Elizabeth A. (Betsy) Urbance
General Counsel and Vice President of Legal Services

Presumption of Designated Agency in Illinois

As every real estate licensee should know, the Illinois Real Estate License Act (RELA) contains specific statutory duties that real estate licensees owe to their clients. These duties are similar to common law fiduciary duties, but are found in Article 15, Section 15-15 of RELA. Hopefully, this concept is familiar and one of the first things newer brokers learn about.

Under RELA, even though the client’s brokerage relationship (sometimes set forth in an exclusive brokerage contract) is with the sponsoring brokerage company, the designated managing broker (DMB) for the company is responsible for appointing designated agents for the company’s clients. The designated agents are the “legal” agents and owe all of the statutory duties to their respective clients. The designated agent is presumed to be the legal agent for the client with whom they are working and must at least provide written (physical or electronic) disclosure to this effect.

Duties under RELA

The designated agent’s statutory duties include: 

• Performing according to the terms of the agency agreement whether it is written or oral (more on this later)
• Promoting the client’s best interests by:
  • Seeking a transaction that meets the terms of the agreement or is otherwise acceptable to the client.
  • Presenting all offers to and from the client unless otherwise directed by the client.
  • Disclosing material facts about the transaction that the designated agent actually knows about and the information is not confidential to someone else to whom the agent owes duties (Note confidential information does not include information regarding the physical condition of the real estate).
  • Accounting for all money and property received from the client or for the client’s benefit.
  • Obeying the client’s lawful direction.
  • Promoting the client’s best interests over the interests of others including the agent’s own interests. 
  • Exercising reasonable skill and care.
  • Keeping the client’s confidential information confidential (even within the agent’s own office because someone else within the office could be the legal or designated agent for the opposing parties in transactions); and
  • Complying with RELA and other applicable laws.

Brokerage Relationships & the MLS

A sponsoring brokerage company and its designated agents are free to enter non-exclusive, open, relationships with clients, or they might enter exclusive ones. Open or non-exclusive relationships won’t provide details setting forth the expectations between the company, the agent and the client. However, in a non-exclusive relationship the client must provide written consent for the broker to advertise the property for sale or lease and the broker must provide written disclosure to the client as to the identity of their designated agent(s).

On the other hand, under RELA, if the brokerage relationship is exclusive, there must be a written agreement between the company and the client. That written agreement must refer to the minimum services the exclusive broker will owe to the client, where the designated agent is required to have some involvement once contract negotiations begin in a purchase or lease transaction. This is a consumer protection measure to assure the client gets the professional assistance contracted for to the exclusion of any other brokers. Facts will vary as to what actions suffice for minimum services and it might well depend upon how much “hand holding” the client wants. If a client “waives” minimum services, then the agreement has become non-exclusive by definition under RELA.

Many brokerage companies have an office policy to take exclusive listing agreements with seller clients and they enter those listings (hard earned assets of their companies) into their Multiple Listing Service (MLS), thus exposing the listing to many potential buyer clients represented by other participating brokerage companies. These prospective buyers might come from any cooperating brokerage company, large or small, but where the co-op companies also participate in the MLS. The MLS offers a very diverse and competitive market exposing listings to a large pool of prospective buyers, along with an efficient mechanism whereby listing brokers offer to share a portion of their compensation with buyers’ brokers. The MLS has been tested and proven over time to be an efficient and very competitive marketplace resulting in countless successful transactions.

If Buyer Brokers are Paid Through MLS Offers of Compensation, Why Consider Exclusive Buyer Brokerage Agreements?

Four Good Reasons 

1) The exclusive brokerage agreement will be in writing. This document contractually binds the buyer client to the brokerage company and their designated agent, and vice versa. The exclusive designated agent always owes their statutory duties to the buyer client, and while the same duties are owed in a non-exclusive relationship, such as serving the client’s best interests over the agent’s own interests; in a non-exclusive relationship, neither the brokerage company nor the designated agent has protection under RELA or the REALTOR® Code of Ethics. In other words, another company’s agent is completely free to interfere with a non-exclusive relationship. While “poaching” another agent’s buyer client is not an ideal business practice, if there is no exclusive relationship, there is no legal or ethical protection available to the non-exclusive agent, who is working hard and providing valuable services to their client.

2) The exclusive brokerage agreement provides a good written outline from which to frame discussion and education for the buyer client about the agent’s duties to the buyer client, the services they buyer agent will provide, the company’s duties to the buyer client and what the buyer should do in order to assist their exclusive agent in finding the property that best meets the buyer’s needs. See Illinois REALTORS® sample form Exclusive Buyer Brokerage Agreement.

• This agreement refers to the buyer checklist which helps with consistency in treatment of all buyer clients.
• The agreement helps the agent discuss and define the buyer’s needs and wants.
• The agreement defines the market in which the designated agent will search, which can include the agent’s MLS as well as any other sources upon which the parties mutually agree.
• The buyer agrees to provide relevant financial information.
• The buyer agrees to be available for showings of properties that meet the buyer’s specifications.
• The buyer agrees to pay the company a negotiated rate for the full array of services provided by their designated agent (this is sometimes qualified with language saying that buyer’s broker will first seek to be paid from the listing broker through the MLS offer of compensation).

It is very important for the designated agent to spend time explaining the exclusive agreement to buyer clients and to explain how the agreement can protect everyone involved. 

3) The exclusive brokerage agreement can protect the company’s compensation or fee for services provided. The sponsoring brokerage company makes independent business decisions as to what amount it needs to be paid in order to cover expenses, pay their independent sponsored licensees according to their contracts and to make a reasonable profit. The MLS offers of compensation won’t always meet that rate. The non-exclusive agent is duty-bound to show all of the suitable properties in the defined market area, regardless of the amount of cooperating compensation offered in the MLS by the listing company. Remember the designated agent’s duty to serve your client’s best interest over the agent’s own interest? IF the non-exclusive designated agent purposely avoids showing their buyer client suitable properties due to a lower commission rate being offered, there is a very good argument that the designated agent is breaching their duty to their buyer client.

On the other hand, if the buyer has signed an exclusive brokerage agreement containing a provision requiring payment to the brokerage company in a pre-determined amount the buyer will know they are contractually obligated to pay the agreed fee for services provided. The interests of the buyer client and their broker are now more in line with each other.

In addition, having an exclusive buyer brokerage agreement, while not a guarantee the exclusive agent is the procuring cause in an MLS compensation dispute, it is a helpful factor. It can also provide another possible avenue for payment in the event the buyer’s broker is not the procuring cause in a successful transaction. How many buyer brokers have been called upon to help a buyer after the buyer has already gone almost all the way down the transaction road providing many hours of services, but wants another buyer’s broker to come in as “the closer.”

4) Having the exclusive written contract can serve as legal protection should the sponsoring brokerage company elect to seek enforcement. There is no requirement for a sponsoring broker to pursue enforcement of their contracts. Many brokers elect not to seek enforcement for diplomatic and other business reasons. However, sometimes circumstances are such that the sponsoring broker wants to pursue remedies provided for in the exclusive brokerage agreement. A final point to consider is that where a buyer has negotiated and agreed to be bound to an exclusive brokerage relationship, it makes said relationship more “real” or committed to their company and their designated agent. The buyer has “skin in the game.”