Limitations on an Agent’s Authority
A universal agent is a person empowered to do anything the principal could do personally. The universal agent’s authority to act on behalf of the principal is virtually unlimited.
In Illinois, a written power of attorney is required to create a universal agency.
A general agent may represent the principal in a broad range of matters related to a particular business or activity. The general agent may, for example, bind the principal to any contract within the scope of the agent’s authority. A property manager is typically considered a general agent to the property owner. Brokers and managing brokers are general agents to their sponsoring broker.
A special agent is authorized to represent the principal in one specific act or business transaction only, under detailed instructions. A real estate licensee usually is a “special” agent to a client.
If hired by a seller, the licensee is limited to finding a ready, willing, and able buyer for the property.
A special agent for a buyer (buyer’s agent) has the limited responsibility of finding a property that fits the buyer’s criteria.
As a special agent, the licensee may not bind the principal to a contract. The principal makes all contractually related decisions and will sign on her own. A special power of attorney is another legal means of authorizing an agent to carry out only a specified act or acts.
Finally, a designated agent is a person authorized by the sponsoring broker to act as the agent of a specific principal – Buyer or Seller. A designated agent is the only licensee in the company who has a fiduciary responsibility toward that principal. When one licensee in the company i
the others are free to act as agents for the other party in a transaction. In this way, two licensees from the same real estate company may represent opposite sides in a property sale withÂout entering dual agency.
NOTE Confidentiality has to be carefully maintained when two agents in the same firm repÂresent the Buyer and Seller. Nothing can be revealed about the Buyer/Seller negotiating position in Sales Meetings or other informal conversations in and out of the office.
Designated agency is recognized in Illinois. A sponsoring broker entering into a brokerage agreement may specifically designate those licensees employed by or affiliated with the sponsoring broker to act as legal agents of that client to the exclusion of all other licensÂees employed by or affiliated with the sponsoring broker. The sponsoring broker will not be considered to be acting for more than one party in a transaction if the licensees specifically desigÂnated as legal agents of a person are not representing more than one party in a transaction.
The sponsoring broker must take care to protect confidential information disclosed by a client to her designated agent. A designated agent may disclose to her sponsoring broker or persons specified by the sponsoring broker confidential information of a client for the purpose of seeking advice or assistance for the benefit of the client in regard to a possible transaction. The sponsoring broker cannot disclose confidential information unless otherwise reÂquired by this act or requested or permitted by the client who originally disclosed the confidential information.
Single Agency
When an agent or firm represents only one party (buyer, seller, landlord, or tenant) exclusively in a real estate transaction, this relationship is referred to as single agency. The agent and firm’s fiduciary and statutory duties are provided only to that one party (the principal); the other party in the transaction is referred to as the customer.
While a single agency licensee may represent both sellers and buyers, that licensee cannot represent both in the same transaction. This avoids conflict and results in client-based service and loyalty to only one client. On the other hand, it traditionally rules out the sale of in-house listings to represented buyers.
Buyer Agency
Many licensees involved with residential property are discovering opportunities for buyer representation. Some licensees have become specialists in the emerging field of buyer agency, even representing buyers exclusively.
A buyer agency relationship is established in the same way as any other agency relationship: by contract, agreement, or implication.
The buyer’s agent may receive a fee from the buyer or share in the seller-paid commission to the listing sponsoring broker or both, depending on the terms of the agency agreement.
In Illinois, it is common for the listing sponsoring broker to split the listing commission with the buyer’s sponsoring broker.
Property Management Agency
An owner may employ a sponsoring broker to market, lease, maintain, or manage the owner’s property. Such an arrangement is known as property management. The sponsoring broker is made the agent of the property owner through a property management agreement. As in any other agency relationship, the sponsoring broker has a fiduciary responsibility to the client-owner.
Dual Agency
In dual agency, the agent represents two principals (Buyer and Seller or Landlord and Tenant) in the same transaction. Dual agency requires equal loyalty to two separate principals at the same time. The challenge is to fulfill the fiduciary obligations to one principal without compromising the interests of the other, especially when the parties’ interests may not only be separate but even opposite. While practical methods of ensuring fairness and equal representation exist, it should be noted that a dual agent can never fully represent either party’s interests. He or She is a Facilitator, not an Agent.
Required Disclosed Dual Agency Disclosure Notice
Real estate licensing laws permit dual agency only if the buyer and seller are informed and consent to the licensee’s representation of both in the same transaction. Although the possibility of conflict of interest still exists, disclosure is intended to minimize the risk for the licensee by ensuring that both principals are aware of the effect of dual agency on their respective interests.
The disclosure alerts the principals that they may have to assume greater responsibility for protecting their interests than they would if each had independent representation. Because the duties of disclosure and confidentiality are limited by mutual agreement, they must be carefully explained to the parties in order to establish informed consent.
Considerable debate focuses on whether licensees can properly represent both the buyer and seller in the same transaction, even though the dual agency is disclosed.
Confirmation of Consent to Dual Agency
Because of the obvious risks inherent in dual agency ranging from conflicts of interest to outright abuse of trust Illinois requires that the buyer and seller sign a dual agency disclosure twice —once at the beginning of the transaction and once before the sale contract is signed. All parties must consent to the arrangement, in writing in Illinois.
Designated agency is a process that avoids dual agency that may occur during an in-house sale in which two different agents are involved. Under designated agency, the sponsoring broker designates one agent to represent the seller and one agent to represent the buyer. Designated agency is legal in Illinois. However, designated agency does not apply to a single agent who represents both parties at the same time in the same transaction.
Undisclosed dual agency
A licensee may not intend to create a dual agency. It may occur unintentionally or inadvertently. Sometimes the cause is carelessness. Other times the licensee does not fully understand her fiduciary responsibilities. Some licensees lose sight of legal obligations when they focus intensely on bringing buyers and sellers together. For example, a licensee representing the seller might tell a buyer that the seller will accept less than the listing price to entice the buyer into making an offer. Or the listing licensee might try to persuade the seller
to accept an offer that is really in the buyer’s interest. Giving a buyer any specific advice on how much to offer can lead the buyer to believe that the licensee represents the buyer’s interests and is acting as the buyer’s advocate.
Any of these actions create an implied agency with the buyer and violate the duties of loyalty and confidentiality to the principal-seller. Because neither party has been informed of that situation and been given the opportunity to seek separate representation, the interests of both are jeopardized.
This undisclosed dual agency is a violation of licensing laws. It can result in rescission of the sales contract, forfeiture of commission, or filing of a suit for damages.
Disclosure of Agency
Real estate licensees are required to disclose the parties they represent. Understanding the scope of the service a party can expect from the agent allows consumers to make an informed decision about whether to seek their own representation.
Licensees are considered to be representing the consumer they are working with as the consumer’s designated agent (implied agent), unless there is a written agreement between them specifying a different relationship or if the licensee is performing only ministerial acts on the consumer’s behalf.
Ministerial acts are defined as acts performed for a consumer that are informative or clerical in nature and do not rise to the level of active representation on behalf of a consumer. Examples of ministerial acts include:
Article 15, Section 15-35, discusses agency relationship disclosure. It requires that a consumer be advised in writing that a designated agency relationship exists, unless there is a written agreement between the sponsoring broker and the consumer providing for a different brokerage relationship. This must occur no later than beginning to work as a designated (implied) agent on behalf of the consumer.
The name or names of her designated agent or agents must be in writing, and the sponsoring broker’s compensation and policy with regard to cooperating with sponsoring brokers who represent other parties in a transaction must be disclosed.
A licensee must also disclose in writing to a customer that the licensee is not acting as the agent of the customer at a time intended to prevent disclosure of confidential information from a customer to a licensee, but in no event later than the preparation of an offer to purchase or lease real property.
