An agency relationship may be based on a formal agreement between the parties, an express agency, or it may result from the parties’ behavior, an implied agency.
Express agency The principal and agent may enter into a contract, or an express agreement, in which the parties formally express their intention to establish an agency and state its terms and conditions. The agreement may be either oral or written.
An agency relationship between a seller and a sponsoring broker generally is created by a written employment contract, commonly referred to as a listing agreement, that authorizes the sponsoring broker (or their designated licensees) to find a buyer or tenant for the owner’s property.
An express agency relationship between a buyer and a sponsoring broker is created by a buyer agency agreement. Similar to a listing agreement, it stipulates the activities and responsibilities the buyer expects from the sponsoring broker (or their designated licensees) in finding the appropriate property for purchase or rent.
The Real Estate License Act of 2000 requires that all exclusive brokerage agreements must be in writing.
Implied agency An agency also may be created by implied agreement. This occurs when the actions of the parties indicate that they have mutually consented to an agency. A licensee acts on behalf of another as agent. Even though the licensee may not have consciously planned to create an agency relationship, the parties can create one unintentionally, inadvertently, or accidentally by their actions.
Compensation The source of compensation does not determine agency. A real estate agent does not necessarily represent the person who pays her commission.
In fact, agency can exist even if no fee is involved; it is called a gratuitous agency.
The written brokerage agreement should state how the agent is being compensated and explain all the alternatives available.
NOTE — With new Buyer Broker Agreements, some or all of the commission paid to the Seller’s Agent may be shared with the Buyer Broker legally. The commission does not have to come directly from the Buyer in a Buyer Broker Agreement arrangement.
In Illinois, compensation does not determine the agency relationship. Both buyer’s and seller’s real estate agents are often paid by the seller in a cooperative commission arrangement. The seller first pays the listing sponsoring broker, and the listing sponsoring broker cuts a check to the cooperating sponsoring broker. Sometimes the seller pays only the listing sponsoring broker and the buyer pays the buyer’s sponsoring broker. Regardless of the particular arrangement, the licensee is required to inform clients in each transaction of how the sponsoring broker will be compensated and how the commission will be split with sponsoring brokers representing other parties.
Termination of Agency
An agency may be terminated for any of the following reasons:
- Death or incapacity of either party
- Destruction or condemnation of the property
- Expiration of the terms of the agency
- Mutual agreement by all parties to the contract
- Breach by one of the parties, in which case the breaching party might be liable for damages,
- By operation of law, as in bankruptcy of the principal (bankruptcy terminates the agency contract, and title to the property transfers to a court-appointed receiver)
- Completion, performance, or fulfillment of the purpose for which the agency was created
In Illinois, a definite termination date must be included in a brokerage agreement. Automatic extension clauses are illegal under Illinois law
An agency coupled with an interest is an agency relationship in which the agent has an interest in the subject of the agency, such as the property being sold. An agency coupled with an interest cannot be revoked by the principal or be terminated on the principal’s death.
