Agency Relationships

Agency

A legal relationship in which one party (the agent) is authorized to act on behalf of another party (the principal) in dealings with third parties. In real estate, it creates fiduciary duties owed by the agent to the principal.

A seller signs a listing agreement creating an agency relationship with a broker, authorizing the broker to market the property and negotiate offers on the seller's behalf.

Agency Coupled with an Interest

An agency relationship in which the agent has a personal financial interest in the subject matter of the agency. This type of agency is irrevocable by the principal and survives the principal's death or incapacity.

A broker loans money to a developer secured by the property and is given authority to sell the property if the loan defaults. This creates an agency coupled with an interest that cannot be revoked by the developer.

Agent

A person authorized to act on behalf of a principal in dealings with third parties. In real estate, agents include brokers who owe fiduciary duties to their clients.

The listing broker is the agent of the seller and must present all offers, maintain confidentiality, and work diligently to sell the property at the best possible price and terms.

Brokerage Agreement

A written contract between a real estate broker and a client that authorizes the broker to act as agent and defines the scope of services, compensation, and duration. Includes listing agreements and buyer agency agreements.

A homeowner signs a 6-month exclusive right-to-sell brokerage agreement with a broker, agreeing to pay 5% commission if the property sells during the term.

Buyer Agency Agreement

A written contract between a buyer and a real estate broker that creates an agency relationship. The broker agrees to represent the buyer's interests in finding and purchasing property in exchange for compensation.

A first-time buyer in Illinois signs a buyer agency agreement with a broker who then shows properties, negotiates offers, and advises on inspections and financing exclusively for that buyer.

Client

The principal in an agency relationship who hires and is represented by the agent. The agent owes full fiduciary duties (care, obedience, loyalty, disclosure, accounting, and reasonable skill) to the client.

The seller who signed the listing agreement is the client of the listing broker. The broker must put the seller's interests first and maintain strict confidentiality about the seller's motivations.

Commingling

The illegal mixing of a client's or customer's funds with the broker's personal or business operating funds. Illinois law requires all earnest money and client funds to be held in a separate escrow account.

A broker who deposits a buyer's $10,000 earnest money check into the brokerage's general operating account instead of the escrow account has committed commingling and violated Illinois license law.

Compensation

Payment for services rendered in a real estate transaction, typically a commission based on a percentage of the sales price or a flat fee. Must be agreed upon in writing in the brokerage agreement.

The listing broker receives 5% commission at closing, split with the buyer's broker according to the cooperative commission agreement in the MLS.

Confidential Information

Any information the agent learns during the agency relationship that the client wants kept private. The duty of confidentiality survives the termination of the agency relationship and is a core fiduciary duty.

A seller tells the listing agent they must sell quickly due to a pending divorce. The agent cannot disclose this confidential information to prospective buyers or other agents.

Consumer

A member of the public who uses real estate services but is not a client of the broker. Consumers are owed honesty, fair dealing, and disclosure of material facts but not full fiduciary duties.

A buyer who walks into an open house is a consumer. The listing agent must be honest but represents the seller and owes no fiduciary duties to the unrepresented buyer.

Conversion

The unauthorized use or misappropriation of a client's funds or property by the broker. It is a serious violation of license law and can result in criminal charges as well as license revocation.

A broker uses earnest money from one transaction to cover office expenses or another client's shortfall. This constitutes conversion and is grounds for immediate disciplinary action by IDFPR.

Cooperative Commission

The commission offered by the listing broker to a buyer's broker who procures a buyer for the listed property. It is typically published in the MLS and split between the two brokerages.

The listing broker offers a 2.5% cooperative commission to any buyer's broker who brings a successful buyer. The buyer's broker receives their share at closing.

Customer

A third party in a real estate transaction who is not represented by the agent. Customers are owed honesty and disclosure of known material facts but are not owed fiduciary duties.

An unrepresented buyer making an offer on a listed property is a customer of the listing broker. The listing broker must disclose known defects but represents only the seller.

Designated Agent

A licensee specifically named in a written agency agreement to represent a particular client when the brokerage represents both sides of a transaction. This allows the brokerage to practice dual agency while protecting confidentiality.

In a dual agency situation, Broker ABC designates Agent Smith to represent the seller and Agent Jones to represent the buyer, each maintaining separate confidential information.

Dual Agency

A situation in which the same brokerage firm or agent represents both the buyer and the seller in the same transaction. It requires written informed consent from both parties and limits the duties the agent can perform.

A brokerage represents both the buyer and seller in a transaction. With written consent, the designated agents provide limited representation but cannot advise on price or terms that would favor one side over the other.

Express Agency

An agency relationship created by an oral or written agreement between the principal and agent. Most real estate agency relationships in Illinois are express and must be in writing to be enforceable for commission claims.

A signed listing agreement or buyer agency agreement creates an express agency relationship with clearly defined duties and compensation.

Express Contract

A contract whose terms are stated in words, either oral or written. In real estate, most important agreements (listing, buyer agency, sales contracts) are express written contracts.

The purchase agreement signed by buyer and seller is an express written contract that creates enforceable obligations for both parties.

Fiduciary Duties

The highest duties of care, obedience, loyalty, disclosure, accounting, and reasonable skill and care that an agent owes to a client (principal). Memorize COLD AC: Care, Obedience, Loyalty, Disclosure, Accounting, Care/Skill.

A listing agent discovers a serious structural defect. The fiduciary duty of disclosure requires the agent to inform the seller client immediately so the seller can make proper disclosures to buyers.

Fraud

An intentional misrepresentation of a material fact that induces another party to act to their detriment. In real estate, fraud can be actual (active lying) or constructive (failure to disclose known defects).

A seller and agent knowingly conceal water damage and mold in the basement. When discovered after closing, the buyer can sue for fraud and seek damages or rescission of the contract.

General Agency

An agency relationship in which the agent is authorized to conduct a broad range of activities on behalf of the principal, such as managing all aspects of a property or business.

A property manager hired to handle all leasing, maintenance, tenant relations, and financial reporting for an apartment complex operates under a general agency relationship.

General Agent

An agent authorized to represent the principal in a broad range of matters, often on a continuing basis. Property managers and some real estate brokers act as general agents.

A managing broker who oversees multiple agents and all office transactions acts as a general agent for the brokerage firm.

Gratuitous Agency

An agency relationship in which the agent agrees to act without receiving compensation. Even without pay, the agent still owes fiduciary duties to the principal.

A licensed broker agrees to help a family member sell their home without charging a commission. The broker still owes full fiduciary duties as a gratuitous agent.

Implied Agency

An agency relationship created by the actions or conduct of the parties rather than by express agreement. It can arise unintentionally and still create fiduciary duties.

A broker shows properties to a buyer for several weeks, helps write offers, and advises on negotiations without a written buyer agency agreement. An implied agency may have been created.

Implied Contract

A contract whose terms are inferred from the conduct of the parties rather than stated in words. Courts may enforce implied contracts to prevent unjust enrichment.

A broker performs extensive marketing services for a seller who never signed a listing agreement but accepted the benefits. A court may find an implied contract and award compensation.

Latent Defect

A hidden defect in real property that is not discoverable by ordinary inspection. Sellers and agents have a duty to disclose known latent defects to buyers.

A home has foundation cracks hidden behind drywall that are causing structural issues. This is a latent defect that must be disclosed if known to the seller or agent.

Listing Agreement

A written brokerage agreement between a seller and a real estate broker that authorizes the broker to market and sell the property. It defines the broker's duties, compensation, and the terms of the listing.

A seller signs an exclusive right-to-sell listing agreement with a broker for 90 days at 5.5% commission. The broker markets the property and brings qualified buyers.

Material Fact

Any fact that would influence a reasonable person's decision to buy, sell, or lease property. Material facts must be disclosed to all parties and include property condition, title issues, and known defects.

A leaking roof, pending special assessment, and recent flooding in the basement are all material facts that must be disclosed to prospective buyers.

Negligent

Failure to exercise the degree of care that a reasonably prudent person would exercise under similar circumstances. In real estate, negligence can lead to license discipline and civil liability.

An agent fails to verify square footage or check public records for easements before marketing a property. This negligent conduct may result in a lawsuit if the buyer is harmed.

Misrepresentation

A false statement of fact made by one party to another that induces the other party to enter into a contract. It can be innocent, negligent, or fraudulent, each with different legal consequences.

An agent states that a home has 'new wiring throughout' when only the kitchen was rewired. This misrepresentation could allow the buyer to rescind the contract or sue for damages.

Principal

The person who hires and authorizes an agent to act on their behalf. In real estate, the principal is the client (buyer or seller) who owes the agent compensation and cooperation.

The seller who signed the listing agreement is the principal. The listing broker is the agent who owes fiduciary duties to that principal.

Puffing

Exaggerated or subjective statements of opinion made in sales talk that are not intended as factual representations. Puffing is generally legal, but crossing into misrepresentation of facts is not.

Saying 'This is the most beautiful kitchen in the neighborhood' is puffing. Saying 'This kitchen was completely remodeled in 2024 with permits' when it was not is misrepresentation.

Single Agency

An agency relationship in which the broker represents only one party (either buyer or seller) in a transaction. The broker owes full fiduciary duties to that one client and treats the other party as a customer.

A broker represents only the buyer in a transaction. The seller is a customer, and the broker discloses this relationship and owes no fiduciary duties to the seller.

Special Agent

An agent authorized to perform only specific acts or a single transaction on behalf of the principal. Most real estate brokers are special agents limited to the scope of the listing or buyer agency agreement.

A listing broker is a special agent authorized only to market and sell one specific property, not to manage the seller's other properties or make other decisions.

Substantive Contact

The point at which a broker or agent begins to provide specific real estate services or advice to a consumer, triggering the requirement to provide agency disclosure in Illinois.

When a broker starts discussing a buyer's specific needs, showing properties, or helping write an offer, substantive contact has occurred and agency disclosure must be provided.

Universal Agent

An agent authorized to perform any and all acts that the principal could legally perform. This is the broadest form of agency and is rare in real estate practice.

A power of attorney granted to a trusted family member to handle all personal and financial matters, including real estate decisions, creates a universal agency relationship.