Agency - Are your agents complying with the letter of the law?

By IAR Legal Counsel Steve Bochenek

This article addresses and reviews agency provisions in the Real Estate License Act of 2000 ("Act"). These provisions have been basically the same for the last seven years. For whatever reason, be it lack of sufficient continuing education, misunderstandings about the Act or improper advice about what the Act requires, there seems to be some common misperceptions about the agency provisions of the Act.

Section 15-10 of the Act generally provides that a licensee will be considered to be the designated agent of the person with whom they are working. This section establishes the designated agency relationship and what is sometimes called the "love the one you’re with" scenario. Thus, if you are working with a buyer, you will be viewed as the agent of that buyer, or if you have a listing with the seller you will be the designated agent of the seller, and if you are working with both you will be engaged in dual agency. Remember, agency is determined by the relationship of a licensee and a buyer or seller and not by the fact that the buyer or seller has a brokerage agreement with the brokerage company.

So what forms do you need to use or provide to your client in establishing this agency relationship? When representing the seller it is fairly obvious that the brokerage company will be entering into a listing agreement or exclusive marketing agreement with the seller. That agreement must include the names of the sponsored licensee(s) who will be acting as designated agent(s) of the seller. Section 15-35(a) requires the name or names of the designated agent(s) be given to the client at the time of the brokerage agreement.

The same Section 15-35(a) also deals with buyer clients. Under Section 15-35(a) you must disclose to the buyer, in writing, the name or names of their designated agent(s) no later than when you enter into a brokerage agreement with the buyer. Many licensees may believe that since they have no written agreement with a buyer, they are not required to disclose the names of the designated agent in writing. This is not the case, as a brokerage agreement is defined in Section 1-10 as an agreement, either oral or in writing, for the licensee to provide licensed activities to a consumer in the expectation of compensation. Thus, every time a licensee agrees to assist a buyer in finding a home, the parties have entered into a brokerage agreement. As a result, under Section 15-35(a), the name of the designated agent must be disclosed at that time in writing. That is why the Illinois Association of REALTORS® (IAR), in its Agency Compliance Manual, provided a form entitled “Terms of Non-Exclusive Buyer Representation” so that even if there was no written brokerage agreement, this form would provide an opportunity to disclose in writing the name of the designated agent.

The Act does not require brokerage agreements to be in writing unless the agreement is an exclusive agreement. Thus, exclusive listing agreements must be in writing. If you intend to enter into an exclusive agency relationship with a buyer, that brokerage agreement must also be in writing. Non-exclusive agreements with either a buyer or seller are not required by the Act to be in writing.

There are several other items required by Section 15-35 of the Act that a licensee needs to keep in mind. The first is that when entering into a brokerage agreement with a buyer or seller, you need to disclose (1) that the agency relationship will be designated agency and (2) the compensation policies of the broker—in other words, how the licensee expects to be paid, and whether you cooperate with brokers representing other parties.

The final key provision of Section 15-35, and one that may be commonly overlooked, is the requirement to disclose in writing to a customer when you are not acting as his or her agent. This disclosure is to be made at a time appropriate to warn the customer against the disclosure of confidential information but no later than prior to the preparation of an offer to purchase. Several examples may help illustrate who is a customer. A person selling his or her own home would be a customer when a licensee represents the interested buyer. An unrepresented buyer at an open house or otherwise viewing property would be a customer when there is a licensee acting as a designated agent for the seller but not the buyer. A prospective seller at a listing presentation before there is a listing agreement would be a customer to the licensee. If both seller and buyer are represented by licensees, there should be no reason to make this disclosure. Remember, the policy behind this disclosure is to advise unrepresented individuals that there is no agency relationship so that they do not inadvertently disclose confidential information to a licensee.

The other key agency issue relates to dual agency. If your company’s office policy allows for dual agency, the sponsored licensees should be very careful to follow the statutory procedures. Section 15-45 of the Act provides that a licensee can only engage in dual agency with the informed, written consent of the clients. The Act also goes on to provide that if you follow the statutory procedures, then there is a presumption that the licensee had informed, written consent. The Act does not say that using different language in your disclosure and consent forms or disclosing at different times is a violation of the Act, but the licensee would lose the presumption of informed consent. This could be critical if a complaint is filed with OBRE or in the courts, alleging the licensee did not have informed, written consent.

Section 15-45(b) requires that the dual agency disclosure form set forth in Section 15-45(a) must initially be presented to your client at the time you enter into a brokerage agreement with the client. As to a seller, this will be at the time the listing agreement is signed and as to a buyer, this should be when the licensee first enters into a written brokerage agreement with the buyer or—if no written agreement is used—when the licensee first begins working with the buyer. The dual agency form could well be presented to a buyer when the written notice of the buyer’s designated agent is provided to the buyer. The Act does not require the licensee to obtain the signature of the client when the dual agency consent form is presented. However, the signatures of the clients must be obtained before the licensee begins acting as a dual agent in a potential transaction—for example, when showing a buyer client a seller client’s home. Those signatures do not have to be on the same disclosure form. In addition, a confirmation of consent to the dual agency must be signed by both clients at the time the parties are signing an offer to purchase concerning the property in question.

It is important for licensees to be aware of all of the agency requirements in the Act. Keeping copies in your files, showing that the proper documentation has been provided, can be very helpful both from a regulatory and litigation protection standpoint. If you have additional questions on agency issues, consult the Agency Compliance Manual published by IAR

DR Exclusive, Sept. 2002

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