Define Agency | Agency Defined | What is agency and why should you care?

Define Agency | Agency Defined | What is agency and why should you care?

This is a concept that is foundational and core the the client – agent relationship. If you don’t understand this, it will be impossible for your to understand what you should expect form your agent and the legal standard they are to be held to. 

The concept is basic and the ramifications for you are critical so keep reading and I will break this down for you. 

Every state is a little bit different in the way that it does this, but most states defer to that state’s common law. Though, there are a few states who have put the transactional brokerage model into play. Those states have then written statutes to govern that relationship. So make sure you ask your agent which state you are in. 

In California, we use common law. I know, I know, you are probably thinking – “Gee, thanks Hans. Now I have a ton of research to do. How am I supposed to understand this? I don’t have a legal mind!”

Fear not! That's why I'm here. 

In California, as is true in many other states, there is a form attached to every listing agreement or purchase agreement titled something like Disclosure Regarding Real Estate Agency Relationship. 

Trust me, it's not as scary as it looks. Let's break it down.

There are three basic sections to pay attention to. You have one for the Seller, one for the Buyer and one for Dual Agency. For our purposes, we are going to assume we are not talking about dual agency as that is uncommon and has it’s own set of rules. Ill do a video/post about it in the future.

At the top of each section, you see the legal definition that outlines that an individual, in this case, the real estate agent is acting in the best interest of the Buyer of the Seller depending on who they represent. This is summed up in the concept of a Fiduciary. This is a legal term that basically means the agent to put your interest ahead of heir own. 

A practical example is if you decide you want to get out of the deal, your agent should explain to you if and how that can happen and make every possible effort to get you out. As opposed to trying to keep you in the deal so they can earn their commissions.

As you work your way down the form, one thing that’s interesting is that regardless of if it’s the Buyer’s or the Seller’s agent, that person is to give the following treatment to each side of the transaction: 

Now, a lot of people will read this and ask something like: “If we’re in the middle of a negotiation and I tell you that I would take,$1,000,000 for the property, do you have to tell the other side? What if they would have bid something like $1,050,000?”  

That’s a great question. That’s where section C comes in.  It basically says that the agent doesn’t have to disclose your wishes or intentions. However, they do have to disclose anything that would materially affect the desirability of the property or the offer. Example: A report that the foundation has a big crack in it. 

Now, the good faith component comes into play. Generally speaking that means that you operate in such a way that you are being fair to the other side. If you intentionally withhold a piece of information or mislead the other side, that violates the good faith part of the agreement. 

Obviously you have opposing interests in a negotiation, this becomes a bit tricky. However, as long as all disclosures are properly made and everyone is honoring their part of the agreement, you shouldn’t run into an issue here. If you suspect it, talk to you agent. 

Make sure you take a moment, you have that conversation with your agent because it is really core and critical. 


  • Fiduciary Relationship
  • Fair Dealings
  • Common Law 
  • Good Faith

Make sure you understand these and talk to your agent about them as well. They are core and fundamental to the relationship and transaction you are about to enter. They will also guide the ethics and potential resolution you seek should something go wrong. 

That’s it. I hope you gained some clarity here. 

I hope my blog and video on "Define Agency | Agency Defined | What is agency and why should you care?" has helped you.

If I can give you more context on the process of buying or selling your home, please do not hesitate to reach out. My information is below. 

Here’s to all your success!

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