Being a real estate agent and understanding your legal responsibilities can sometimes be confusing. How you represent clients and the duties you perform depend on what type of agency you have. Today, we are talking about real estate agencies and the most common type: special agencies. Real estate agency also comes up on the real estate exam, so you must understand the ins and outs come exam day.
What is a Special Agency?
A special agency occurs when a real estate agent is hired by a client, also known as the principal, to perform one specific task or duty. A real estate agent is considered a special agent because they are authorized only in that one job, such as helping someone sell their home.
Agency relationships can be complicated, but they fall into several different types, so let’s start with the basics. There are two basic relationships: principal (another name for client) and customer. A principal has hired you to act on their behalf, while a customer has no contractual agreement with you.
While you still owe a customer fairness and honesty, the principal-to-agent relationship goes far beyond that, protecting their best interests with obedience, loyalty, disclosure, confidentiality, accounting, and reasonable care. A principal/client relationship is also created with a written/express contract, whereas a customer relationship is not.
Real Estate Agent Types of Agency
There are three types of agency within the principal to agent relationship: special agent, general agent, and universal agent. The real estate agent’s authority gets broader as you progress from special to universal.
- Special agents are authorized in one specific duty, such as a real estate agent selling a client’s home. This relationship typically ends after the transaction when the special agent’s job is complete.
- General agents have more authority, with the power to act on behalf of a person or business in any area. A great example of this would be a property manager, who has an ongoing relationship and is appointed to fill vacancies, screen tenants, manage maintenance, and collect rents.
- Universal agents have the ultimate power, as they can act on behalf of the principal/client. Typically this is seen with a Power of Attorney document, where a client gives someone full authority to act on their behalf, such as heirs of an estate. They can also buy and sell real estate for the principal, sign documents as if they were the client themselves, or do anything else they have permission for.
So what do special agents in real estate actually do? There are a variety of roles that special agents play within a real estate agency. They are also four types of fiduciary relationships created when a client signs an agency agreement. These are all generally considered special agency because the agent is hired for one sole task within a transaction.
- Buyers agent – A special agent who represents only the buyer in a real estate transaction, helping them find a house to purchase and preparing all necessary legal documents.
- Sellers agent – A special agent who represents only the seller, with the single job of procuring them a buyer for their home.
- Dual agency – In this case, you are still a special agent; you are simply hired by the buyer and seller within the same transaction. All parties involved must know who you represent, and you are still limited in your authority.
- Designated agency – This occurs when two separate salespeople within a real estate broker office are working within the same transaction. The broker designates one salesperson as the buyer’s agent and the other as the seller’s agent. The fact that both salespeople are within the same brokerage must be disclosed to all parties involved.
Special Agency Examples
Let’s look at some special agency examples.
Special Agency Example 1
Your friend Tom decides to purchase a vacation house. Tom hires you to be their real estate agent and signs a contract for you to represent them, therefore becoming your client.
You can organize paperwork, show them properties, help negotiate offers, and communicate with the seller, among other things. By law, you are not allowed to sign any documents or make any decisions for them. Your sole responsibility is to represent them as a buyer’s agent in helping them find a house. You are also not allowed to sell their home unless they enter into another relationship with you as a listing agent.
This is a perfect example of a special agency, as they are only employing you to help them purchase a house.
Special Agency Example 2
Have you ever heard of a limited-service listing? A limited-service listing is where a seller hires a real estate agent to put their home up for sale and advertise it on the Multiple Listings Service but does not want the agent’s help with any other aspect of the transaction. This is most definitely a special agency because the seller has only given the agent authority to advertise the home and nothing else.
General Agency Example
In contrast, let’s look at a general agency example.
Jay is a real estate investor who constantly buys, sells, and rents properties. Jay hires real estate agent Seth to represent him in all aspects of real estate. Seth is responsible for finding properties for Jay, selling them when needed, and managing any rentals that Jay owns. He has multiple duties and an ongoing contract with Jay in all real estate matters. Seth is acting as a general agent.
As you can see, with a general agency, the agent has more responsibility than a special agent.
What is the Difference Between Special and General Agency?
A special agent represents a client in a specific job or transaction. In contrast, a general agent can perform multiple services for the principal’s ongoing business and is usually a much longer relationship. If special agents are limited and universal agents have ultimate decision-making power; general agents fall somewhere between that.
What to Know for the Real Estate Exam
For the exam, you should know the definition of a special agent in real estate: An agent whose client hires for them one specific task.
You should also remember the three types of agency: special, general, and universal. These progress from limited authority to complete control to act as your client. A special agent has one task, a general agent can oversee many aspects of someone’s business, and a universal agent can legally act as their client in all matters designated.
For more on agency relationships watch the video down below: