Agency is a hugely significant term in the real estate industry.
It is also over used, under rated and generally misunderstood. When selecting a real estate agent, it is important to have some knowledge on this subject.
Real estate agents are licensed by the state in which they practice and, unless they hold a Broker's license, must work under the guidance of a licensed Broker who owns/runs the office, or agency.
Agency also refers to the relationship that the Broker and the real estate agent has with a Principal, or a person who requests their services. The Principal could be a buyer or a seller. This Agency relationship requires that the Principal ask the agent to go to work for him/her and the agent in accepting pledges 6 fiduciary duties to the Principal:
6. Reasonable Care & Diligence
Historically, agency has been around since Biblical times and was brought to this country through the Law of Agency from England. Its application in real estate started with a Seller Only model. Sellers were the only Principals as they would hire or ask someone to sell their property. The Seller's Agent would either find a buyer or an agent in their office would find a buyer. Many times listings were not shared while an agent waited to find a buyer and thus got referred to as "pocket listings". All agents worked for the seller. The buyer was a customer. The Principal, who was the Seller, was also the Client.
When Multiple Listing Service [MLS] came into being in the 70's, Seller's agents "offered" their listings to all MLS members and "shared compensation" to agents in other offices who brought "ready, willing and able" buyers. These "cooperating sub-agents" also worked for the Seller, because they worked with the buyer, but not for the buyer. The situation lead to misunderstanding by buyers and even some sellers who thought the agent bringing the buyer was working for the buyer!