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Don’t be a Secret Agent, Man

by Hank Lerner, Esq. on

Questionable agency practices and alleged breaches of fiduciary duties are among the top items cited in lawsuits and ethics complaints. Let’s cover three of the top PAR Legal Hotline questions on agency that we CANNOT answer for you (and would love to never hear again – please?).

Q: Should I check the “designated agent” checkbox when I’m filling out an Agreement of Sale?

A: Dunno.

Policies on designated agency are established at the brokerage level. Each brokerage decides if they will practice designated agency or not, and if so, whether there are any little tweaks they may add to their internal process.

If you’re calling to ask about whether YOU are a designated agent, it probably means that either your broker/manager hasn’t told you the brokerage rules and/or you didn’t listen and understand them at the time. The only way to answer that question is for yourself to go right to your broker/manager and ask them to explain whether/how your firm practices designated agency.

If you’re calling as a buyer agent asking what box to check for the listing agent while filling out an Agreement of Sale, you just need to ask the listing agent (who will hopefully know the answer or…well…see above…).

Q: Which members of a team can interact with clients and which team members can cooperating agents talk to about a transaction?

A: It depends.

Otherwise awesome agents and brokers seem to suddenly lose track of the basics when it comes to teams. The point of designated agency is to say that only a certain agent or agents within a brokerage are authorized to deal with a client’s personal and confidential information.

  • If Agent Bob works alone, Bob could be a designated agent for his clients.
  • If Bob and Mary are agents who work together on all parts of their transactions as a team, then both Bob and Mary should be designated agents for their clients because both will be dealing with the confidential details of the transaction at various points. If only one is designated, then the other can’t help with certain things (which also means the broker policy and training needs to explain how to have multiple designated agents for a client).
  • If Bob is part of a 10-person team then the broker and team lead need to figure out how to apply designated agency to the team’s preferred work style.
    • If all 10 team members might be in the case file for various reasons, then perhaps all 10 should be designated agents for every client.
    • If only three of the licensed team members ever handle the buyer files, then perhaps only those three need to be designated agents for buyer. And so on…
    • To be clear, though, if a “team leader” (which is not a legally-defined term) is designated for a client, that status does NOT in any way carry over to the other members of the team. Each licensee must be accounted for individually. There is no implied designated agency for teams.

Q: I’ve been working closely with a buyer, but I don’t have a buyer agency agreement. Should I check “buyer agent” or “no business relationship” in the broker blocks?

A: BZZZZT! Wrong question!

The correct questions are:

  • Why have you gotten to this point without having something in writing?
  • What is it that you and your client think you’ve been doing for them?

Pennsylvania license law says that a broker is not entitled to collect a fee from a consumer without a written agency/fee agreement that spells out what’s being done and the fee to be paid (along with specific legally required terms). So for starters, if an agent has been doing “stuff” for a buyer without a written contract, that agent/broker would not be entitled to collect any fee directly from that buyer. So while it’s not illegal to work without such an agreement, it is certainly not good practice.

Which leads to the next question – what do you and the client think has been going on in this relationship?

Did you kinda’ sorta’ sell yourself as a buyer agent? Or maybe you tried to explain how you’re willing to help, but not be their advocate? Whatever you said, and whatever you thought you meant, odds are good that at some point, this buyer will have believed that you were looking out for their interests as their agent, even if that’s not what you said.

And that is where the lawsuits come from. If the box you check doesn’t match up with what the buyer thought they were getting, it will raise a red flag. And more often than not, it’s because the buyer believes you are their fiduciary, but you’re not treating them that way.

But there’s a super-easy way to avoid this whole conversation because – TA DA! – we’ve got forms for that!

  • If you’re going to be acting as an exclusive buyer agent (i.e., you’ve will represent the buyers for a period of time even if this deal falls through), then use the Buyer Agency Contract.
  • If you just want to secure your agency relationship for this deal or for other properties you might show this buyer, then you can use the Non-Exclusive Buyer Agency form. That one doesn’t tie the agent or buyer into a long-term deal, but just says “I represent you for properties I show you.” It’s a nice way to get that relationship in writing without freaking out a buyer who doesn’t want a long-term contract.
  • If you are just helping a buyer to be nice, but don’t want to be responsible as their agent you can use our Non-Representation Acknowledgement form, which straight-up says to the buyer that you are NOT representing them and that they’re on their own.

Whichever form you use answers the checkbox question for you. Using Form BAC or Form NBA means you’re a buyer agent; using Form NRA means there’s no business relationship. Of course you need to understand your role and act accordingly, but that’s another article…

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Agency
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