Designated Agency - A Primer

James L. Goldsmith, Esquire

Revised 2008 Elizabeth Feather, Esquire

Designated agency is not a new relationship, but a refinement that was designed to reduce the occurrences and limitations of dual agency. Traditionally, when separate licensees from the same company represented the buyer and seller, the licensees became dual agents and were not to advocate the position of one consumer over the other. Dual agents were to take on the role of neutrality. The agents were to be the conduits for offers and counteroffers, scribes for document preparation, liaisons with lenders and inspectors, etc. It did not always work this way. Frequently, the licensee working with the seller would continue to act as the seller's advocate, while the licensee working with the buyer would continue to work as the buyer's advocate; a practice that was not legal prior to November 25, 1999.

While we generally understand how designated agency works, there is much confusion about designated agency and small firm practice. The problem is that while designated licensees may represent the separate interests of the buyer and seller in an in-house transaction, the broker is always a dual agent in such scenarios. In firms where the broker does not take an active role in listing and selling property, this poses no problem. The broker simply acts as the overseer and assures that the designated agent representing seller, and that the designate agent representing the buyer, are true to their respective clients, and that services are provided in keeping with the Regulations and Act. A non-active broker in a small firm may enjoy the same policy as the broker of a multi-office company: licensees are designated to represent buyers and sellers; when the same licensee is designated to represent the seller and the buyer, then that licensee is a dual agent as is the broker. The broker is always the dual agent in an in-house transaction where designated licensees represent the buyer and the seller.

What about firms where brokers take an active role in listing and selling properties? Keep in mind, brokers may not serve as designated agents for buyer or seller, no matter the size of the firm. This rule is hard and fast and exists because of a provision in the Licensing Act at Section 606e providing that "a broker who represents both the seller/landlord and the buyer/tenant in the same transaction is a dual agent."

Designated agency is a practice that is legal in firms of any size. The fact of the matter is, practicing designated agency in the smallest of firms is simply not practical; nor may it be practical in small or medium sized firms where the broker's activity represents a substantial percentage of the listing and selling activity. An easily understood example involves a two-person office that includes the broker and one sales affiliate. When that office represents the buyer and seller, the office and the two licensees will always be dual agents. The broker cannot designate himself/herself as an agent representing either of the parties because of the requirement that the broker will always be the dual agent. It makes no sense for the sole salesperson to ever designate himself/herself because 1) if the broker is on the other side of the transaction, then dual agency exists; and 2) if the same agent is the designated agent for the seller and the buyer, dual agency exists.

Examine a slightly larger office where the broker lists a substantial percentage of the properties listed by the office. No prohibition prevents the sales staff, excluding the broker, from being designated to represent buyers and sellers. There will be occasion when the buyer is represented by one designated salesperson and the seller by another. This is the classic designated agency relationship that assures that both the buyer and the seller retain the advocacy relationship that originally was sought. The broker will act as a dual agent. There will also be occasions where one of the salespersons represents one consumer and where the broker represents the other consumer involved in the transaction. Both the broker and this salesperson would be dual agents. There will be other occasions where the same designated salesperson represents both the seller and the buyer; the broker and the salesperson are dual agents.

Licensees in smaller offices would be well advised to discuss with their respective clients that, although designated agency may be selected to reduce the occurrences of dual agency, designated agency will have its limitations. For example, if the buyer selects to have a designated agency relationship with a salesperson and that buyer ultimately decides to purchase a property listed with the broker, dual agency exists and the buyer loses the benefit of having a designated agent work solely for him/her. Obviously, designated agency works better in very large companies. Chances of an in-house relationship where the buyer and the seller are both represented by the same company are far greater in areas where large companies exist. Salespersons with the same company tend to run into each other when putting together transactions. Designated agency allows the consumers to retain the agency services they originally selected without dumping the consumers into a dual agency relationship simply because their licensees are with the same company.

Is the small firm disadvantaged? A two-person office is far less likely to represent the buyer and the seller in the transaction. When working with the buyer to find a property, it is more likely that the buyer will find a property elsewhere on the market. If a buyer calls specifically to look at a property listed with a two-person office, the licensee may merely state to the buyer that the office represents the seller and proceed forward without entering into an agency relationship with the buyer. The buyer who insists on having an agency relationship would be told that the office is free to enter such a relationship, but if the buyer chooses to purchase a property also listed with the office, then dual agency exists. The consuming public at-large has accepted dual agency and there is little reason to believe that this will not continue.

There are creative ways to avoid dual agency relationships. Consider an office where the broker typically lists new construction. The broker has nearly 100 percent of the listings, but does not sell. A sales staff of about ten markets the broker's listings to buyers. In this case, the broker has agreed to turn over his position as broker of record to an associate broker who is currently acting as the office manager. The office manager will not sell or list and, hence, is in the perfect role to act as the broker of record. The owner, having relinquished his broker position, will enter listing contracts with his seller. In each case he will be the designated seller agent. All of the other licensees in the office are free to act as designated buyer agents. When a buyer represented by one of these sales affiliates purchases one of the owner's listings - VOILA - the broker acts as the designated agent for the seller; the sales associate acts as the designated agent for the buyer, and the office manager, now the broker, acts as the dual agent.

In other firms, brokers who acquire listing agreements or buyer agency contracts, will, in the event of an in-house transaction where the other side is also represented, have themselves replaced by a designated licensee, assuming the consumer consents. The broker will slip into the role of the dual agent while the newly appointed designated agent takes over representing the party formerly working with the broker.

How the smaller firm handles designated agency is a matter of choice. Small firms must recognize that the broker can never be a designated agent; and that licensees who themselves are designated to represent one side or the other must clearly inform their consumer that they will slip into a dual agency role in the event that the other side of the transaction is represented by the broker, or themselves.

Copyright © CALDWELL & KEARNS, P.C., 2008

All Rights Reserved

Mr. Goldsmith, and Ms. Feather are attorneys with Caldwell & Kearns, and serves as general counsel to PAR. A substantial portion of their practice is dedicated to providing advice and counsel to real estate licensees and representing and defending real estate salespersons and brokers in civil lawsuits and licensing claims across the Commonwealth. They routinely counsel employers on employee relations issues as two of the voices of the PAR Legal Hotline.