Sub agency

From CEOpedia | Management online

Sub agency is type of brokerage relationship between real estate broker or agent and another real estate broker or agent, who brings in a buyer to purchase the property. The broker reaches agreement with the property owner to sell his property. When the listing contract is signed, the seller becomes a participant in an agency relationship with the listing broker who is obligated to the seller for the fiduciary duty of loyalty and services [1]. A characteristic of sub-agency is that a listing firm broaden relationship with a seller and authorizes other cooperating brokerage agencies to represent the seller in a real estate transaction. Then the other cooperating broker becomes a sub-agent of the listing broker.

Sub agent

A sub agent is a real estate licensee providing services to a buyer, but actually representing the seller in transaction. Agent who works with the buyer actually owes fiduciary duties to the seller, not the buyer. Sub agent be act as a selling agent to the listing agent and selling agent represents the owner of property. The buyer may have signed a contract with his agent to represent him as a buyer's agent. This solution could better align the agent's incentives with the buyer [2].

History of sub agency

Before the 1990s existed only seller agency. Buyer agency had not been introduced yet. During these times, agent represented the seller, which formed a relationship between them. The buyer did not have anybody to represented and then sub agent was created. The listing agent needed a buyer to sell the property. The subagent brought the buyer, but they did not have the consent of the seller, which created the client's relationship. The subagent had to have an agency agreement with the listing agent to get a commission. Aability to represent sellers to brokers acting as a sub agents on an exclusive basis and offer compensation was the foundation upon which the Multiple Listing System, called MLS was built. MLS needed that offers of compensation be contingent on the a subagent of the listing broker, rather than an agent of the buyer. Subagency allowed sub agents who worked with buyers to collect a part of the commissions paid by sellers without official representing buyers in an agency capacity. If buyers were not represented, brokers there were not owed them fiduciary duties[3]. Realtors were free go about their business without much concern about the technical legal requirements of fiduciary relationships and agency law . In the 1980s, courts began finding that brokers could inadvertently create agency relationships with buyers. They were advising them during negotiations or other services to lead buyers to believe they were being represented.

Sub agency disadvantages

Sub agency is less desirable because:

  • sub agency does not any fiduciary duties to the buyer and their duties to the seller, which can be damaging to the buyer's interests.
  • for the sub agent's actions the responsible here is listing agent since they have an agency agreement together.
  • the legal result of seller subagency does not agree with the real personal relationships in the marketplace and not does it satisfy expectations of the parties.

Examples of Sub agency

  • A buyer's agent brings in a buyer to purchase the property. In this scenario, the buyer's agent would be considered the sub-agent of the listing agent, as the listing agent is responsible for the primary representation of the seller.
  • In some cases, two agents from different real estate firms may partner up to find a buyer for a property. For example, if an agent from Firm A is working with a seller, and an agent from Firm B brings in a buyer for the property, the agent from Firm B would be acting as a sub-agent of the agent from Firm A.
  • A real estate broker may also work with a sub-agent in order to find a buyer for a property. For example, if a broker is working with a seller, they may enlist the help of another agent or broker to bring in a buyer. The agent or broker that brings in the buyer would be acting as a sub-agent of the broker.

Advantages of Sub agency

Sub agency can be a beneficial relationship for real estate brokers and agents, as it can provide a number of advantages. These advantages include:

  • Increased visibility - Sub-agents can help increase the visibility of a property, which can help attract more buyers and potentially increase the sale price.
  • Expanded network - Working with a sub-agent allows a broker or agent to tap into a larger network of potential buyers, which can result in a quicker and more successful sale.
  • Lower costs - By working with a sub-agent, the costs associated with selling a property may be reduced since the sub-agent typically receives a lower commission rate than a traditional broker or agent.
  • Additional expertise - Sub-agents often have specialized knowledge and experience that can be invaluable in helping to close a sale.

Limitations of Sub agency

Sub agency is a beneficial relationship for both parties, but there are certain limitations to be aware of. The following are some of the limitations of sub agency:

  • Sub agents are often not as dedicated to finding buyers as the listing agent, which can result in fewer qualified buyers being presented.
  • Sub agents do not have the same access to the listing agent's resources, such as market research, advertising, and contacts.
  • The sub agent does not typically have the same level of expertise as the listing agent, which can lead to mistakes in negotiations or other important aspects.
  • Sub agents receive a reduced commission, which can be less incentive to promote the property.
  • Sub agents may not have the same level of knowledge or experience as the listing agent, which can result in miscommunication or disputes.

Other approaches related to Sub agency

  • Dual Agency: Dual Agency is a situation where one real estate broker or agent represents both the buyer and the seller in a real estate transaction.
  • Designated Representation: Designated Representation is when two different brokers are involved in the sale, but they are on the same side of the transaction, representing either the buyer or the seller.
  • Transaction Brokerage: Transaction Brokerage is a non-representative relationship in which the broker provides service to help facilitate the transaction, but does not represent either party.

In summary, sub-agency is just one approach to real estate brokerage and there are several other approaches that can also be used, such as dual agency, designated representation and transaction brokerage. Each approach has its own benefits and should be evaluated on a case-by-case basis.

Footnotes

  1. ↑ Boogs H.G 1992, p. 2
  2. ↑ Evans R.D, Kolbe P.T 2005, p. 278
  3. ↑ North W.D. 2019


Sub agency — recommended articles
Exclusive agency agreement — Authorization to sell — Sole agent — Local agent — Commercial agent — Sole distributor — Ex Gratia Payment — Placement fee — Sub broker

References

Author: Weronika Wielochowska

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