What is the real estate agent?

It is common to hear buyer or seller clients use the word agent when referring to brokers/salespeople representing them in a real estate transaction. The term is even used in many media articles to describe the same client-REALTOR® relationship. But the term in this context is a misnomer. The agent in a real estate transaction is the brokerage.

Agent and related terms such as agency and agency relationship have their roots in common law. Common law is “the part of English law derived from customs and judicial precedent rather than statues.” In legal terms, the brokerage is the agent authorized by the principal (i.e., the buyer or seller) to represent the principal in the real estate transaction. Authority is the right or permission granted by one person to another.

Typically, an agency relationship between the agent (brokerage) and the principal is documented by way of a buyer representation agreement or seller representation agreement (also known as a listing agreement). In real estate, there are two types of authorityactual and implied. Actual authorities are those the principal (buyer or seller) intentionally gives to the agent (brokerage) and are outlined in the terms of the agreement. Implied authorities are assumed given the nature of the relationship; these allow the agent to get the job done.

The diagram below highlights the concepts of actual authority and implied authorities in buyer representation and seller representation.

So the next time someone refers to you as an agent, you may want to take the opportunity to explain the agency relationship.

Sources: Real Estate as a Professional Career; Land, Structures and Real Estate Trading

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What is the real estate agent?