Agency Relationships: Agency in 2012
As it refers to real estate, Agency is described as the legal relationship between two or more persons where one person, the Client, provides the other, the Licensee, with the express authority to act on their, behalf and in a manner that represents their best interests in a real estate transaction. Specifically for the purpose of procuring a seller, buyer, option, tenant or landlord, who is ready, able, and willing to sell, buy, option, exchange or rent real estate on behalf of client (§ 54.1-2130).
Per HB 1907, any real estate Licensee who acts for or represents a Client in an Agency relationship must represent said Client as either a Standard Agent or a Limited Service Agent, unless a different relationship is intended and agreed to as part of the Brokerage relationship, such as an Independent Contractor. Additionally, all Agency and non-Agency relationships must be defined within a written Brokerage Agreement between a Client and a Licensee. Hang tight; we’ll identify the difference between Agency and non-Agency relationships in just a minute.
When Agency Relationship Begins & Ends
The Agency relationship begins when the Client engages the Licensee, however, this requires written Disclosure and the mutual agreement of the firm and Client. One very important point to remember is that Agency relationships are consensual and cannot be forced. Our actions alone no longer create or assume an Agency relationship. Several components must exist first; a meeting of the minds and the nature of the relationship must be defined in a Brokerage Agreement and disclosed. We will discuss Brokerage Agreement and contractual components further in another chapter.
The Agency relationship continues until the completion of performance as defined within the Brokerage Agreement or one of the following: the expiration date as agreed upon by the parties; any mutually agreed upon termination of the agreement; a default by any party under the terms of the brokerage agreement; or a termination due to dual agency, whichever occurs first.
Client verses a Customer
Let’s take a minute to make sure we understand the difference between a Client and Customer. Clients and Customers receive vastly different types and levels of service. While Virginia Licensee’s owe duties to both Clients and Customer, the nature of those duties depends on the type of Agency relationship established.
Virginia law defines a Client as the person the Licensee formally represents by having entered into a written Brokers Agreement, which could be a Buyer and/or Seller. The Client is the person the Licensee is most responsible for in the transaction and owes all Fiduciary Duties.
Whereas a Customer is the person the Licensee does not represent by way of a Brokerage Agreement, but who is interested in doing business with the Licensee. Even if the Customer is represented by another Licensee, they still remain your Customer. We are obligated by law to treat all Customers honestly and not knowing give them false information. The law also provides that the Licensee can perform certain Ministerial Acts without creating and Agency relationship.
Ministerial Acts are considered routine acts within a real estate transaction which a licensee can perform for a person, Customer, without creating an Agency relationship, triggering additional duties or violating existing Agency relationship. Most often these “routine acts” refer to general administrative activities, which do not involve discretion or the exercise the Licensee’s judgment. For example, Licensee fills in the blanks within a Purchase Agreement for a Buyer Customer, does not trigger an Agency relationship so long as the Licensee does not advise the Customer in any way.
However, when working with Customers there is one critical component to never forget, disclose, disclose, disclose!
Author: Lee Gosselin, Associate Broker & Owner