As a prospective real estate agent in California, it’s important to understand the concept of subagency in real property transactions. In a typical transaction, the listing broker may seek the cooperation of other brokers to fulfill the objective of the agency, such as finding a buyer, a tenant/lessee, or a lender. Nonetheless, this cooperation can result in complex legal relationships between the brokers and principals involved.
The following information will cover the basics of subagency in California real estate, including its definition, legal principles, and potential consequences. We’ll also learn how the industry has evolved to avoid subagency and provide tips for navigating this area of the law.
What is Subagency in Real Estate?
Subagency refers to the appointment of a second broker to represent the principal (either the buyer or the seller) in a real property transaction. This appointment can occur in two ways:
- Express or Implied Authority: The principal may expressly authorize the listing broker to appoint a subagent on their behalf, creating a new contractual and fiduciary relationship directly between the principal and the subagent. Alternatively, the appointment may be implied based on the actions of the parties involved.
- Without Consent: If the listing broker appoints another broker without the consent of the principal, the second broker becomes the agent of the listing broker rather than the subagent of the principal.
Legal Principles of Subagency in California
The rules of subagency in California have been criticized for being complex and leading to unfavorable outcomes for both buyers and sellers. For example, if a cooperating broker makes fraudulent misrepresentations about the property to a prospective buyer, the seller can be held liable for the broker’s actions. This is because the listing broker had express authority under the exclusive listing agreement to engage the services of 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
Given the potential risks and complexities of subagency, the real estate industry has grown to avoid it wherever possible. For example, the National Association of Realtors (NAR) amended its Multiple Listing Rules in the early 1990s to establish the concept of Multiple Listing Plus. Under these rules, the listing broker has the option of either offering a unilateral offer of subagency to the cooperating broker or simply sharing the commission without extending any offer of agency or subagency on behalf of the seller or the listing broker.
This common practice in the industry now is to avoid subagency altogether, and it’s essential for prospective real estate agents in California to understand these changes and navigate them effectively.
Tips for Navigating Subagency in California Real Estate
As a prospective real estate agent, it’s critical to stay up to date on the latest developments and best practices for navigating subagency. Here are some tips to keep in mind:
- Understand the listing agreement: Review the listing agreement between the principal and the listing broker carefully to determine whether the broker has express or implied authority 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: Consider using the Multiple Listing Plus option to avoid subagency and any potential legal issues that may arise.
- Disclose everything: Be transparent about all relevant information and disclosures with the parties involved in the transaction. This includes disclosing any potential conflicts of interest, such as dual agency or any existing relationships with other parties involved.
- Consult with a legal professional: If you have any questions or concerns about subagency or other legal issues in a transaction, it’s always a good idea to consult with a legal professional who specializes 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
Subagency in California real estate can be a complex and potentially risky area for prospective agents. By understanding the legal principles involved, staying up to date on industry best practices, and being transparent and honest with all parties involved in a transaction, you can navigate this area effectively and help ensure a successful outcome for everyone involved. Remember, when in doubt, consult with a legal professional who specializes in real estate law to help guide you through the process.