What is ‘Agency’?
Agency is the relationship created when one party (the principal, either vendor or landlord)
instructs another party (the agent) to bring a third party (buyer or tenant) into a legal
relationship.
There are several types of legally binding relationships between a principal and agent, and
this is reflected by the two departments within an agency.
The first being the sales department who list, market and sell a property using agency
agreements (Exclusive Agency Agreement – private sale or auction, Open Agency Agreement,
Sole Agency Agreement). The second is the property management department who list,
market and manage a property using Management Agency Agreements and Leasing Agency
Agreements.
Agents Obligation to their Clients
The client in real estate is the person who pays the agency money. This is most often the
vendor or landlord however, buyer’s agents are becoming more popular. The customer is the
person who does business with you but does not pay you money. This is usually the buyer or
tenant. Some salespeople forget this and are more concerned about their buyer, particularly
where a sale is made of another agent’s listing (via conjunction). Because the salesperson
does not deal directly with the vendor, they often tend to take the side of the purchaser.
Agents Obligation to the Vendor/Seller
The most important thing to understand about real estate agents or sales representatives is
that they have been hired by the seller. The aim of the agent is to sell the property for the
seller at the best possible price, in the shortest possible time and under the best terms.
Agents Obligation to the Purchaser/Buyer
Under the Competition and Consumer Act, the agent must be fair to the purchaser but must
always have the benefit of the principal in mind. Agents can receive a fee from a purchaser
(if acting as a buyer’s agent). Buyer’s Agents are classified as ‘other parties’ in real estate
transactions and are becoming more popular.
What can buyers expect from a real estate agent or sales representative who is employed by
the seller?
o The agent must be licenced or hold an Agent's Representative registration
o The agent must have a written contract with the owner to sell the property
o If a prospective buyer makes a written offer on a property, the real estate agent or
sales representative must present the offer to the seller
o The real estate agent or sales representative must have a complete copy of a contract
for sale of land held at the agency’s office
o The real estate agent or sales representative should try to find out important
information about a property, such as:- Whether there are any restrictions about the
use of the property. Where an extension is obviously badly built, real estate agents
should make enquiries with the local authority about the legality of the extension
o If the real estate agent suggests a purchaser use a service provider, e.g. a termite
inspector or conveyancer, the agent must advise in writing if they have any connection
with that supplier.
Agents Obligation to Other Parties
In real estate transactions the main other party that can be involved in the Principal of the
Agency. Provided the agent has followed all the principal’s instructions contained in the
(correctly completed and executed) agency agreement in the sale or management of the
property, then the agent will be paid a commission.
There are two common law obligations placed on agents when dealing with third parties. They
are:
o To act in a fair and reasonable manner
o To refrain from exaggeration, deception or misleading conduct
Contractual Obligations
To perform in accordance with the terms and conditions of the agency agreement.
Summary of Duties and Obligations of Real Estate Agents to Principals:
o To comply with instructions, perform in terms of the agreement and act within the
authority of the agreement
o To act personally and only delegate if authorised
o To act in the principal’s interest
o To make full disclosure of any personal interest
o To make no secret profit, gain or commission
o To exercise due care, skill and diligence
o To look after the principal’s property (including money) as if it were their own
o To keep separate accounts of their transactions and promptly account for monies
received
o To preserve confidentiality of any information that is acquired as a result of the agency
agreement.