Real Estate Agency Disclosure and Election

Introduction

When embarking on a real estate transaction in Arizona, one of the first and most important documents you’ll encounter is the “Real Estate Agency Disclosure and Election” form. This seemingly simple document plays a crucial role in establishing the framework for all relationships in your transaction. It defines who represents whom, clarifies everyone’s legal responsibilities, and helps prevent misunderstandings that could lead to disputes later.

The Arizona Association of REALTORS® created this form to comply with state regulations requiring disclosure of agency relationships in real estate transactions. Whether you’re buying or selling property, understanding this form is essential for making informed decisions about representation throughout your real estate journey.

In this comprehensive guide, we’ll walk through the Real Estate Agency Disclosure and Election form section by section, explain what each part means in practical terms, and help you understand how your choices affect your real estate transaction.

Purpose and Legal Background

At its core, the Real Estate Agency Disclosure and Election form serves two distinct purposes:

• Disclosure: It explains the different types of agency relationships possible in a real estate transaction and the duties that real estate professionals have in each scenario.
• Election: It provides a mechanism for buyers and sellers to formally select how they wish to be represented.

This form was developed in response to Arizona’s agency disclosure requirements, which mandate that real estate licensees clearly inform consumers about representation relationships before engaging in significant transaction activities. The disclosure requirements aim to address a historical problem in real estate: consumers not understanding who represents their interests in complex transactions.

Before these disclosure requirements, many consumers incorrectly assumed that all agents were working on their behalf, when in fact, agents might have been legally obligated to represent the other party’s interests. The Real Estate Agency Disclosure and Election form prevents this confusion by making relationships explicit from the start.

When the Form Is Used

The Real Estate Agency Disclosure and Election form should be presented and completed early in the real estate relationship, before substantial discussions about specific properties or transaction details occur. Specifically:

• For sellers, it should be completed when listing the property
• For buyers, it should be completed before viewing properties or discussing specific buying criteria
• For both parties, it must be completed before any meaningful negotiations take place

The form isn’t an employment agreement itself (as indicated in its header), but it documents the type of relationship that will exist. Any actual employment agreement (like a listing agreement or buyer-broker agreement) would be separate.

Detailed Breakdown of the Form

Let’s examine each section of the Real Estate Agency Disclosure and Election form to understand its significance and implications:

Header Information

The form begins by identifying the brokerage firm and the specific agent(s) who will be working with the consumer. This information is critical because agency relationships exist between consumers and brokerages, not just between consumers and individual agents. The form makes it clear that the named licensee(s) will be acting through their brokerage firm.

The Disclosure Section

The disclosure portion of the form explains three potential agency relationships:

1. Buyer’s Broker

This section explains that a broker can represent a buyer exclusively, even if the broker receives compensation from the seller or the seller’s broker. Key points include:

• A buyer’s broker has fiduciary duties to the buyer including loyalty, obedience, disclosure, confidentiality, and accounting
• The buyer’s broker may show the buyer properties that other buyers they represent are also interested in
• The buyer’s broker represents only the buyer, regardless of who pays their compensation

This clarification about compensation is particularly important because many buyers don’t realize that even when a seller pays the commission, the buyer’s broker can still represent the buyer’s interests exclusively.

2. Seller’s Broker

This section explains the role of a broker working under a listing agreement with the seller. Key points include:

• A seller’s broker has fiduciary duties to the seller including loyalty, obedience, disclosure, confidentiality, and accounting
• The seller’s broker may list similar properties for other sellers (potential competitors)
• The seller’s broker represents only the seller’s interests in the transaction

This helps buyers understand that when they work directly with a listing agent, that agent’s primary loyalty is to the seller, not to them.

3. Limited Representation Broker (Dual Agency)

This section addresses the complex situation where a broker represents both the buyer and seller in the same transaction, either directly or through different agents within the same brokerage. Key points include:

• Dual representation can only occur with informed consent of both buyer and seller
• There are significant limitations on the broker’s duties in this scenario
• The broker cannot disclose certain confidential information to either party without written authorization
• There will inherently be conflicts in duties of loyalty, obedience, disclosure, and confidentiality

This section helps consumers understand the inherent challenges and limitations that come with dual agency scenarios.

Universal Broker Duties

The disclosure then explains that regardless of who the broker represents, certain duties apply universally:

• Exercise reasonable skill and care
• Deal honestly and truthfully with all parties
• Disclose all known material facts that could affect the consideration being paid

The form also clarifies what brokers are not obligated to disclose, including whether:

• A property was the site of a natural death, suicide, homicide, or felony
• The property was owned by someone with HIV/AIDS or other diseases not transmitted through common occupancy
• The property is located in the vicinity of a sex offender

This helps set realistic expectations about what information consumers can expect to receive from real estate professionals.

Warning to Consumers

The form includes an important warning statement that emphasizes the consumer’s responsibility to protect their own interests:

“THE DUTIES OF THE BROKER IN A REAL ESTATE TRANSACTION DO NOT RELIEVE THE SELLER OR THE BUYER FROM THE RESPONSIBILITY TO PROTECT THEIR OWN INTERESTS. THE SELLER AND THE BUYER SHOULD CAREFULLY READ ALL AGREEMENTS TO ENSURE THAT THE DOCUMENTS ADEQUATELY EXPRESS THEIR UNDERSTANDING OF THE TRANSACTION.”

This statement makes it clear that while brokers have specific duties, consumers should still conduct due diligence, read documents carefully, and take responsibility for their decisions.

The Election Section

After explaining the possible agency relationships, the form provides a mechanism for both buyers and sellers to elect their preferred type of representation. This section begins with an important statement about compensation:

“AGENCY ELECTION DOES NOT ESTABLISH BROKER COMPENSATION. Compensation paid by a Buyer or Seller to their Broker is not set by law, is always fully negotiable and the amount chosen shall be documented in a separate written employment agreement after discussion with their Broker.”

This clarifies that the election of agency type is separate from any agreement about compensation.

For buyers, the election options typically include:

• Having the broker represent the buyer as buyer’s broker
• Having the broker represent the seller as seller’s broker
• Having the broker show properties listed with the broker’s firm, creating limited representation of both buyer and seller (with seller’s consent)

For sellers, the election options typically include:

• Having the broker represent the buyer as buyer’s broker
• Having the broker represent the seller as seller’s broker
• Having the broker show the seller’s property to buyers represented by the broker’s firm, creating limited representation of both buyer and seller (with buyer’s consent)

The form concludes with signature lines for the involved parties to acknowledge receipt of the disclosure and to document their elections.

Practical Implications for Consumers

For Buyers:

• Information sharing: If you elect to have a buyer’s broker, you can share confidential information (like your maximum budget or willingness to pay above asking) knowing they have a duty to keep it confidential.
• Loyalty: Your buyer’s broker must put your interests first, helping you find the right property at the best possible terms.
• Negotiation support: Your agent can provide strategic advice on offers and counteroffers, advocating for your best interests.
• Limited representation awareness: If you view properties listed by your buyer’s broker’s firm, understand the limitations that may apply to the representation.

For Sellers:

• Protection of sensitive information: Your seller’s broker must keep confidential information (like your minimum acceptable price) private.
• Marketing and negotiation strategy: Your agent’s duty is to help you secure the best possible terms and price.
• Showing coordination: Understanding agency relationships helps you know what to expect when different types of agents bring potential buyers to your property.
• Dual agency considerations: If your listing agent also brings a buyer, you should understand the limitations this places on their ability to advise you.

Common Scenarios and How Agency Works in Each

Scenario 1: Traditional Buyer and Seller Representation

In the most straightforward scenario, a buyer works with a buyer’s agent from Brokerage A, while the seller is represented by a listing agent from Brokerage B. In this case:

• The buyer’s agent has undivided loyalty to the buyer
• The seller’s agent has undivided loyalty to the seller
• Each agent can fully advise their client on strategy, pricing, and negotiations
• Neither agent can disclose confidential information about their client to the other side

Scenario 2: Buyer Working Directly with Listing Agent

When a buyer works directly with the seller’s listing agent:

• The agent remains the seller’s agent with fiduciary duties to the seller
• The buyer is technically unrepresented (unless a different arrangement is explicitly agreed upon)
• The agent must treat the buyer honestly and fairly but doesn’t owe them fiduciary duties
• The agent must disclose to the seller any relevant information learned from the buyer

Scenario 3: Same Brokerage, Different Agents

When a buyer works with one agent and the seller works with another agent, but both agents work for the same brokerage:

• This creates a form of limited representation (or designated agency in some contexts)
• The brokerage represents both parties with limitations
• Each agent typically still primarily focuses on their client’s interests
• Additional confidentiality protocols are often implemented within the brokerage
• Both clients must consent to this arrangement

Scenario 4: One Agent Representing Both Sides

When a single agent represents both the buyer and seller in the same transaction:

• This creates true dual agency with significant limitations
• The agent cannot advocate for either party’s position in negotiations
• The agent cannot advise on pricing, offer strategy, or counter-offers
• Both parties must give informed consent to this arrangement
• Many experienced agents avoid this scenario due to the inherent conflicts

Best Practices for Completing the Form

For Consumers:

• Read before signing: Take time to read and understand the entire form before signing.
• Ask questions: If anything is unclear, ask your agent to explain the implications of different choices.
• Consider your comfort level: Think about what type of representation best suits your needs and comfort level.
• Understand the limitations: Be particularly attentive to the limitations described in limited representation scenarios.
• Keep a copy: Retain a copy of the completed form for your records.

For Real Estate Professionals:

• Present early: Introduce this form before substantive discussions about properties or transactions.
• Explain thoroughly: Take time to explain each section and answer questions.
• Use scenarios: Help clients understand the practical implications of different agency relationships through real-world examples.
• Document properly: Ensure all sections are properly completed and signatures obtained.
• Revisit if necessary: Be prepared to revisit agency discussions if the relationship evolves during the transaction.

Relationship to Other Forms

The Real Estate Agency Disclosure and Election form is related to several other documents in the Arizona real estate transaction process:

• Listing Agreement: For sellers, the agency election complements the listing agreement, which establishes the employment relationship with their broker.
• Buyer-Broker Agreement: For buyers, the agency election aligns with any formal buyer-broker agreement that details the terms of representation.
• Disclosure of Buyer Agency and Seller Waiver and Confirmation: This separate form is used in specific scenarios where a buyer’s agent needs to negotiate directly with a seller whose agent is temporarily unavailable.
• Unrepresented Buyer Disclosure: Used when a buyer chooses to proceed without representation while working with a seller’s agent.
• Purchase Contract: The agency relationships established through the disclosure and election form influence how the purchase contract negotiations are conducted.

Conclusion

The Real Estate Agency Disclosure and Election form is far more than just another piece of paperwork in your transaction. It establishes the foundation for all relationships between consumers and real estate professionals, ensuring transparency about representation and duties.

By understanding this form, consumers can make informed choices about representation that align with their needs and comfort level. The right agency relationship can provide valuable guidance, protection, and advocacy during what is often one of life’s largest financial transactions.

Whether you’re buying or selling real estate in Arizona, take the time to thoroughly review this form, ask questions, and consider how different representation arrangements might impact your transaction. The few minutes spent understanding agency relationships at the beginning of your real estate journey can prevent misunderstandings and complications as your transaction progresses.

In real estate, as in many aspects of life, clear expectations and transparent relationships are the foundation of successful outcomes. The Real Estate Agency Disclosure and Election form helps establish that foundation for your Arizona real estate transaction.