What is sub-agency?

Sub-agency is a type of brokerage relationship that was predominant until the mid 1990s.

A defining characteristic of sub-agency is that the listing firm, with the permission of the seller, has extended its agency relationship with the seller outside the firm’s own agents and authorized other cooperating brokerage firms to represent the seller in a transaction. When this happens, the other cooperating broker becomes a “sub-agent” of the listing broker.

A sub-agent is a real estate licensee who provides real estate services to a buyer while actually representing the seller in a real estate transaction. It is important to note that sub-agency cannot take place within a firm. For an agent to be a sub-agent, he or she must work for a different brokerage than the listing agent.

Who represents the buyer when a sub-agent is involved in the real estate transaction?

When a buyer is working with a sub-agent he or she is not being represented by any of the real estate licensees involved in the transaction. The listing agent and sub-agent both represent the seller, while the buyer remains unrepresented in the real estate transaction.

Does the seller have to consent to sub-agency?

Yes. Agency relationships are consensual in nature and require the informed consent of the principal (i.e. seller). The listing agent should discuss sub-agency with sellers when taking the listing to determine whether or not the seller will consent to sub-agency. Agents should consult with their brokers about their firm’s policies on offering and accepting offers of sub-agency.

Does the buyer have to consent to sub-agency?

Yes. Even though the sub-agent does not represent the buyer, the licensee must still discuss agency relationships as mandated by state law. The buyer may decline to work with a sub-agent if he or she prefers to work with a real estate licensee under a buyer agency or non-agency (i.e. transactional brokerage) relationship.

Failure to disclose the sub-agent’s representational relationship with the seller to the buyer can create the potential for undisclosed dual agency which is a violation of state law. One contributing factor to the decline of sub-agency was the rapid increase in the number of lawsuits from buyers aboutundisclosed dual agency.

Why is a discussion of sub-agency important if it is so rarely used by real estate brokerage firms?

Many Realtors® misunderstand the meaning of the term “sub-agency.” Those agents who do not understand the term can not properly explain it to a seller when reviewing the listing agreement.

A few listing agents have mistakenly told their clients that “sub-agency” is the listing firms’ share of the commission while “buyer-agency” is the buyer broker’s share of the commission. This has also led to misunderstandings about how to input this information into the MRIS system, as explained below.

How can the listing agent avoid paying the “cooperative compensation” twice if compensation is offered to both sub-agents and buyer agents (or three times if cooperative compensation is offered to sub-agents, buyer agents and non-agents)?

This is one of those myths we are trying to debunk. You do not have to pay the cooperative compensation to more than one cooperating firm.

The offers of cooperative compensation that are created within MRIS are unilateral in nature. Entitlement to the compensation is determined by performance.

Therefore, the firm that is the procuring cause of the sale would be entitled to the cooperative compensation for a property listed within MRIS; the other firms would not, because they did not procure the buyer. The amounts in the buyer-agency, sub-agency and non-agency fields just determine how much the cooperating broker would receive if he or she were the procuring cause.