Real estate agency

What is a real estate agency?

Question: Marsha, I don’t understand the term “agency” in real estate in California. I am involved in buying a home and continue to sign “agency disclosures”. What do I sign?

A: Good question! Join the club not understanding what the agency means in real estate. It seems that the relatively benign concept of who works for whom should be easily understood and clear. Wrong! Most civil lawsuits in real estate involve an agency: negligent misrepresentation, breaches of fiduciary duty by real estate licensees, and failure to disclose professional relationships. Note: I am not a lawyer, so do not take what I am saying as legal advice.

One of the forms that you have no doubt signed is the “Real Estate Agency Relationship Disclosure”. This form defines different agency configurations and what are the duties of the real estate agent towards the main parties. There is the seller’s agent, the property owner, the buyer’s agent, the buyer of the property, or a real estate agent or firm representing both parties.

It is essential to know who the principals are and who represents them in the transaction. Agents owe a fiduciary duty to their principals. This means that they must put the financial concerns of their principal before their own.

Confused? It’s easy to get bogged down in terminology. California has worked steadily over the years to provide transparency and clarity on the matter. Agents are required to have potential and new clients sign the agency disclosure forms as soon as they begin a real estate relationship with a buyer or seller.

A few years ago, the California Association of Realtors (CAR) improved the Home Purchase Agreement to put more emphasis on the agency. The first paragraph of the purchase contract lists the names of the buyers, the address of the property and the proposed purchase price. The second paragraph discloses and confirms who represents whom. The agency is indicated as soon as possible; it is so important.

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The traditional way of paying realtors has created much of the hoax. Real estate commissions are always negotiable. In Santa Barbara, commissions generally represent 5 or 6% of the final purchase price. The listing agent presents the house for sale in the multiple listings service and agrees to share the commission with the buyer’s agent. It looks like the seller is paying for both agents. So, don’t the two agents work for the seller? But wait, an argument can be made that the buyer actually pays the commissions. The seller settles all debts in the transaction from the buyer’s purchase money. This is an ongoing discussion in real estate.

The important thing is not who pays the agents; that’s who the agents represent. Agents owe their loyalty and fiduciary responsibility to their primary clients. They owe honesty, ethical behavior and full disclosure to the client of the other agent. In the event of a dual mandate, the agent, who now represents both the seller and the buyer, has a fiduciary duty to both principals.

Hope this gives you some understanding of what agency means in real estate. It is a fundamental and critical concept in residential real estate transactions. Who looks after your best interests? Better if it was your agent.

Marsha Gray, DRE # 012102130, NMLS # 1982164, has been a real estate broker in Santa Barbara for over 20 years. She works at Allyn & Associates, real estate and loan services. To read more Q&A articles, visit She will research and answer all questions submitted. Contact Marsha at (805) 252-7093 or

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