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What is Designated Agency?
Because of some recent legal and practical problems with dual agency, some states have enacted rules which recognize a new dual agency practice known as designated agency. Designated agency is the term given to a situation when a real estate firm has an in-house dual agency, where an individual agent in a firm is appointed (or “designated”) to represent only the interests of the seller and another agent is appointed to represent only the interests of the buyer.

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For example, agent “A” at a real estate company may be helping a buyer purchase property which is listed by agent “B” of that same firm. In this case, the realty company (including both agents under the company) is acting as a dual agent, mediating and representing both buyer and seller in the transaction. However, under the new designated agency policy, upon permission from both buyer and seller, the real estate firm may appoint agent “A” as the designated agent for the buyer and agent “B” as the designated agent for the seller. Each agent is then allowed to represent exclusively the interests of his/her client in the transaction.

It must be noted, however, that designated agency is a completely optional method of practicing dual agency. No firm may be forced to practice designated agency under the new rules. Each firm has the individual option of whether or not to adopt a designated agent policy. Firms may continue to practice under “standard” dual agency in all applicable situations. This option is most applicable to firms with a limited number of agents, who may not find designated agency to be a practical policy within their firm. These rules were enacted mostly with middle-to-large firms in mind, most of whom will find designated agency to be a sensible policy to use.

Advantages: The primary advantage in applying designated agency is that both buyer and seller will receive fuller, more personal representation by their designated agent. An agent, by law, is required to be an advocate for their client, helping bargain towards the best possible price and terms. This client advocacy is essentially lost in a normal dual agency situation. However, designated agency helps restore “advocacy” to the services provided by the agent, allowing them to more freely represent the individual wants and needs of their clients. Clients should find designated agency more appealing than standard dual agency for the options it opens up to them, and agents should also appreciate the freedom in negotiation that designated agency offers.

Counterpoint: Some firms which feature exclusively "buyer agents" are concerned that the new designated agency rules will encourage more dual agency and less exclusive buyer representation (which of course would become a problem for their business). Therefore, some firms may believe that designated agency is not in the consumers’ best interests. However, some state Commissions believe that dual agency is already such a standard way of doing business that allowing designated agency will not significantly increase the practice of dual agency and may in fact, actually increase exclusive buyer and seller representation.

How Designated Agency Works

Here are a few noteworthy aspects of designated agency which may clear up exactly how the rules work. Designated agency does not come without it’s share of restrictions, which should be apparent in the key components discussed below.

Enacting Designated Agency Does Not Eliminate Dual Agency - Designated is only a type of dual agency and exists only under the larger umbrella of a firm’s dual agency policies. However, enacting designated agency does not change the dual agency status of a firm, either. The firm continues to work as a dual agent, and is therefore still obligated by law to serve both buyer and seller equally. Designated agency is simply a more practical way for most firms to practice dual agency and still meet the needs and desires of consumers.

Limited to In-House, Dual Agency Sales Situations - The designated agency approach may be enacted if and only if a firm is representing both the buyer and seller in the same sales transaction. It is very important to note that dual agency is not in effect when an agent is showing a firm’s listing if that agent is working with the buyer as a seller’s subagent. Since dual agency would not be in effect in this case, designated agency may not be applied.

Who is Allowed to Designate? - Designated agency rules simply state that the “firm” may designate the agents who will individually serve both buyer and seller. The purpose behind this is to allow firms the flexibility needed to deal with varying organizational structures. Each firm wishing to practice designated agency must specify in their policy who, specifically, is authorized to appoint designated agents. In the majority of cases, firms will (and probably should) assign the broker-in-charge as the person permitted to appoint designated agents.

Restrictions on Agent Eligibility regarding “Confidential Information” -  An extremely important restriction on designated agency comes in Paragraph (j) of Rule A.0104 of North Carolina for example, which states:

“…An individual broker or salesman shall not be so designated and shall not undertake to represent only the interests of one party if the broker or salesman has actually received confidential information concerning the other party in connection with the transaction.”

Simply put, this clause is included in order to avoid a situation where one client will be harmed and another benefited by designating an agent, who has confidential information regarding one client, as the designated agent for the other client.

This restriction relates directly to an agent’s obligation to disclose information to his or her principal. Licensees must remember the basic agency law duty that an agent must disclose to his/her principal all facts that may affect the principal’s interest or influence the principal’s action or decision during a transaction. The scope of information disclosed to a principal is much broader than information which is disclosed to a third party. This information to the principal includes personal, confidential information about the other party that might affect the principal’s decision. Therefore, if an agent possesses confidential knowledge regarding a seller, that agent may not be appointed to represent a buyer in that same transaction.

For example: An agent “A” of firm XYZ is working for a seller who is desperate to sell a piece of property within 60 days, but refuses to lower the asking price. Another agent “B” of the same firm XYZ knows of this seller’s condition through agent “A”, and is showing a buyer-client this seller’s piece of property. Agent “B” does not disclose the seller’s desire of immediate sale of the property, and the buyer expresses further interest, meaning designated agency should be enacted at this point of the transaction. If designated agency is enacted, agent “B” cannot be appointed the buyer’s designated agent, because he would be obligated to inform the buyer of the seller’s confidential information, giving the buyer a bargaining advantage.

The Names of the Designated Agents Must be Disclosed to both Seller and Buyer - As soon as designated agents have been appointed in a particular transaction, the designated agents should disclose to their clients the names of the agents selected to represent each party. Early disclosure is strongly suggested, but the disclosure of names must take place before first presentation of an offer to buy or sell. This disclosure does not have to be in writing or any other official form, but the designated agents must record the date of the disclosure in their transaction file. The purpose of the disclosure is just to give knowledge to each client as to who is representing the other party so as not to accidentally reveal any confidential information to the other party’s agent.

Designated Agency may be Implemented at Various Points in Time - Agents have full knowledge that express written consent and authorization must be received prior to enacting dual agency in showing a buyer client a property listed within their own firm. For many years the law has required such advance approval of dual agency and the NC Commission requires both parties’ authorization in writing.

However, it is not necessary to commence designated agency before showing a company listing. The most logical point to commence designated agency is after a showing when a buyer has expressed serious interest in purchasing the property. Regardless of when designated agency is put into effect, it must be activated before presentation of the first offer to buy or sell. If a presentation is made before designated agency is commenced, the agents working with the parties must continue to act as dual agents.

Designated Agency is not Practical in All Dual Agency In-House Sales - Small firms with only a few agents may not find it practical to implement designated agency in their firm. However, it is still important for any agent to fully understand designated agency policies since agents frequently change firms and may encounter various policies at various firms. Also, an agent selling his or her own listing obviously cannot practice designated agency, and if they wish to act on both sides in the transaction they must act as a dual agent (upon receiving written consent of both parties).

An “Automatic” Designated Agency Policy is Permissible - A firm may elect to adopt a policy wherein agents “automatically” are considered designated to represent only the interests of their respective client. This automatic policy is applied upon occurrence of a specified event, such as the showing of a listing belonging to another agent of the same firm. However, any such policy must make it blatantly clear that no agent shall commence designated agency for a client if that agent possesses confidential information about the other client. In addition, the firm’s policy must clearly address all other relevant matters regarding designated agency (for example, the control of confidential information within a firm). Finally, the buyer and seller must have previously authorized designated agency in their agency contracts with the firm.

 
         

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