For San Diego Home Buyers

San Diego Real Estate Blog written by Exclusive Buyer's Broker, Justin Gramm.

The Disclosure Regarding Real Estate Agency Relationship - The California-Required Disclosure Before Hiring an Agent

by Justin Gramm
Globella Buyers Realty

The state of California wants you to be aware of how agency works before you begin working with an agent. There is a two-page disclosure form by the California Association of REALTORS® that helps agents fulfill this disclosure requirement before going to work for a client. Sellers should receive this disclosure form from the listing agent before signing a listing agreement, and buyer's agents should be giving this form to prospective clients before representing them on the buyer-side (before acting as the buyer's agent in any way, shape, or form). The purpose of the disclosure form is to make sure that every person who hires a real estate agent in the state of California is given an opportunity to learn how agency works.  Upon reading this form you should understand which types of agents are looking out for your best interests, etc. 

Globella Buyers Realty is dedicated to helping San Diego home buyers only, and so we will be looking at this disclosure form from a buyer's point of view in this article. As a San Diego home buyer, you should get familiar with this form. Although you will be asked to sign the form, it's not a contract. It's simply a disclosure. I will discuss the 2-page form in sections to help you understand what you are signing. If your Globella exclusive buyer agent has not provided you with the disclosure form yet, you should ask for a copy ASAP.

The form's introductory sentence states: "When you enter into a discussion with a real estate agent regarding a real estate transaction, you should from the outset understand what type of agency relationship or representation you wish to have with the agent in the transaction."

The form then lists three different types of agency, the first being "Seller's Agent." The key phrase you will see in this disclosure is "fiduciary duty." What does "fiduciary duty" mean? TheFreeDictionary.com defines "fiduciary duty" as "the legal duty of a fiduciary to act in the best interest of the beneficiary." The seller's agent has the legal duty to act in the best interest of his/her client, the seller. This is important for you to know. The seller's agent, although he/she has the obligation to treat you fairly, honestly, etc., must always act in the best interest of his/her client (helping the seller get the best price and terms, etc.). The reason that California wants home buyers to read this disclosure form before signing an agreement or contract with a real estate agent should be clear by now. Many buyers don't understand how agency works until they read about it on this disclosure form.

As you read further you will see that the seller's agent also has certain duties to the buyer. Line (c) states that the seller's agent is required to disclose to you, the buyer, any material fact that may affect the value of the property. Although, they are required to disclose these things to a buyer, the seller's agent is not required to act as a fiduciary in helping the buyer make sense of disclosures.

Next you will read what the form has to say about Buyer's Agents. First, it explains that the buyer's agent is not an agent of the seller even if an arrangement has been made for the seller to pay a commission to the buyer's agent (as this post is written, it is common practice in San Diego for many sellers to offer a commission to the agent who brings the buyer). Even though a seller many times pays a commission to the buyer agent, the buyer agent's fiduciary duties are to the buyer only. The job of a buyer agent is to act in the best interest of the buyer, to help the buyer get the lowest price possible and the best terms, and help the buyer review all disclosures, reports, inspections, and other documents to determine if purchasing the home at the agreed-price is in the buyer's best interest.

The next paragraph explains Dual Agency. A "dual agency" situation is one in which the same agent represents both the buyer and the seller on the same transaction. Although some states have outlawed dual agency, it is currently legal in the state of California for an agent to represent both the buyer and the seller in one transaction, as long as both the buyer and the seller are aware of and have consented to the dual agency situation. Is this the situation you want to get yourself into? How can one agent negotiate the best price and terms for the seller and, at the same time, negotiate the best price and terms for the buyer? Now do you understand why California requires this disclosure to be made to California home buyers?  Dual agency presents a conflict of interest in which the role of the agent is reduced to paper-shuffler rather than consultant.

What if your real estate agent doesn't represent any sellers, but his/her broker does? All real estate agents must "hang their license with" (work for) a licensed California broker. A broker is a real estate agent who has taken extra classes, met extra criteria, and passed an extra "broker" exam. Each real estate company has at least one broker, and every real estate salesperson must either be a broker or work for a broker. Here is where it gets interesting: The broker is responsible for every transaction that takes place in his/her office, AND he/she represents every client that his agents are working with. In most cases, the buyers and sellers have never met the broker, but if they are being represented by one of the broker's agents, they are actually being represented by the broker. This is an important concept to understand, because it changes the way you read this disclosure form. In truth, dual agency is happening quite a bit in San Diego. Any time a buyer and seller are being represented by the same company (brokerage) in one transaction, the company is practicing dual agency. Even if there are two seperate "agents" involved, the truth is that both of those agents report to the same broker AND both of those clients are clients of the same broker. Unfortunately, (in these situations) even with the nicest and most honest agents, the people who lose out are the clients (because they sacrifice having true agency and fiduciary benefits from working with an agent who only works for them). Now, I must also tell you that I have friends and relatives who work for traditional real estate brokerages. Agents who work for traditional brokerages are not bad people (perhaps some are, but the majority are not). Some agents try to avoid dual agency situations by practicing single agency. Others don't try to avoid dual agency situations. A few have decided to practice exclusive seller agency or exclusive buyer agency.

There are real estate companies in California that only represent sellers OR only represent buyers. A company that only represents buyers is commonly referred to as an exclusive buyer agency or exclusive buyer brokerage. The disclosure form we reviewed in this article doesn't go into much detail, but it's important for buyers to be aware of their right to work with an exclusive buyer agent.

The last section of page 1 explains why you are signing the form (you acknowledge receipt of a copy of the form and the civil code). In case you are unfamiliar with the term "civil code," it's basically the actual text from the California laws that this first page is summarized from.

UPDATE: I've written a second post reviewing the second page of this disclosure form (the Civil Code). Be sure to read this new post by clicking here.

The writer of this article has no intentions of offering legal advice of any kind. Globella Buyers Realty and its real estate agents do not practice law. A real estate agent can only offer real estate advice. If you are in need of legal advice, please consult with a real estate attorney.

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Justin Gramm is the founder and principal broker of Globella Buyers Realty, your San Diego Exclusive Buyer Brokerage. He also writes this blog, "For San Diego Home Buyers."

Exclusive Buyer Agents do not list homes for sale and never represent sellers. They have no "inventory" to try to sell you. They can represent you in purchasing any home. They are specialists at representing buyers only on the buyers' side of the transaction. Exclusive Buyer Agents work to get buyers the best price and terms when they buy a home.

If you have excellent credit and plan to buy a home or condo in San Diego County in the near future, contact Justin Gramm today to hire an agent on your side of the transaction. Call Justin at (858) 437-2662 or  E-mail.

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By: Justin Gramm

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San Diego Exclusive Buyer Broker, Buyer's Agent, Real Estate | DRE License #01855249
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