Agency Representation of Buyers and Sellers

By David Parker, Esq.

QUESTION: I am currently working with a real estate agent as I attempt to locate a new house. The agent has suggested that perhaps she serve as a “buyer’s agent.” I did not realize that there was any difference between a “buyer’s agent” and a “seller’s agent.” Please explain the difference to me.

ANSWER: Initially, in order to understand the differences between a buyer’s agent and a seller’s agent, you should first understand the nature of a principal/agent relationship. An agent is a party who is authorized to act on behalf of another party (the principal). This agency relationship requires the highest standard of care on the part of the agent, including fiduciary responsibilities. These include absolute loyalty to the principal, together with a duty of honesty and total disclosure of all facts and information which may affect the principal. In addition, the agent is required to keep all information confidential and must obey the principal’s instructions to the best of his or her ability.

Traditionally, an agent was hired by the seller of property and worked for the seller. This agent is usually referred to as the “listing agent.” If another agent assists the buyer in finding the property, this other agent may be referred to as the “selling agent” or “cooperating agent.” The selling agent is a sub-agent of the listing agent and, accordingly, works for and is paid by the seller. The selling agent does have certain responsibilities to the purchaser, including honesty and fairness.

In order to provide the purchaser with enhanced representation in a transaction, Maryland law now presumes a “buyer agency.” In buyer agency, the “selling agent” in fact works for the purchaser. This type of agency is created very early in the relationship between the buyer and agent. Prior to entering into a contract to purchase, this relationship must be reduced to writing. The advantage of a “buyer’s agent” is that a licensed, professional agent will be working solely on behalf of the buyer in order to assist in finding the best house at the best price and to protect the buyer in the purchasing process.

Normally, by the consent of all parties, the commission for the buyer’s agent will be paid by the seller. This is done in the form of an addendum to the contract, wherein the seller recognizes that the agent is working on behalf of the buyer, but, nevertheless, agrees to pay the buyer’s agent’s fee for bringing about the sale.

You should discuss agency relationships with a real estate agent. It is important to establish from the beginning whether you will be utilizing a buyer’s agent or working with an agent who is the sub-agent of the seller. Under Maryland law, the agent is required to provide a written disclosure of all types of agency relationships and the rights of purchasers and sellers. You will then be given the opportunity to elect which type of agency relationship you prefer. Since the law requires the written disclosure at the first scheduled meeting with the agent, you should not be surprised when the agent asks you to sign the form.

In either event, because the agent has a duty of honesty and fairness, you should be treated properly throughout the transaction. However, if you desire the additional protection of a “buyer’s agent,” then you should discuss this with the real estate agent with whom you are currently working.