Editor’s note: This is the first in a series of articles that will be provided by the Guam Real Estate Commission in an effort to provide useful information to a buyer, seller, landlord or tenant as it relates to real estate transactions on Guam.
Today we will discuss the concept of agency, the underlying concept that establishes the rights and obligations that real estate licensees have in relation to the people they work for and work with. In our discussion, we will touch on two types of agency: Single Agency and Dual Agency.
All agency relationships are established between a “principal” and an “agent,” who is authorized to represent the principal in a real estate transaction.
Representing the seller
The most common type of agency is established when a principal (property owner) hires a real estate broker as his or her agent to sell or lease the principal’s property.
This relationship is normally established in writing through a “listing agreement,” which is a contract between the two parties to either sell or lease the owner’s property. In this scenario, the broker and his or her respective real estate agents, are the “selling agent” for the property owner (who is also referred to as the agent’s client). The selling agent has certain duties and obligations to both the property owner and any potential buyers or renters (who are also referred to as the agent’s customers) of the property they are representing.
Six specific duties
All selling agents owe certain fiduciary duties to their clients, including:
1. Obedience: Obey all lawful instructions from the property owner.
2. Loyalty: Take no action that is adverse to the best interest of their client.
3. Disclosure: Fully disclose all known material facts to their client, regardless of whether they benefit or negatively impact their client.
4. Confidentiality: All information relative to their client’s motivation or finances must be kept confidential.
5. Accountability: All agents must keep accurate and timely records of money received from, or on behalf of, their client in a transaction.
6. Reasonable Care: All agents must exercise care, competency, and proper due diligence to protect their client’s best interests.
In addition to these specific duties to their clients, all agents must also exercise reasonable care, honesty and good faith, and disclose all known material facts that may negatively affect a customer’s decision in the real estate transaction.
Representing the buyer or tenant
A second type of “single agency” is established when an agent works exclusively for a buyer or tenant. This relationship is normally established in writing through a “buyer’s representation agreement.” The agent has the same duties and obligations under this scenario as in the previously mentioned “seller’s” relationship. Having a buyer’s representation agreement will eliminate possible conflicts of interest that could arise if it weren’t clear whether the agent represents you or the seller/landlord in a transaction.
Representing both the seller and the buyer
In some cases, an agent may represent both the buyer and the seller in the same real estate transaction, or two agents from the same real estate brokerage company may be representing the buyer and seller in the same transaction. This is referred to as “dual agency,” and while Guam has no established laws on dual agency, both parties to a real estate transaction should be made aware of the situation and agree to it in writing to avoid conflicts during the negotiation and closing process. The simple reason behind this is that in a “dual agency” relationship, the agent’s fiduciary duties and obligations to each party in the transaction are limited, and therefore cannot fully represent both clients in their total best interest.
To clarify: The agent representing the seller tries to get the highest and best price, while the agent for the buyer tries to get the lowest and best price. By its very nature, this is impossible for a dual agent to accomplish. That is not to say, however, that two parties to a real estate transaction who are experienced in real estate can’t comfortably work with one agent representing both sides.
Be clear about – and write down – what you want
For most of us, using a licensed real estate professional to buy and sell real estate makes sense, especially for first-time buyers or individuals not familiar with the real estate market on Guam.
To get the most out of your experience with a real estate professional, make sure you clarify upfront what kind of relationship you want, and make sure you get it in writing.
Our goal at the Real Estate Commission is to ensure that all parties to a real estate transaction on Guam are informed and properly represented. If you have any questions or concerns about a real estate transaction, please contact the real estate licensing division of the Department of Revenue and Taxation for assistance.
Christopher Murphy is chairman of the Guam Real Estate Commission and president of the The Real Estate Professionals.