and the original premise – your “agent’ is actually an agent for their broker and provides services to you on the broker’s behalf.

As promised, here are a couple things to consider when hiring an agent that could affect your purchase or sale transaction:

-       If you list your property for sale with an agent and that agent leaves their broker to work for another broker before your property sells, your listing stays with the original broker.  In most instances, a deal can be worked out between the two brokers so that your listing can be transferred with your agent to the new broker per a fee-splitting agreement, but that is not always assured.  Note: some experienced agents will demand that their agent contract include provisions that guaranty transfer of their listings if they leave the broker, thus assuring that they will keep you as a client no matter where they work.  Some brokers are OK with this, while others won’t hire an agent who makes this demand.

-       As stated in the “Management Approval” quote above, any agreement you sign with an agent can be cancelled by the agent’s broker if the broker does not approve of the terms.  On most California standard forms, you will see a little box in the lower-right corner of each page that says “Reviewed by” and “date.”  This is where the broker initials that they have reviewed and accepted the contract.

 

I hope you found this information helpful.  If you have questions about real estate agent contractual relationships, real estate jargon, or real estate buy/sell/investment strategies – drop me a line!

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John A. Souerbry & Associates/Real Estate (CalBRE 01370983)

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