This post was last modified on June 18, 2024.
As a prospective real estate agent in California, it’s important to understand the concept of subagency in real property transactions. During a standard transaction, the listing broker might collaborate with other brokers to achieve the agency’s goals, including securing a buyer, tenant, or lender. This collaboration, however, often leads to intricate legal relationships among the brokers and principals involved.
This discussion will explore the fundamentals of subagency in California real estate, including its definition, underlying legal principles, and possible repercussions. Additionally, we will examine how the industry has adapted to minimize subagency and offer guidance on navigating this area of the law.
What is Subagency in Real Estate?
Subagency involves appointing a second broker to represent the principal (buyer or seller) in a real property transaction. This can occur in two ways:
- Express or Implied Authority: The principal may explicitly authorize the listing broker to appoint a subagent, creating a direct contractual and fiduciary relationship between the principal and the subagent. Alternatively, the appointment may be implied based on the parties’ actions.
- Without Consent: If the listing broker appoints another broker without the principal’s approval, the broker acts on behalf of the listing broker, not as a subagent for the principal.
Legal Principles of Subagency in California
Subagency regulations in California have been criticized for their complexity and potential adverse effects on buyers and sellers. For instance, if a cooperating broker makes fraudulent misrepresentations to a prospective buyer, the seller can be held liable for the broker’s actions. This liability arises because the listing broker, under the exclusive listing agreement, had the authority to engage the cooperating broker, making them jointly responsible for any misconduct.
Under California law, the acts, errors, and omissions (negligence) of a subagent appointed by the seller may be imputed to the seller. Similarly, if the cooperating broker is the authorized agent or subagent of the listing broker, any negligent acts may be imputed to the listing broker, potentially resulting in liability to third parties under the legal theory of respondeat superior.
Avoiding Subagency in California Real Estate
Due to the risks and complexities of subagency, the real estate industry has moved to avoid it whenever possible. For example, the National Association of Realtors (NAR) amended its Multiple Listing Rules in the early 1990s to introduce Multiple Listing Plus. These rules allow the listing broker to either offer a unilateral subagency to the cooperating broker or share the commission without extending any agency or subagency offer on behalf of the seller or listing broker.
The industry now commonly avoids subagency altogether, making it necessary for prospective real estate agents in California to understand these changes and deal with the accordingly.
Tips for Navigating Subagency in California Real Estate
As a prospective real estate agent, it’s crucial to stay informed about the latest developments and best practices for navigating subagency. Here are some tips:
- Understand the listing agreement: Review the agreement between the principal and the listing broker to determine if the broker is explicitly or implicitly authorized to appoint subagents.
- Know your role: If you’re a cooperating broker, be clear about your role in the transaction and whether you’re acting as an agent or subagent.
- Use Multiple Listing Plus: Utilize the Multiple Listing Plus strategy to avoid subagency and reduce potential legal complications.
- Disclose everything: Be transparent with all relevant information and disclosures to the parties involved in the transaction. This includes disclosing any potential conflicts of interest, such as dual agency or existing relationships with other parties.
- Consult with a legal professional: If you have questions or concerns about subagency or other legal issues in a transaction, consult with a legal professional specializing in real estate law.
By following these tips, you can navigate subagency and other complex legal issues in California real estate transactions effectively and help protect yourself and your clients from potential liability.
The Bottom Line
