The state of California wants you to be aware of how agency works before you begin working with an agent. According to a the San Diego Transaction Coordinators at Transaction 911, “There is a two-page disclosure form by the California Association of Realtors® that helps agents fulfill this disclosure requirement before going to work for a client. Sellers should receive this disclosure form from the listing agent before signing a listing agreement (AD-1), and buyer’s agents should be giving this form to prospective clients before representing them as a buyer’s agent (AD-2).”
The purpose of the agency disclosure form (entitled Disclosure Regarding Real Estate Relationships) is to make sure that every person who hires a Realtor® in the state of California is given an opportunity to learn how agency works. The form reviews the three types of agency.
- Seller’s Agent. The seller’s agent has the legal duty to act in the best interest of his or her client, the seller. It discusses “fiduciary duty” (that the seller must always work in the best interest of the seller). The seller’s agent, although he or she has the obligation to treat the seller with honesty and integrity, must always act in the best interest of the seller. Additionally, the seller’s agent is required to disclose to the buyer any material fact that may affect the value of the property. Although, the seller’s agent is required to disclose these things to a buyer, the seller’s agent is not required to act as a fiduciary in helping the buyer make sense of disclosures.
- Buyer’s Agent In many cases, it is the seller that pays the buyer’s agent commission; however, the buyer’s agent is not an agent of the seller. The buyer agent’s fiduciary duties are to the buyer only. The job of a buyer’s agent is to act in the best interest of the buyer, to help the buyer get the lowest price possible and the best terms, and help the buyer review all disclosures, reports, inspections, and other documents to determine whether buying the property at the agreed-price is in the buyer’s best interest.
- Dual Agency. “Dual agency” is created when the same agent represents both the buyer and the seller on the same transaction. While some states do not permit dual agency, California does. However, many agents, buyers, and sellers believe that it is difficult for a single agent to work in both the best interest of the buyer and the best interest of the seller at the same time.
Agents often use the AD-1 and AD-2 forms and place a circle on the document to identify the type of agency in the specific transaction. This is not required as the disclosure purely provides definitions and information about the different forms of agency in the state of California. According to this Transaction Coordinator, the following should advice should be heeded: “Keep in mind that the Disclosure Regarding Real Estate Relationships must be signed before listing agreements and purchase agreements, and should not be competed weeks down the road when you are already half way through the escrow period.”
The Dangers of Dual Agency
In order to be a dual agent (and agent for both the buyer and the seller), you’ll need to have a Possible Representation of More than One Buyer or Seller (PRBS) in your file. This form is signed by both parties and states that each understands that either the agent or the broker may be a dual agent. Thankfully, this form is now included with the Residential Purchase Contract in the same electronic file, so people will not forget to use it.
Here’s where dual agency becomes dicey: as a buyer’s agent, your job is to get the best deal possible for your buyer. But, as a listing agent, your job is to get the highest price possible on the property for sale. Is it possible to actually get the best deal for your buyer while also getting your seller the highest price possible?
It may be possible to be an effective dual agent, but many people argue that the two goals are mutually exclusive. As such, many states do not permit dual agency. In California, of course, dual agency is permitted. Just be prepared to be fair and equitable to all parties.