Topic 3.1: The Concept of Agency

Learning Objectives

After successfully completing this topic, you will be able to

• name the law that regulates agency relationships in Florida,
• list the three types of agents, and
• state which type of agency is illegal in Florida.

Concept of Agency

Historical perspective of agency law

Agency law originated from the English common law. It was expanded by the courts and was the result of precedents established from court judgments. While common law is important, it is superseded by statutory law. In addition, many concepts of agency have been refined by administrative law, the law that regulates the operation and procedures of government agencies.

For many years, brokers represented the seller in most transactions. In most cases, the buyers were not aware of the broker’s role in a transaction and didn’t know that the broker had the duty to get the best price and terms for the seller in a transaction. While brokers were supposed to tell the buyers, the “telling” was not always clear.

The Florida Brokerage Relationship Disclosure Act

The Florida Brokerage Relationship Disclosure Act is the law that controls real estate agency relationships in Florida. The law prohibits the practice of dual agency, and specifically permitted several types brokerage relationships. The law also required that brokers give customers written disclosures, clearly showing the brokers’ duties.

Types of agency in general business dealings

General agent

A general agent performs acts for the principal in all matters related to a business operation. Examples of general agents would include insurance agents, sales associate transacting real estate business for a broker, or a property manager handling the renting, maintenance, and bookkeeping for the principal.

Special agent

A special agent is hired by a principal to handle a specific transaction. A single-agent real estate broker who lists a seller’s house is a special agent.

Fiduciary Relationships

An agent is a person who is authorized by a person (known as a principal) to handle business matters on behalf of the principal. The relationship that has been created is called an agency, or fiduciary relationship . The opposite of a fiduciary relationship is described by the Latin term “caveat emptor” (let the buyer beware).

In an agency relationship, the agent must act in the principal’s best interests with trustworthiness and confidentiality. These duties are called fiduciary duties. Because the agent owes loyalty to the principal, it follows that the agent cannot help others who are negotiating with the principal. The agent must deal at arm’s length with others.

Dual agency

Dual agency is the practice of a broker representing both the buyer and the seller in the same transaction. Because the parties have opposing interests, it is not possible to be loyal to each party. For that reason, Florida law prohibits dual agency.

Subagency

A subagent is appointed by a broker to act in the best interests of a principal. If a broker lists property of a seller as a single agent, all the broker’s sales associates become subagents and must work in the seller’s best interests.

Customer vs. client

A “customer” is the party the licensee does not represent as a fiduciary in the transaction. “Client” is a term that means “principal.” Because of this, a real estate licensee should refrain from calling the buyer or seller a client unless the licensee is acting as a single agent in the transaction.