An agency is a legal relationship in which one person (the agent) is authorized to represent and act on behalf of another (the principal) in dealings with third parties. In real estate, the agent is the licensed salesperson or broker; the principal is the buyer or seller (or both, in dual agency) being represented.
Agency law governs who owes what duties to whom — and getting it wrong exposes licensees to license discipline, civil liability, and potential criminal charges. California's agency rules are codified primarily in Civil Code Sections 2079–2079.24 and the Business and Professions Code.
A critical foundational rule: salespersons are not agents of the client. A salesperson is always an agent of their supervising broker. The broker is the agent of the client. The salesperson acts as a sub-agent of the broker and, through the broker, owes duties to the client. This means the broker is legally responsible for the salesperson's conduct.
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A seller's agent (also called a listing agent) represents the seller under a listing agreement. The listing broker owes full fiduciary duties — OLDCAR — to the seller. The seller's agent:
The seller's agent owes the buyer honest and fair dealing and must disclose known material facts — but does NOT owe the buyer fiduciary duties. The buyer is a third party.
California example: A listing agent in Fremont signs an exclusive right-to-sell agreement with a seller at $1.35M. She runs the MLS listing, holds open houses, and presents three offers. She must tell the seller all facts material to the sale, including that one buyer has offered above asking in cash — even if the seller might accept less from a different buyer.
A buyer's agent (buyer's representative) represents the buyer under a buyer representation agreement. The buyer's agent owes full fiduciary duties to the buyer and:
California's buyer representation requirement: As of August 2024, as part of the NAR settlement implementation, California buyers must sign a written buyer representation agreement before a buyer's agent shows them property.
Dual agency exists when one broker (or brokerage) represents both the buyer and the seller in the same transaction. This creates an inherent conflict of interest — the agent cannot give fully loyal advice to both sides simultaneously.
In California, dual agency is legal but requires:
1. Full written disclosure to both parties 2. Written consent from both parties (typically on the Agency Disclosure and Confirmation form)
A dual agent cannot:
California example: A Compass agent in San Francisco holds a listing for a seller and has a buyer-client who wants to make an offer on the same property. She must immediately disclose the dual agency situation, get written consent from both the seller and buyer, and navigate the transaction without favoring either side.
Designated agency (also called designated representation) is a solution to the dual agency conflict. When one brokerage represents both buyer and seller, the broker designates different individual agents within the firm to each party. Each designated agent can then advocate fully for their respective client.
This avoids the conflict problem that arises when one person represents both sides, while keeping the business within one brokerage. The supervising broker remains a disclosed dual agent.
A transaction coordinator (TC) or facilitator assists with the paperwork and logistics of a transaction without representing either party. This is sometimes called a "non-agency" relationship. The TC owes neither party fiduciary duties — only honest dealing. This form is more common in commercial transactions.
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California Civil Code Section 2079.14 requires that the Agency Disclosure form (C.A.R. Form AD) be provided and signed:
"First substantial contact" means the first meaningful interaction about a specific potential transaction — not just a casual inquiry. Handing the form to a buyer at an open house when that buyer asks substantive questions about making an offer triggers the requirement.
The Agency Confirmation section of the California Residential Purchase Agreement (or a standalone confirmation form) identifies:
Both buyer and seller must sign the confirmation. This form is mandatory before or concurrent with making an offer.
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Quiz Questions:
Q1. A salesperson working for Pacific Realty is representing a buyer searching for a home in Oakland. The buyer finds a home listed by Pacific Realty's own listing agent. Which agency situation exists, and what must happen?
A) No agency issue exists because both agents work for the same company B) Dual agency exists at the brokerage level; full written disclosure and consent from both buyer and seller are required C) The buyer's agent must immediately withdraw and find a new home for the buyer at another brokerage D) The listing agent automatically becomes the buyer's agent as well, without any disclosure required
Answer: B — When one brokerage represents both the buyer and the seller in the same transaction, dual agency exists. California law requires full written disclosure and written consent from both parties. The brokerage may use designated agency (different agents within the firm) to manage the conflict.
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Q2. When must a buyer's agent in California provide the Agency Disclosure form to a prospective buyer?
A) Only at the time of making an offer B) As soon as practicable before the buyer representation agreement is signed, or before showing property C) Within 3 business days of showing the first property D) Only when the buyer asks about agency representation
Answer: B — California Civil Code Section 2079.14 requires the AD form to be provided as soon as practicable before the buyer representation agreement is signed. If there is no signed agreement yet, it must be provided before showing property — at first substantial contact with the buyer.
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Q3. In a dual agency situation in California, which of the following is a dual agent permitted to do?
A) Tell the buyer the seller's lowest acceptable price if it would help close the deal faster B) Advise the seller to reject a low offer and wait for a better one C) Assist with paperwork and logistics, disclose material facts, and facilitate the transaction without advocating for either party's negotiating position D) Reduce the commission to compensate for not being able to fully represent either party, without disclosing this
Answer: C — A dual agent must remain neutral. They cannot disclose either party's confidential negotiating information, advocate for one side, or steer the outcome. They can assist with the mechanics of the transaction and must still disclose material facts to both parties.
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Q4. A salesperson at Redwood Realty represents a buyer. The buyer signs a purchase agreement, and the salesperson signs as the "buyer's agent." Under California law, is this correct?
A) Yes — the salesperson is the buyer's agent and can sign in that capacity B) No — the salesperson is an agent of the supervising broker, not a direct agent of the buyer; the broker is the buyer's agent C) Yes — salespersons are independent contractors and represent clients directly D) No — only brokers can represent buyers in California; salespersons can only represent sellers
Answer: B — In California, a salesperson is always an agent of their supervising broker, not a direct agent of the client. The broker holds the representation agreement and is the principal's agent. The salesperson acts as a sub-agent of the broker. The broker bears legal responsibility for the salesperson's conduct.
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Q5. An agent holds an open house for her listing in San Jose. A visitor begins asking detailed questions: "Can we submit an offer below asking price? What's the seller's situation — are they motivated?" The agent has not yet provided an Agency Disclosure form to this person. What should the agent do?
A) Answer all questions freely because the visitor has not yet signed a representation agreement B) Provide the Agency Disclosure form immediately, because the conversation constitutes first substantial contact C) Refer the visitor to another agent at the brokerage to avoid a conflict D) Answer the questions but note that no agency relationship exists until an offer is submitted
Answer: B — Questions about making an offer and the seller's motivation constitute "first substantial contact" — the point at which meaningful negotiation-related discussion begins. The California AD form must be delivered at this point. Waiting until an offer is written would be too late.