Learn About Subagency in Real Estate

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Subagency refers to a specific client representation relationship between a property listing broker or real estate agent and another real estate broker or agent who brings in a buyer to purchase the property.

In subagency, the agent bringing the buyer is actually working for the seller as a subagent of the listing broker. This is important, as the agent working with the buyer actually owes fiduciary duties to the seller, not the buyer.

This practice is all but dead in most states, as buyer agency is becoming more common and because the buyers need an advocate to represent their interests in the transaction. Also, as the listing brokers and their seller-clients are held responsible for the actions, errors, and omissions of the subagent, this is not the desired situation in most of today's real estate marketplace.

Update: The Current State of Representation in the Industry

Real estate laws are state-specific, and there are pockets with different statutes and practices. In some areas lawyers still close transactions, as an example. However, most of what follows describes the way the practice currently works in many states.

Subagency simply isn't done much anymore. The listing broker isn't acting as an agent of the seller, and the buyer's not represented by someone with duties to the seller. The following are some of the variations of representation.

Almost all states require some form of disclosure to the client or prospective client as to how you, as an agent, will be representing them in their real estate transaction. Be sure that you understand your state's rules and the various ways in which you can be the client's representative. Your duties and obligations to the client will vary significantly based on the type of representation to which you've contractually agreed.

Seller's Agent or Buyer's Agent

You're actually acting as a true agent, and in many states, this must be set out specifically in writing. You have fiduciary duties to your seller or buyer client:

  • Loyalty: You must act solely in the best interests of your client. No other interests can take precedence, including any interests of the broker or agent.
  • Confidentiality: All confidential communications between you and your client and confidential information must be kept confidential forever. Exceptions for court orders exist.
  • Disclosure: You have a duty to disclose to your buyer anything of a material nature about the transaction or the property.
  • Obedience: You can't do anything illegal, but if it's legal and you are instructed by the client to do something, you should do it.
  • Reasonable care: Take a professional approach to all work for the client and you are expected to use reasonable care to undertake your duties in a highly professional manner.
  • Accounting: Proper accounting for all money or other things of value that are entrusted to you by your client.

Transaction Broker or Facilitator

Because agency relationships are rare these days, most brokers and agents are acting as transaction brokers or transaction facilitators. You are not acting as an agent, and fiduciary duties are not required. In actuality, you'll be delivering the same loyalty, reasonable care, disclosure, and accounting stuff anyway. You're just not held to as high of a standard as you are when you're an agent.

Vicarious Liability

When lawyers are buyers in the market, they NEVER want you to act as their agent. You see, the agent and client are considered as one in some respects. It's a superior relationship, and the client can actually get into legal trouble with the wrong agent.

Vicarious liability is the client being held liable for the actions of the agent. Assuming nothing is fraudulent, but if a major mistake is made by the agent, the client would be held just as liable. You can see why any attorney wouldn't want to be responsible for errors a real estate agent might make.