The definition of agency broker that can be found in Combley's Cambridge Business English Dictionary, states that agency broker is „a person or organization that buys and sells shares or property for another person or organization" (2011).
Agency broker's job is to act in the best interest of their clients. Agency broker's actions are guided by professional standards of care. The main goal of agency broker is to satisfy his or her clients. That includes: finding lowest prices in the best terms and follow orders given by the client. This task has to be carried out with a great knowledge about managed properties and/or shares, which includes knowing if repair procedures, inspections and others should be included in the terms of the financial offer. Agency brokers are being employed to find suitable purchasers for sellers or the other way around (Hopper, 1992).
Single vs. dual agency broker
There are two kinds of agency brokers, single agency broker and dual agency broker. They differ in that single agency broker represents either a buyer or a seller and dual agency broker represents both at the same time.
Single agency broker has the advantage of having lower risk of misunderstanding. That is, because one way broker is responsible only for one side of a deal, so the possibility of agency broker's actions being affected by any conflict of interest is drastically reduced. Whereas, dual agency broker is responsible for both sides, so the risk of being accused of conspiring is higher.
Real estate broker activity areas
Real estate broker is usually an independent contractor who's job revolves around (Anderson, 2000):
- Mobile-home sales
- Residential income property
- Commercial properties
- Industrial properties
- Property management
- Land and farm brokerage
- Lot sales
- Loan brokerage
- Auction sales
- Mortgage loan activities
- Business opportunities
- Leasing agent
As soon as a broker is representing an individual, he or she needs to make an early disclosure of who is being represented by them. It is done by writing a note that also should include sales contract.
Both selling and listing brokers have to prepare two disclosures of their agency representation. It needs to be done for both a buyer and a seller. The first disclosure is needed before signing any documents and the second one needs to be done when final documents are being signed.
Licensee, prepared by agency broker who provides appropriate representation has to include full disclosure concerning his or her representation. This needs to be confirmed with written consent by both sides.
Agency broker's duty is to conduct full and faithful inspection of the property and to make a disclosure of any material defects to the client before closing the deal (Hopper, 1992).
Agency brokers working system rules
Agency brokers are regulated by (Laby, 2010):
- rules urged by the Financial Industry Regulatory Authority (FUNRA)
- Securities Exchange act of 1934
- self-regulatory organization (sro) specialized for broker-dealers (Laby, 2010)
- Anderson, L., Otto, D. S., & Pivar, W. H. (2000). California Real Estate Practice. Dearborn Trade Publishing.
- Bressman, L. S., & Thompson, R. B. (2010). Future of agency independence, Vand. L. Rev., 63, 3.
- Combley, R. (Ed.). (2011). Cambridge business English dictionary. Cambridge University Press.
- Gardiner, J. N., Heisler, J., Kallberg, J. G., & Liu, C. H. (2007). The impact of dual agency, The Journal of Real Estate Finance and Economics, 35(1), 39-55.
- Gedicks, F. M. (2005). Suitability Claims and Unrecommended Securities Purchases: An Agency Theory of Broker-Dealer Liability.
- Hopper, B. L. (1992). The selling real estate broker and the purchaser: assessing the relationship, Byu L. Rev., 1135.
- Kroll, R. E. (1982). Dual Agency in Residential Real Estate Brokerage: Conflict of Interest and Interests in Conflict, Golden Gate Ul Rev., 12, 379.
- Laby, A. B. (2010). Fiduciary Obligations of Broker-Dealers and Investment Advisers, Vill. L. Rev., 55, 701.
- Williams, J. T. (1998). Agency and brokerage of real assets in competitive equilibrium, The Review of Financial Studies, 11(2), 239-280.
Author: Mateusz Fudala