Agency Relationships in California: 2026 Rules for Agents & Brokers

Agency Is Where Agents Get Sued

If you ask a seasoned real estate attorney where most lawsuits begin, they won’t tell you that it’s always about a leaky roof or a cracked slab. They will tell you it’s about a broader concept known as "agency".

Many new licensees treat "agency" as a vocabulary word they memorized to pass the state exam, but in reality, California real estate agency relationships are the legal foundation of your entire career.

Understanding how agency fits into the broader framework of California real estate laws—like the rules we cover in our California Real Estate Laws & Compliance Guide—is an important step in a long and prosperous career. If you get agency right, you can avoid the vast majority of problems.

If you don’t, you are walking through a minefield blindfolded.

What Is “Agency” in California Real Estate?

In plain English, agency is a legal relationship where one person (the principal) authorizes another person (the agent) to act on their behalf with third parties.

In California real estate, there are three key players:

1. The Principal: The client (buyer or seller).
2. The Agent: Technically, this is the Broker under whom your license hangs.
3. The Third Party: The person on the other side of the deal who you don’t technically represent.

Important Concept: There is a common misconception that you—the salesperson—are the "agent." Under California law, the Broker is the agent of the principal. You are an agent of the Broker. You act on the Broker's behalf to serve the client.

How an Agency Relationship Is Created

This might sound strange, but you don’t always need a signed contract to create an agency relationship. California law recognizes several ways to create this relationship:

1. Express Agency The "typical" and safest way to create agency. The principal and agent expressly agree to the relationship, usually via a written contract.

• Crucial Update: Following the August 2024 NAR Settlement, "Express Agency" is no longer just a best practice for buyers—it is the rule. You are now required to have a signed Buyer Representation Agreement before touring a home. If you unlock a door without this contract, you are starting your career non-compliant.
• Scenario: A seller signs a Residential Listing Agreement authorizing you to market their home, or a buyer signs a Representation Agreement before you show them a property.

2. Implied Agency Your actions lead a person to believe you represent them, even without a written contract.

• Scenario: You represent the seller, but you start giving a potential buyer negotiation advice. Your conduct leads the buyer to reasonably believe you are advocating for them, creating an implied agency.

3. Ostensible (Apparent) Agency A principal allows a third party to believe someone is their agent, even if they aren’t formally authorized.

• Scenario: A landlord knows you are showing their vacant units to tenants and doesn't stop you. Because the landlord allowed this, the tenants reasonably believe you have authority to act.

4. Agency by Ratification A principal accepts the benefits of an action performed by an unauthorized agent (or an agent acting outside their authority), effectively creating the agency retroactively.

• Scenario: You present an offer to a "For Sale By Owner" seller who has not hired you. The seller likes the price, accepts the offer, and agrees to pay you. By accepting the benefit of your work, the seller "ratifies" the agency relationship for that transaction.

Crucial Note: Agency is about authority and behavior, not who pays you. You can owe fiduciary duties in real estate even if you’re not getting a commission.

Types of Agency You Must Know

• Seller’s Agent (Listing Agent): You represent the seller exclusively. Your goal is to get the best terms for the seller while treating the buyer honestly.
• Buyer’s Agent: You represent the buyer exclusively. This protects the buyer's interests in price and terms.
• Dual Agency: The same broker represents both the buyer and the seller.

• The Catch: In California, the Broker is the dual agent, meaning every salesperson under that broker falls under the dual agency umbrella for that transaction.
• The Rule: You must remain neutral. You cannot tell the seller the buyer will pay more, nor tell the buyer the seller will take less, without express written permission. Undisclosed dual agency is one of the fastest ways to lose your commission and face a lawsuit. Courts and the DRE view undisclosed dual agency as a serious betrayal of trust.

Exam Tip: On the California real estate exam, agency questions often focus on how these relationships are created, what fiduciary duties you owe a client, and when dual agency must be disclosed. Expect questions that test whether you understand who the broker represents and what happens when you slip into undisclosed dual agency.

Fiduciary Duties: The “OLD CAR” Framework

Once you are an agent, you owe your client fiduciary duties—the highest duties known to law. I teach students the acronym OLD CAR to remember them:

• O – Obedience: You must obey lawful instructions. If the client says “no open houses,” you don’t hold open houses.
• L – Loyalty: You must put the client’s interest above your own. You cannot steer a client to a house just to get a higher commission.
• D – Disclosure: You must disclose all material facts affecting the property’s value or desirability.
• C – Confidentiality: You must keep your client’s price, terms, and motivation private forever.
• A – Accounting: You must properly handle all money and documents entrusted to you.
• R – Reasonable Care: You must act with the skill of a professional. If you don’t know the answer, don’t guess.

Agency Is the Hub of Compliance

Agency doesn’t exist in a vacuum. Your status as a fiduciary connects directly to every other major compliance area. Here is what agency looks like in the real world:

Disclosure (The “D” in OLD CAR)

Because you represent the client, you are the filter for information. You must strictly follow California disclosure laws to ensure every material fact reaches the client, protecting them from bad investments and you from negligence claims.

Trust Funds (The “A” in OLD CAR)

Your fiduciary duty of accounting means you must be meticulous with money. You must avoid commingling in California real estate, which involves mixing client trust funds with your own money—a major violation that triggers immediate DRE action.

Fair Housing (Duty of Care & Obedience)

Your duty of reasonable care requires you to understand California fair housing laws. You must treat all parties fairly and never inadvertently discriminate or steer clients, as this violates both federal law and your agency responsibilities.

Advertising (Honest Representation)

Even your marketing is tied to agency. The advertising laws for California real estate agents mandate that you clearly identify your license status and brokerage so the public is never confused about who you actually represent.

Required Agency Disclosure Forms (The DEC Process)

In most one-to-four unit residential transactions, you’ll follow the DEC process to ensure compliance:

1. Disclose: Provide the “Disclosure Regarding Real Estate Agency Relationship” (Form AD) before you sign a listing or write an offer.
2. Elect: Elect who you represent in your Listing Agreement or Buyer Representation Agreement.
3. Confirm: Confirm that same agency relationship again in the Purchase Agreement (RPA).

The Cost of Failure: This isn’t just paperwork. If you mishandle or fail to disclose agency properly, a court can decide you’re not entitled to a commission, even if you did all the work and closed the deal. A judge will not care how hard you worked if you were not legally authorized to perform the service.

Common Agency Mistakes to Avoid

In my years of consulting, I see the same agency mistakes repeated constantly. Here is what they look like in real life:

• Accidental Dual Agency: You answer detailed strategy questions from a buyer at your open house and then write the offer without clearly disclosing dual agency. If the buyer later claims you were supposed to protect them, you’re now exposed as an undisclosed dual agent, which courts and the DRE treat very harshly.
• Breach of Confidentiality: You tell a buyer’s agent, “My sellers are divorcing and need to sell fast,” without authorization. You’ve just handed the other side leverage and opened the door to a claim that you sabotaged your own client’s negotiating position.
• Improper Trust Fund Handling: You accept an earnest money check made out to you personally instead of the title company or broker. Handling checks this way looks like commingling and can trigger an immediate trust account audit and potential license discipline.

How to Explain Agency to a Client (Script)

New agents often struggle to explain their role. Here is a simple script you can use to explain agency to a buyer or seller in 20 seconds:

“Mr./Ms. Client, I represent you in this transaction, which means I have a legal duty to put your financial interests ahead of my own. Everything you tell me stays confidential, and I’m required to disclose any facts that affect the value of the property so you can make the best decision possible.”

Using plain language like this builds trust immediately and sets the tone for a professional relationship.

Consequences of Violating Agency Law

The stakes are high. Violating agency law can lead to:

• Civil litigation - Clients suing for damages if they overpaid or undersold because you mishandled agency.
• DRE discipline - Suspension or revocation of your license.
• Commission forfeiture - Courts can deny you a commission if your agency was not properly disclosed, even if you closed the deal.

Agency law is learnable. If you want to see how agency fits alongside disclosure, advertising, fair housing, and trust fund rules, spend time with our California Real Estate Laws & Compliance Guide so your entire business rests on solid ground.