Agency in Real Estate Transactions

Real Estate buyers and sellers are often confused about the role of real estate agents and real estate agency relationships.

Maryland enacted brokerage-relationship laws to protect both the consumer and the licensee alike. Residential brokerage-relationship law applies to:

  • The sale or lease of real property improved by one, two, three, or four single-family units
  • Unimproved real property already zoned for residential use by the local county or municipal zoning authority that governs where the real property is located
  • Residential leases of greater than 125 days

Note: Agency law does NOT apply to a lease of 125 or fewer days.

Many states, including Maryland, require that agents provide buyers and sellers with an agency disclosure. This form is not an agreement; it is a disclosure. It discloses the various natures of possible agency relationships, and it is important that buyers and sellers read the forms carefully to be better prepared to select the type of agency relationship they want.

Brokerage-relationship law applies to one, two, three, or four single-family units; unimproved real property already zoned for residential use by county or municipal zoning; and residential leases of greater than 125 days.

Agency Basics

So what exactly is “agency?” Agency is the relationship through which a licensee acts on behalf of, or represents a client (with the client’s authority) in a residential real estate transaction.

An agent is the licensee engaged with the client in the brokerage relationship. There are different types of agents as described in §17-530 of the Business Occupations and Professions Article of the Maryland Code.

Written Brokerage Agreement Required

When no written agency agreement exists, an agent assisting a prospective buyer to purchase is either the seller’s agent or a sub-agent of the listing agent—which must be disclosed to the buyer. Buyers who would be more comfortable having an agent who represents the buyer’s interest may decide to enter into a written brokerage relationship agreement for a licensee to serve as a buyer’s agent and represent the buyer’s interests.

It’s important to understand what legal responsibilities your real estate salesperson has to you and to other parties in the transaction. Ask what type of agency relationship your agent has with you.

Seller’s Representative 

The seller’s representative is most commonly known as the listing agent or seller’s agent. A seller’s agent is hired by and represents the seller. All fiduciary duties are owed to the seller. The agency relationship usually is created by a listing contract.

Buyer’s Representative 

The buyer’s representative is most often referred to as the buyer’s agent. A buyer’s agent is hired by a prospective buyer(s) to represent them in a real estate transaction. The buyer’s agent works in the buyer’s best interest throughout the transaction and owes fiduciary duties to the buyer. The buyer’s agent is typically paid by the seller or through a commission split with the seller’s agent. However, more common with commercial transactions, the buyer may pay the licensee directly through a negotiated fee.

Disclosed Dual Agent

Dual agency is a relationship in which the brokerage firm represents both the buyer and the seller in the same real estate transaction. Dual agency relationships do not carry with them all of the traditional fiduciary duties to clients. Instead, dual agents owe limited fiduciary duties. Because of the potential for conflicts of interest in a dualagency relationship, it’s vital that all parties give their informed consent. In many states, this consent must be in writing. Disclosed dual agency, in which both the buyer and the seller are told that the agent is representing both of them, is legal in most states.

Dual agency can happen even if the buyer is represented by an agent other than the listing agent if that agent is also employed by the same broker. It is the employing broker’s relationship with the seller that determines dual agency.

Designated Agent

This is a brokerage practice that allows the managing broker to designate which licensees in the brokerage will act as an agent of the seller and which will act as an agent of the buyer. Designated agency avoids the problem of creating a dual-agency relationship for licensees at the brokerage. The designated agents give their clients full representation, with all of the attendant fiduciary duties. The broker still has the responsibility of supervising both groups of licensees.