Why this matters: Learn when the statutorily-mandated Agency Law Disclosure is required.
Agency definitions and representatives disclosed
Department of Real Estate (DRE) licensees generally have misconceptions about the duties they owe to clients and non-clients they interact with as an agent. While problematic, the public consuming their services also lacks information about the duties licensees owe them.
To cure this industry-wide deficiency and inform consumers of licensed real estate services, the California legislature enacted the agency disclosure law in the mid-1980s. However, the result did little to eliminate improper broker conduct.
The goal has been to educate the public (and licensees) to mitigate the chaos and turmoil arising from actions contrary to principles of antitrust rules of business conduct.
For starters, the real estate agency disclosure rules now designed to inform the public about duties brokers owe them in real estate transactions establish two separate agency-disclosure events:
- an Agency Law Disclosure form, also known as the Disclosure Regarding Real Estate Agency Relationships. The form sets out the “rules of agency” controlling the conduct of real estate licensees when representing consumers of real estate licensed services [See RPI Form 305]; and
- an agency confirmation provision, mandated in purchase agreements and lease agreements for a term more than one year. The provision accompanies identification of the brokers in a transaction and states the representation of each broker in the transaction. [See RPI Form 150]
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The effort of the agency scheme was to establish uniform understanding by brokers, their agents and the consuming public of real estate terminology and representation in all real estate transactions involving a buyer or long-term tenant and the client as seller or landlord.
The Agency Law Disclosure form is used by agents as an attachment, to be signed by the participants, when preparing:
- any representation agreement authorizing a broker to sell, buy, exchange, option or lease property for a term exceeding one year;
- any agreement to purchase, exchange, or grant an option;
- all leasing offers, letters of intent or proposals for a term exceeding one year; and
- counteroffers, relating to any transfer of a marketable interest in real estate. [Calif. Civil Code §2079.14]
At its core, the Agency Law Disclosure form is a restatement of existing agency codes and case law on agency relationships in all variety of real estate transactions. The disclosure form is updated every several years as antitrust laws are enacted to correct the conduct of agents and the jargon they use. The most recent update was January 1, 2025. [See RPI Form 305]
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The case for “seller representation agreement” to replace “listing” in real estate law
Uniform jargon and agency law
The Agency Law Disclosure was created for use by brokers and their agents to educate and familiarize both agents and participants in real estate related transactions with:
- a uniform jargon used in real estate transactions; and
- the various roles licensees undertake as representatives of their clients and duties owed other participants in a real estate transaction.
This information is presented in a two-page form. The exact wording of its content is dictated by statute. [CC §2079.16; See RPI Form 305]
The Agency Law Disclosure attempts to define and explain the words and phrases commonly used in the real estate industry. This article series fleshes out agency relationships with clients and non-clients and other agents with examples of scenarios in transactions.
The industry jargon is used to express the:
- broker representation of a client and their agency duties owed to other participants in a transaction; and
- employment relationship between brokers and their agents.
A real estate broker is the agent of a person who enters into a representation agreement for real estate broker services. Thus, the word “agent,” as used in the disclosure, references the broker employed by the client, not the broker’s agent employed by the broker. The broker’s agent acts on behalf of the broker to, say, solicit representations with persons needing real estate advice and assistance. Ironically, brokers rarely refer to themselves as an agent.
Nonetheless, by code, brokers are always agents as it is their license which earns a fee rendering services to clients. In practice, the word agent is used exclusively to identify a licensed real estate salesperson and brokers employed by a broker, called the broker’s agents. Licensed brokers employed by a broker are called broker-associates rather than agents within the real estate industry.
Two sections on the face of the Agency Law Disclosure are entitled “seller agent” and “buyer agent.” Each section addresses the duties owed to the seller and buyer in a real estate transaction by these otherwise undefined brokers.
The seller broker is correctly noted as being an agent for the seller and best referred to as a seller broker. The buyer broker is properly identified as an agent of the buyer and best called a buyer broker. From the days of multiple listing service (MLS) violation of antitrust laws, buyers were given the title of selling agent since the price-fixing scheme claimed the buyer agent was selling MLS listed property for the seller. The term selling agent was used in the Agency Law Disclosure prior to 2019.
The Agency Law Disclosure does not mention, much less define, the broker’s role as an exclusive agent for either the buyer or seller. Yet, the separate agency confirmation provision included in purchase and leasing agreements calls for the broker to make this exclusive representation distinction known to all the participants.
Thus, the broker characterizes their representation in the transaction as the exclusive agent of the seller-client or buyer-client, or as the dual agent representing both the seller-client and the buyer-client in the transaction.
These exclusive representation provisions in a purchase agreement concern negotiations by the broker in a sale and leasing transaction, not the exclusive employment to market or locate property. The representation in a purchase or leasing transaction is unrelated to employment agreements calling for the broker to exclusively represent the client to sell, rent or buy property.
The seller broker with an exclusive seller representation agreement may well end up negotiating a purchase agreement with one of their buyer-clients. A broker negotiating a purchase agreement or lease expecting a broker fee for services rendered on behalf of both the buyer- and seller-clients in the same transaction makes the broker a “non-exclusive” dual agent.
Editor’s note — This article primarily presents material in the context of an agent representing a buyer or seller. When a buyer is referenced, the same rules apply to tenants, and the rules reviewed for sellers apply to landlords.
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Duties brokers owe consumers in a transaction
The Agency Law Disclosure lays out the rules governing the conduct of brokers when negotiating a transaction and acting solely as the representative for a seller or a buyer.
Two categories of broker obligations arise in a property transaction, including:
- the special agency duties of an agent primarily owed by a broker and their agents to the client they have agreed to represent, also known as fiduciary duties; and
- the general duties owed by each broker to all persons in a property transaction, to act honestly and avoid deceitful conduct.
Agencies confirmed in transaction agreements
An agency confirmation provision is separately mandated to be included with the identification of the brokers involved in transaction agreements to disclose their role representing one or more consumers in the transaction. The agreements required to include the confirmation include purchase agreements, leasing proposals for terms exceeding one year and counteroffers.
The agency law disclosure form is also attached to these purchase and leasing agreements to acquire property, buy or lease. [See RPI Form 150]
The agency confirmation provision is completed by each broker declaring their agency relationships with clients and other consumers in the transaction. As a result, all consumers in a transaction consent to the stated broker representations when entering into purchase and lease agreements.
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Use of the Agency Law Disclosure
A mortgage loan originator (MLO) or trust deed broker and lenders or borrowers negotiating the origination or collateralization of mortgages are not required to use the agency law disclosures or confirmation. They or their clients are not acquiring a clientship interest in real estate. What they do acquire is a lien on a clientship interest in real estate.
Agreements requiring an agency addendum
The Agency Law Disclosure is attached to real estate agreements in the following transactions:
- seller and landlord representation agreements [See RPI Form 102 and 106];
- buyer and tenant representation agreements [See RPI Form 103.1, 103.2, 105.1 and 105.2];
- purchase agreements [See RPI Form 150 and 151];
- an option to purchase [See RPI Form 161 and 161-1];
- an exchange agreement [See RPI Form 171];
- a counteroffer, by attachment or by reference to a purchase agreement containing the disclosure as an attachment [See RPI Form 180];
- a letter of intent prepared and submitted on behalf of a buyer [See RPI Form 185];
- a residential or commercial lease agreement for a term exceeding one year [See RPI Form 550 and 552 – 552-8];
- an offer or proposal to lease. [See RPI Form 556]
Agency disclosure is not required on agreements concerning:
- property management;
- mortgage arrangements; and
- month-to-month rental agreements.
Further, a broker failing to attach an Agency Law Disclosure when entering into a representation agreement permits the client to:
- cancel the representation at any time; and
- cancel payment of a fee already agreed to in a sale or leasing transaction which has not closed.
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Documenting a refusal to sign
A seller may accept a purchase agreement offer or enter a counteroffer but refuse to sign an Agency Law Disclosure. Here, the broker needs to promptly document in a writing the client’s refusal to sign to preserve the right to a fee.
Later, the client may claim they never signed the Agency Law Disclosure to avoid paying a fee. The broker’s written documentation sent to the client noting the client’s refusal to sign dispels such a claim. Again, a written document preserves the fee.
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