In any business deal, all parties involved should be aware of who represents whom in the transaction. Real estate is no different. Whether residential, com-mercial, farms, vacant land or leasing transactions, it is important that a buyer and seller know who is representing them. In Kentucky, real estate license laws require that a real estate agent make a client aware of the different types of agencies that exist in this state and at the time of purchase an agency disclosure must be completed and signed.
The agency relationship that is established between an agent and a client is specific to a transaction. In Kentucky there are four distinct relationships: Seller representation, buyer representation, dual agency and designated agency. Agents provide information about these different agency roles to customers and clients by way of a state-required Consumer Guide to Agency Relationships. The law requires this be given to a prospect by an agent no later than at the end of the second substantive contact the agent has with the person. The consumer is asked to acknowledge receipt of this document by signing it. The Consumer Guide to Agency Relationships is not an agreement or contract, merely a disclosure.
Most sellers of real estate choose to list their property for sale with a real estate brokerage. Sellers sign a listing agreement that authorizes the brokerage firm and the listing agent to represent their interests. As the seller’s agent the brokerage and listing agent must: Follow the seller’s lawful instructions, be loyal to the seller, promote the seller’s best interest, disclose material facts to the seller, maintain confidential information, act with reasonable skill and care and account for any money handled in the transaction.
In most instances, buyers want professional representation in a transaction and choose a real estate professional. When this relationship is established, it is referred to as a “buyer’s agency.” A brokerage and agent that agree to represent a buyer’s interest in a transaction must follow the exact fiduciary responsibilities as the seller’s agent.
Situations can occur when two different agents from the same brokerage could represent the buyer and seller. For example, the listing agent may represent a seller with a property that a buyer’s agent in the same firm would like to purchase. In this case, the law in Kentucky allows the broker to designate each agent to represent the best interest of his or her respective client. This is termed, “designated agency.” When this occurs, the principal broker and any managers are “dual agents.” As a dual agent, the principal broker cannot advocate for the position of one client over another or disclose confidential information.
In some cases, an agent may represent both the buyer and seller in a transaction – provided the agent receives written permission to do so by both parties. This is referred to as a “dual agency.” When a brokerage and its agents become “dual agents,” it is crucial that they remain trustworthy to both parties in the transaction. Again, they may not advocate one position of one client over the best interests of the other client or disclose any confidential information to the other party.
Dual agents and brokerage may disclose material defects to the purchaser, provide information regarding lenders, inspections and other professionals. They may also provide market information or public records, prepare and present all offers and counteroffers, and assist both parties in completing the steps necessary to fulfill their terms of any contract. However, dual agents cannot, disclose information that would have an adverse effect on one party’s positions in the transaction, unless it is authorized by the client or required by law. The agent cannot suggest or recommend specifics regarding the offer, including price, or disclosing the terms or price the buyer is willing to offer or that the seller is willing to accept, or act in a biased manner on behalf of one party.
Buying, selling or leasing property can often be the largest financial transaction and commitment a person will ever make. So it is important to under-stand the role of agents and brokers with whom you are working.
Most importantly, in real estate or any business contract, there is no substitute for professional and knowledgeable exper-ience that is necessary to achieve a positive result.
Jennifer Mossotti, CCIM, is a Realtor with Prudential de Movellan Real Estate and former Councilmember on the LFUCG. She can be reached at jennifermossotti@insightbb.com.