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 . 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.
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 .
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. 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 disadventages
Sub agencys 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.
- Boogs H.G 1992, s.2
- Evans R.D, Kolbe P.T 2005, s. 278
- North W.D. 2019
- Boggs H.G. (1992), Agency Law and Real Estate Brokerage, University of Miami Business Law Review
- Evans R.D., Kolbe P.T (2005), Homeowners? Repeat-Sale Gains, Dual Agency and Repeated Use of the Same Agent, Journal of Real Estate Research, American Real Estate Society s. 278
- Korngold G. (2011), Real Estate Brokers are Not Fiduciaries: A Call for Developing a New Legal Framework,Real Estate Law Journal, s.10
- Musil T., Halloran J. (2011), Arbitrating real estate agency disputes: the complex landspace of real estate relationship and diuties, Dispute Resolution Journal
- North W.D (1993), Agency, facilitation and the relator, National associaton of relators, s.4
Author: Weronika Wielochowska