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 (Landlord) and Agent (Sponsoring Broker) 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 property Owner and a Sponsoring Broker generally is created by a written employment contract, commonly referred to as a Property Management Agreement, which authorizes the Sponsoring Broker (or their designated Licensees) to find a Tenant for the Owner’s property.
An express agency relationship between a Tenant and a Sponsoring Broker is created by a Renter Agency Agreement. Similar to a Property Management Agreement, it stipulates the activities and responsibilities the Renter expects from the Sponsoring Broker (or their designated Licensees) in finding the appropriate property for rent.
The Real Estate License Act of 2000 requires that all exclusive brokerage agreements must be in writing.
Implied Agency – An agency may also be created by implied agreement. This occurs when the actions of the parties indicate that they have mutually consented to an agency relationship. 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 an agency relationship 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 compensation. In fact, agency can exist even if no fee is involved: It is called a gratuitous agency. The written Property Management Agreement should state how the Sponsoring Broker is being compensated and explain all the alternatives available.
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. In the case where the Leasing Agent is an employee of the Sponsoring Broker who has signed the Property Management Agreement with the Landlord, the Landlord pays the Sponsoring Broker according to the terms of the Property Management Agreement and the Sponsoring Broker pays the Leasing Agent working for the Sponsoring Broker, according to the compensation terms outlined in the Employment Agreement between the Sponsoring Broker and the Leasing Agent.