Whenever a buyer or seller hires a real estate agent, they expect that their chosen professional is working in their best interest. For most people, their home is the biggest purchase they will ever make. For this reason, clients want to know that their agents are working hard for them.
To keep clients happy, agents should explain the type of working relationship they'll have. There are two main options: traditional and designated agency. Here’s what you need to know about each one.
In a traditional agency arrangement, the client works with a broker to complete a real estate transaction. This could be either to buy or to sell a home. This managing broker works directly with the client and maintains confidentiality throughout negotiations. The agent works only for the client and has no affiliation with the other parties in the transaction.
For example, if the agent is working with a buyer, that agent would have limited contact with a home seller’s agent. While the two agents would negotiate through the contract, they wouldn't discuss the deal informally. They also wouldn't reveal anything about their clients that could give the other an advantage. This avoids any conflict of interest. It also protects clients from collusion or other shady dealings so they know they’re getting the best deal possible.
In a traditional arrangement, all brokers in the agency work in the best interests of their colleagues’ clients. That's true even if they never work with that client directly. They also may not have relationships with the other parties in the transaction.
The Bottom Line: In a traditional agency arrangement, the entire brokerage can only represent either a seller or a buyer, not both.
Sometimes a brokerage wants or needs to work with clients on both sides of a real estate transaction. To do this effectively, they designate one agent to work with the buyer and a different agent to work with the seller. These affiliated brokers work for the same office, but they do not share information. This arrangement is known as designated agency. It erects a figurative wall between buyers and sellers working with the same brokerage firm.
For example, a buyer may hire an agent to represent them, only to discover later that their dream home is being sold by an agent in the same brokerage. In this case, designated agency can allow individual agents at the same brokerage to negotiate in their respective clients' best interests. Designated agency can be an important tool in rural areas with few real estate brokerage options.
The Bottom Line: Designated agency allows brokers in the same firm to work for both buyers and sellers. They just have to maintain clear boundaries and disclose the relationship to all parties.
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