“Agency” … What is it?

“Agency” is a relationship in which one party (the agent) acts for (represents) another (the principal, a buyer or seller) in business dealings with third parties.
First and foremost … in all circumstances … agents are obligated to be honest and truthful with all parties
and … to disclose all known facts that might materially and adversely affect the consideration that would be paid for a property

… except that – Arizona law excludes from such required disclosure that the property is or has been

  • the site of a death or felony
  • occupied by a person having a disease not known to be transmitted by common occupancy
  • located in the vicinity of a sex offender.

For an Arizona real estate transaction, a principal and agent may have any one of three possible agency relationships:

  • Buyer’s agent … buyer is the client of the agent
  • Seller’s agent … seller is the client of the agent
  • Limited Representation … there is no client.

Why should a buyer or seller require a “client” relationship?

  • an agent cannot disclose a client’s confidential information
  • an agent cannot disclose that a Seller client will accept a price or terms other than as stated in the listing
  • an agent cannot disclose that a Buyer client will accept a price or terms other than as offered

To their Buyer or Seller Client, agents have the fiduciary duties of confidentiality, accounting, reasonable care, loyalty, obedience, and disclosure.

Limited representation, which is also referred to as “dual agency”, is allowed only with the prior written consent of both buyer and seller. The AAR form for this is the Consent-to-Limited-Representation-0212

In dual agency situations, agents refrain from giving any advice because restricted information could be accidentally disclosed.

The Arizona Real Estate Agency Disclosure and Election-0209 is the AAR form by which buyer and seller choose the form of agency they prefer. This is NOT a contract or employment. It is an “instruction”.

The respective contracts are:

In Arizona, these documents actually establish a relationship between the principal and the “designated broker” for the real estate company … NOT with the agent, who is “associated” with the designated broker. For a more complete discussion of the technical nature of brokers and agents see Arizona Brokers and Agents.

What does all this mean to … The Buyer

The Buyer can always benefit, sometimes greatly, from insights that a Buyer’s broker can provide. Much of this insight could be restricted where the broker is also representing the seller. Thus, a buyer should usually require/engage the services of a Buyer’s broker … click for more detail.

This is particularly true when buying a new home. The builder’s salesperson is limited, by agency regulations and builder policies, in the advice that can be given to the buyer. In fact …  builders universally require buyers to sign a form acknowledging that the salesperson represents the builder and is restricted in the advice and information that can be given to the buyer.

What does all this mean to … The Seller

The Seller engages a broker to get a property sold. If you ask most sellers, they will say this means to “find a buyer” … which would have the broker in a dual agency situation, although most seller do not think of it this way.

A seller would likely benefit from the advice of a Seller’s broker during negotiations, but such advice cannot be given in a “dual agency” situation. However, listing brokers often agree to a lower total commission if no commission is to be paid to other brokers, in which case the seller has some motivation to consent to dual agency. For example, the listing agreement could state that the total commission is to be 6%, half of which is to be paid to the buyer’s agent if there is one, but just 4% if the listing agent produces the buyer. This is a win-win situation for the seller and the listing agent … seller pays less commission while listing agent gets 4% rather than 3%. However, the listing agreement must specifically state this.

Of course, the seller is usually most knowledgeable of the property, so there are fewer issues. More importantly, much of the advice concerns typical issues and can be given to the seller well before any buyer is involved.

Dual Agency – Can it work?

The answer … Yes, but …

As stated above, a buyer will almost always be better served by having a buyer’s agent working exclusively for the buyer’s best interests. As also discussed above, dual agency might benefit the seller with a lesser commissions, but these terms must be stated in the listing agreement.

In a dual agency situation,  the agent is attempting to serve two parties who have conflicting interests.  The agent will have conflicts related to the duties of loyalty, obedience, disclosure, and confidentiality. These conflicts are why dual agents are required to obtain the informed written consent of the parties before acting as a dual agent.

For some examples …

May a dual agent aggressively work to secure the best possible price for one party? No! A dual agent can do nothing to advance the interests of one party over the other. For example, a dual agent should not make comments to the seller such as “These buyers really love this home, you should counter for a higher price.”

May a dual agent point out to a buyer a negative characteristic of the property? A dual agent may point out a negative characteristic of the property only if that negative characteristic is a material fact that must be disclosed by law. Comments such as “These large windows are impressive, but they may increase your utility bills” should be avoided.
Another distinction that buyers and sellers need to understand is that a real estate agent is NOT necessarily a Realtor®.


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