A GUIDE TO TENNESSEE'S AGENCY LAW

A GUIDE TO

TENNESSEE’S AGENCY LAW

FOR REAL ESTATE LICENSEES,

BROKERS, AND INSTRUCTORS

Published by

the Tennessee Association of REALTORS

in cooperation with

the Tennessee Real Estate Educational Foundation

INTRODUCTION

Why does someone obtain a real estate license? The answer really has nothing to do with

the right to buy or sell real estate. Anyone with enough money or financing can do that! A real

estate license is all about representation. The license permits someone to represent another

party in the purchase or sale of real estate, to safeguard their interests, to treat them honestly, to

serve them with professionalism.

This relationship – between a real estate client and the licensed professional representing

the client – is what agency is all about. To become someone’s agent imposes several duties on

the real estate professional, above and beyond expectations of fairness and basic competence. A

consumer can and should have higher expectations of a licensed professional when that

professional becomes the consumer’s agent. Among other things, the consumer may give

instructions to his or her agent, expecting them (as long as those instructions are legal) to be

carried out faithfully.

Bill Tune – a former REALTOR, instructor, and respected Chairman of the Tennessee

Real Estate Commission – used to begin discussions of agency by noting that, in Western law,

the legal concept of agency has its origins in the King-messenger relationship from medieval

times. The client is King, and the agent is the King’s messenger; the messenger is to act at the

direction of (and in the best interests of) the client.

The legal and fiduciary nature of this relationship is too often forgotten. Some real estate

licensees see themselves as salespeople, but – if they become the agent of a buyer or seller – the

law sees them quite differently. The man or woman who sells you a car, a piece of jewelry, a

new suit of clothes, or a vacation in the Bahamas usually has no legal relationship to you. That

man or woman is a salesperson, hopefully a good one, but still a salesperson. The real estate

professional, however, who becomes a consumer’s agent assumes a legally-defined role and a

position of trust, in service to his/her “king,” the client. It’s not a relationship to be treated

lightly, or terminated easily.

It was my pleasure in 1994 and early 1995 to serve as staff to the Tennessee Association

of REALTORS

’ Presidential Advisory Group on Agency Law. PAG members included both

attorneys and REALTORS

. The PAG had several goals, one of which was to eliminate the

possibility of accidental or unintended agency, whereby – solely through his/her behavior or a

casual statement – a licensee might unwittingly become a consumer’s agent. Accidental or

implied agency created excessive liability for both licensees and their brokers (and even

consumers), and it opened the door to unintended and undisclosed dual agency.

Another goal was to recognize and accommodate the growing practice of buyer agency,

ensuring that buyer-clients are better informed and protected. As the PAG examined agency laws

as well as proposed legislation in other states, the concept of designated agency was also

explored and included (in amended form) in the PAG’s legislative recommendations.

I drafted what subsequently became Tennessee’s agency law on behalf of, and at the

direction of, this PAG. Tennessee’s law was not modeled after any other state’s approach to this

subject. Instead, Tennessee’s law “borrowed” – with changes – from multiple sources: a

legislative proposal that the Wisconsin REALTORS

Association had developed, an agency law

that Ohio had passed, agency law in Colorado, and others. Parts of Tennessee’s law are also

unique to Tennessee.

The Tennessee Association of REALTORS

also engaged me as a lobbyist in 1995, so

that I might answer any questions and participate in discussions with various legislators in order

to pass this legislation. The TAR-endorsed bill passed almost unanimously in 1995 and took

effect on January 1, 1996, as sections 62-13-401 through 62-13-408 of the Tennessee Code

Annotated.

Tennessee’s agency law has been amended twice since then, in the spring of 1996 and

again in 2006. It was my privilege, on behalf of the Tennessee Association of REALTORS

, to

author both of the legislative proposals that amended Tennessee’s law.

Agency at its heart is not a difficult or complex concept. It’s all about representing a

consumer conscientiously, doing so with the consumer’s understanding and written agreement,

steering clear of any conflicts of interest, and ensuring that – at any time in the transaction –

everybody in the transaction knows whom the licensee does and doesn’t represent.

The following Guide takes you through a number of common misconceptions about

agency law in Tennessee, as well as a section-by-section presentation of the law itself with a

brief commentary on each section.

Several attorneys reviewed this document prior to its publication, to ensure that the

agency statute and its intent are faithfully and accurately explained. We’re very grateful for their

suggestions and improvements.

This Guide is not intended to be a lengthy, in-depth thesis on the law. Instead, it’s

provided as a reference and guide for real estate licensees in Tennessee, their brokers, and their

instructors. I hope it proves helpful.

– Charles “Pug” Scoville, 2009

NOTE: The term ‘Licensee” is used throughout this Guide since agency law applies to all real estate licensees in

Tennessee, not just REALTORS

Things You Should Know About Agency in Tennessee

1. An agency relationship in Tennessee is not implied or created by a licensee’s actions,

behavior or even his/her statements. It cannot be created accidentally.

2. A licensee is always a facilitator by default and remains a facilitator until a bilateral

written agency agreement has been negotiated with a consumer and signed by both

parties.

3. A licensee’s delivery of a written disclosure, or confirmation of agency status, saying that

he/she is an agent does not make the licensee an agent. [A unilateral disclosure is not a

bilateral agreement.]

4. Tennessee’s agency law supersedes what is known as the common law of agency.

5. A traditional (non-designated) agency relationship obligates everyone in the office to an

agency relationship with that buyer or seller.

6. Designated agency establishes an agency relationship between only one real estate

licensee in the office (to the exclusion of everyone else in the office, including the

managing broker) and a buyer or seller.

7. An office policy of designated agency from the outset – in all transactions (whether in-

house or not) – is a common and perfectly legitimate agency office policy in Tennessee.

8. Every change in agency status during the course of working with a consumer must be

fully disclosed to the consumer at the time status is changed and should be documented,

even if the consumer gave prior consent to changes of status should they occur.

9. An agency relationship is not required in order for a licensee to receive a commission; a

facilitator may usually receive a commission as easily as a buyer’s agent. [The listing

agent’s payment of a commission to a selling agent compensates the selling agent for

procuring a willing and able buyer, not for his/her agency representation of the buyer.]

10. Every real estate office in Tennessee should have a written agency office policy.

11. Subagency is still legal in Tennessee but is rarely offered. In actual practice, a subagent

generally has little or no true allegiance or loyalty to the client or client’s best interests.

12. Dual agency is still legal in Tennessee (if it is fully disclosed to both parties and both

parties consent to it). Disclosed dual agency, however, is rarely practiced. Most legal

experts still believe that it greatly increases legal liability for both the licensee and his/her

firm and the potential for complaints to the Tennessee Real Estate Commission.

Common Myths & Misconceptions About Agency in Tennessee

MYTH: An agency relationship can be “implied”, created “accidentally”, or

created simply by a licensee’s actions, statements, or behavior.

This may have been true in Tennessee prior to 1996, but it has not been true since then!

Moreover, even if a licensee completes a written disclosure form – such as the commonly

used “Confirmation of Agency Status” – the licensee does NOT become an agent.

Agency law in Tennessee states that an agency relationship does not exist without a

bilateral, written agency agreement between the licensee and the buyer or seller. An

agency disclosure form, or confirmation of agency status, is NOT an agreement!

To represent a seller, a “bilateral, written agency agreement” would be the listing

agreement: an Exclusive Right to Sell listing or an Exclusive Agency listing. [These two

types of listing agreements have served as a bilateral written agreement to establish an

agency relationship since 2006. Other types of listing agreements (e.g., open listings)

may also establish an agency relationship with the seller, although these are not specified

in the agency law itself.]

To represent a buyer, a “bilateral, written agency agreement” would be a Buyer

Representation Agreement, a negotiated contract for agency representation.

IF a licensee simply “declares” (to a consumer or to another licensee) that he or she

represents a buyer or is a buyer’s “agent”, but has not negotiated and signed a written

buyer agency agreement with that buyer, then this licensee is NOT a Buyer’s Agent.

This licensee is still a Facilitator (or Transaction Broker) regardless of what he or she

says; to represent himself or herself as a buyer’s agent is misrepresentation! It’s still

misrepresentation even if the licensee gives somebody a disclosure form that says he/she

is a buyer’s agent, but the licensee hasn’t negotiated an actual buyer representation

agreement that the buyer has signed.

Until an actual buyer agency agreement is signed, it’s appropriate for a licensee to tell

others (including other companies when he/she is setting up showings, etc.) that the

licensee is “working with” a buyer …but the licensee should refrain from saying that

he/she represents the buyer or is a buyer’s agent until this is actually true. The intent to

get an agreement signed doesn’t make a licensee someone’s agent!

The law is very clear: an agency relationship can be created in only one way – through a

written agency agreement with a consumer. The law states very clearly that an “agency or

subagency relationship shall not be assumed, implied or created without a written

bilateral agreement that establishes the terms and conditions of such agency or subagency

relationship.” The law ALSO states – very clearly – that “the disclosure of agency or

facilitator status ...shall not be construed as, or be considered a substitute for, a written

agreement to establish an agency relationship between the broker and a party to a

transaction....”

Without an agency relationship to either the seller or to a prospective buyer for the

seller’s property, a licensee is a facilitator, pure and simple, and represents nobody in the

prospective transaction.

With the above myth, many people falsely believe that a licensee cannot give advice to a

consumer unless the licensee represents that consumer as an agent. Nothing in Tennessee

law requires facilitators to remain “on the sidelines, offering no advice.” Giving advice

does not create an agency relationship. As the legal definition of facilitator states: “A

facilitator may advise either or both of the parties to a transaction but cannot be

considered a representative or advocate of either party.” [emphasis added]

While professional advice is always permitted, if a licensee is the sole licensee in a

transaction, serving as a facilitator between an unrepresented seller and an unrepresented

buyer, the licensee should be extremely careful not to promote or advocate one party’s

interests over the other’s.

MYTH: You can be a seller’s agent (the listing agent) and a facilitator for the

buyer at the same time.

Wrong! A licensee can only wear one “agency hat” at a time in a given transaction. A

licensee cannot be working as a seller’s agent for a seller whose property the licensee has

listed and simultaneously represent himself/herself as a facilitator to an unrepresented

buyer who might like to purchase that property! At best, this practice is deceptive and an

obvious effort to gain or keep everyone’s trust without telling them the truth. A licensee

has only one agency status at a time in a transaction.

If the licensee is the listing agent, for example, and a buyer approaches the licensee

regarding this property, then normally the licensee would disclose to this buyer that

he/she represents the seller. There is nothing in Tennessee law that prevents a seller’s

agent from assisting this buyer, completing an offer to purchase for the buyer (if that’s

what the buyer wants to do), presenting that offer, etc., while the licensee remains a

seller’s agent ...as long as the buyer knows that the licensee represents the seller and is

going to promote the seller's best interests.

Some Tennessee firms have adopted office policies that call for their salespeople to

default to facilitator status automatically if they have listed a property and an

unrepresented buyer approaches them regarding their listing. The listing agreement used

by these offices typically includes language by which the seller gives prior consent for

their listing agent’s default to facilitator status if an unrepresented buyer comes along. If

a licensee’s office policy dictates this kind of action, the licensee is STILL obligated to

go back to the seller at the time he/she defaults to facilitator and communicate to the

seller that the licensee no longer represents him/her (confirming this subsequent

disclosure in writing).

Once a licensee tells any party or prospective party to a transaction that the licensee

is a facilitator, the licensee is saying, “I don’t represent anybody – seller or buyer – as

an agent in this transaction!”

“Facilitator” status is not a type of agency status or agency relationship; it’s the lack of an

agency relationship. At one time, some people in Tennessee believed that a licensee

needed to have agency relationships with both seller and buyer before the licensee could

legally default to facilitator. This is not true. With their attorney’s support, the Tennessee

Real Estate Commission voted 9 to 0 in December of 2005 “that Tennessee Code

Annotated §62-13-102(9)(B) does not require a written agency relationship with

both parties prior to default to facilitator status.”

If a licensee has represented either a buyer or a seller and subsequently defaults to

facilitator status in the transaction, this licensee is simply terminating the agency

relationship with his/her client …with the client’s permission of course.

MYTH: If you’re not sure what your agency status is at the time you submit a

written confirmation of agency status, then it’s probably safest to check

several boxes …since one of them is sure to be correct!

Wrong! Since a licensee can only wear one agency hat at a time in a transaction, then

checking more than one box on a confirmation of agency status means that only one box

is correct. [We’re hoping, of course, that one of the boxes checked represents the

licensee’s true agency status.] Anything else that is checked constitutes a false statement.

It may be done in ignorance – which doesn’t speak well for the licensee’s professionalism

– but it is still a misrepresentation of facts.

Similarly, if a licensee is the only licensee in the transaction, then checking one status on

the “buyer side” of the confirmation of agency status form and checking a different status

on the “seller side” of that form is also incorrect and an indicator of misrepresentation.

MYTH: You can’t sell your own listing without changing your agency status

in the transaction (to facilitator).

While this restriction may be true according to some office policies (and every licensee

should be familiar with and abide by his/her office policies), nothing in Tennessee

law or the REALTOR Code of Ethics requires a change of status in this situation.

A seller’s agent can assist and even advise a prospective buyer in almost every way,

throughout a transaction, to help that buyer purchase the agent’s listing …as long as the

seller’s agent remains loyal to the seller and does not compromise or ever work against

his/her seller-client’s best interests. The buyer, of course, needs to be told that the seller’s

agent represents the seller and is bound to promote the seller’s interests.

MYTH: Designated agency is intended solely for in-house transactions.

Wrong again. Before explaining why this is untrue, it’s important to understand

traditional (i.e., non-designated) agency. In the absence of designated agency, any agency

relationship that one person in an office establishes – with either a buyer or seller –

makes every licensee in the office an agent of that buyer or seller …even if they never

have any contact with, or even know the name of that buyer or seller. Unintended dual

agency and rampant conflicts of interest can therefore occur. Designated agency changes

this. With designated agency, the agency relationship exists solely between the

licensee and his/her client, to the exclusion of all other licensees in his/her office.

Designated agency was created simply to accommodate a quite proper practice that

reflects the real-world operation of most real estate transactions ...in which an individual

agent (and not usually an entire office or company) functions as the advocate for his/her

client, regardless of whether the other party in the transaction is represented by someone

in another firm or someone in the same firm.

From the earliest discussion of the designated agent status, to its implementation in law,

there was never any assumption or intent that it would only be used for in-house

transactions. That’s the primary reason for the language “or by written company policy”

in 62-13-406(a). It was the intent from the original crafting of the legislation that many

firms would implement company policies calling for the practice of designated agency

from the outset, for both buyers and sellers, regardless of whether or not the transaction

ever involved an in-house showing or sale.

To illustrate why this practice has been so popular with companies:

Assume that a licensee has entered into a buyer agency agreement with a

prospective buyer – but NOT as a designated buyer’s agent. The licensee then makes a

list of ten properties to show that client, and sets up appointments to do so. Properties

number 3, 5, and 8 on that list are actually listed by members of the licensee’s own firm

…and this means that the buyer’s agent is also an agent of the seller. Conflict of interest!

Therefore, before showing each of these particular properties, the licensee changes

his/her agency status and notifies the buyer of the changed status, because the licensee

ALSO represents the seller on those properties! Then, after showing those properties, the

licensee changes status again, back to a buyer’s agent, to show properties listed by other

firms. The Tennessee Real Estate Commission wants to see written documentation of any

change in agency status ...and this licensee may need to change agency status multiple

times in a single day of property showings. This situation makes little sense, and will

frustrate both the licensee and his/her buyer-client. Members of the firm could avoid it

altogether with the use of designated agency status from the outset, for both buyers and

sellers.

MYTH: The managing broker remains a dual agent even if the buyer and

seller are each represented by different designated agents in the broker’s

office.

This too is incorrect. Some other states with a designated agency provision in their laws

make the managing broker of the office a dual agent in this situation. There is no

national, standardized definition of designated agency. NAR, the “Internet,” and other

states may choose to define it in any way they wish, but their definition is neither binding

nor (in this case) applicable to Tennessee.

The designated agency provision in Tennessee’s law was drafted specifically to protect

the managing broker and avoid any unnecessary liability for the broker or the firm. That’s

the reason for the following provision: “A managing broker …shall not be considered a

dual agent if any individual licensee so appointed as designated agent in a transaction, by

specific appointment or by written company policy, does not represent interests of any

other party to the same transaction.” The law also states that there “shall be no

imputation of knowledge or information among or between clients, managing

broker and any designated agent(s) in a designated agency situation.”

MYTH: An office-wide agency policy is unnecessary. Each licensee should just

select the type of agency (or non-agency) relationship that works best for him

or her.

This is extremely dangerous from a legal standpoint. The possibilities for unintended

misrepresentations and conflicts of interest in this situation are almost endless. Consider

just one example:

Any traditional, non-designated agency relationship with a buyer or seller actually

obligates everyone in the office to represent that buyer or seller, whether the other

licensees in the office realize it or not. Let’s assume that one of the licensees in the office

has negotiated a listing agreement as a non-designated agent. Another licensee in the

office then tells a potential buyer that he/she is a facilitator in a transaction when in fact

the licensee unknowingly represents the seller whose property this buyer wants to

purchase. This is misrepresentation. [Even if it never gets to the point of a contract to

purchase, misrepresentations of agency status can occur simply in showing properties

when agency relationships are chosen at licensees’ individual discretion.]

If each of the licensees in the office simply “does his or her own thing” in regard to

agency, the managing broker and the licensees in that office are all risking legal problems

and their reputations unnecessarily. Every real estate office in Tennessee should have a

written, clear, and consistent agency policy for the entire office, with periodic

training for everyone to ensure that they understand and follow the policy.

MYTH: Licensees in Tennessee are still subject to the common law of agency.

Prior to 1996, application of the common law of agency – which embodies a set of

general principles rather than specific guidance – led to both licensee confusion and even

inconsistent rulings in various court cases in Tennessee. “Common law” represents the

accumulation of court cases across the nation, not all of which ever agree. Since decisions

in those cases have not always been consistent, clear answers to some licensee questions

about agency were impossible. Tennessee’s law, however, now specifies that it “shall

supersede common law to the extent common law is inconsistent with the provisions

of this part.”

Instead of a very general list of fiduciary duties to clients, Tennessee’s law was drafted

with a more specific list of duties to all parties, as well as a few specific duties to clients.

Also, in lieu of the accidental agency relationships so prevalent under common law,

Tennessee’s law ensures that these relationships are intentional, with all parties fully

informed and protected.

A major goal in supporting enactment of Tennessee’s agency law was to implement

agency by statute so that everyone can reference one set of guidelines for most situations.

TENNESSEE’S AGENCY LAW

SECTION BY SECTION

Creating an Agency Relationship

62-13-401. Creation.

A real estate licensee may provide real estate services to any party in a prospective

transaction, with or without an agency relationship to one (1) or more parties to the

transaction. Until such time as a licensee enters into a specific written agreement to

establish an agency relationship with one (1) or more parties to a transaction, such

licensee shall be considered a facilitator and shall not be considered an agent or advocate

of any party to the transaction. An agency or subagency relationship shall not be

assumed, implied or created without a written bilateral agreement that establishes the

terms and conditions of such agency or subagency relationship. The negotiation and

execution of either an exclusive agency listing agreement or an exclusive right to sell

listing agreement with a prospective seller shall establish an agency relationship with the

seller.

[Acts 1995, ch. 246, § 3; 1996, ch. 772, § 4; 2006, ch. 738, § 1.]

COMMENT: Before 1996, a real estate licensee could create an agency relationship

accidentally, by saying or doing something that led a buyer or seller to believe that the licensee

represented them. Now, to prevent an “accidental” or implied – or a relationship created without

the consent of both agent and client – Tennessee law provides that such a relationship cannot

be created or implied by word or action alone, but only by a specific written agency

agreement. A disclosure or confirmation form alone is not an agreement.

In some states, a real estate licensee may still become an agent of a buyer simply by

his/her conduct or by something that he or she says ...even accidentally. Again, this is NOT the

case in Tennessee. An actual written agency contract between a buyer or seller and the licensee

is required in order for the licensee to become that consumer’s agent.

With sellers, an Exclusive Right to Sell Listing agreement or an Exclusive Agency

Listing agreement automatically establishes an agency relationship with the seller. [As noted

previously, other types of listing agreements such as open listings may also establish an agency

relationship with the seller.]

With buyers, an Exclusive or Non-Exclusive Representation agreement must be signed

by both the licensee and the buyer in order for an agency relationship to be established. If a

licensee signs a disclosure form – such as a Confirmation of Agency Status – indicating that

he/she is a buyer’s agent, BUT the licensee has not yet negotiated a buyer representation

agreement with the buyer, then the licensee has just misrepresented his/her status ...in violation

of both Tennessee license law and the REALTOR

Code of Ethics.

The licensee’s commission may also be better protected when working with a buyer

under an actual buyer agency agreement that spells out the commission arrangements.

If NO Agency Agreement Is Signed…

62-13-102 (9) “Facilitator” means any licensee:

(A) Who assists one (1) or more parties to a transaction who has not entered into a

specific written agency agreement representing one (1) or more of the parties; or

(B) Whose specific written agency agreement provides that if the licensee or someone

associated with the licensee also represents another party to the same transaction, such

licensee shall be deemed to be a facilitator and not a dual agent; provided, that notice of

assumption of facilitator status is provided to the buyer and seller immediately upon such

assumption of facilitator status, to be confirmed in writing prior to execution of the

contract. A facilitator may advise either or both of the parties to a transaction but cannot

be considered a representative or advocate of either party. “Transaction broker” may be

used synonymously with, or in lieu of, “facilitator” as used in any disclosures, forms or

agreements under this chapter;...

COMMENT: “Facilitator” is every licensee’s status by default, in the absence of any

written bilateral agency agreement between the licensee and a consumer. “Facilitator” or

“transaction broker” is the status for any licensee acting as neither agent of the buyer nor agent

of the seller in a transaction. Simply put, a Facilitator is a non-agent.

This facilitator status doesn’t obligate or bind the licensee to represent either party.

Remember, however, that a licensee’s statement that he/she is a facilitator means that the

licensee has no agency relationship with EITHER party in the transaction. [One cannot be an

agent for the seller, for example, while simultaneously telling the buyer that he/she is a

facilitator!]

The Nature of the Agency Relationship

62-13-402. Limited agency.

(a) If a real estate licensee is engaged as an agent, such real estate licensee serves

as a limited agent retained to provide real estate services to a client. Such licensee shall

function as an intermediary in negotiations between the parties to a transaction unless

such parties negotiate directly.

(b) A real estate licensee shall owe all parties to a transaction the duties

enumerated in § 62-13-403. A licensee shall owe to such licensee’s client the duties

enumerated in § 62-13-404.

§§ 62-13-403 and 62-13-404 shall supersede any fiduciary or common law duties owed

by a licensee to such licensee’s client on January 1, 1996.

[Acts 1995, ch. 246, § 4.]

COMMENT: There are really two purposes behind this section. First, it defines the

agency relationship in real estate transactions as a “limited agency.” It’s not a boundless

authorization for the real estate licensee to operate on behalf of a consumer, as a power of

attorney might be.

The second purpose of this section is to emphasize that the duties to consumers and

clients in Tennessee’s agency law take precedence over the more general list of duties that have

been taught for several decades as part of the “common law” of agency.

A Licensee’s Duties To ALL Consumers (with or without an agency

relationship)

62-13-403. Duty owed to all parties.

A licensee who provides real estate services in a real estate transaction shall owe all

parties to such transaction the following duties, except as provided otherwise by § 62-13-

405, in addition to other duties specifically set forth in this chapter or the rules of the

commission:

(1) Diligently exercise reasonable skill and care in providing services to all parties

to the transaction;

(2) Disclose to each party to the transaction any adverse facts of which licensee

has actual notice or knowledge;

(3) Maintain for each party to a transaction the confidentiality of any information

obtained by a licensee prior to disclosure to all parties of a written agency or subagency

agreement entered into by the licensee to represent either or both of the parties in a

transaction. This duty of confidentiality extends to any information which the party

would reasonably expect to be held in confidence, except for information which the party

has authorized for disclosure, information required to be disclosed under this part, and

information otherwise required to be disclosed pursuant to this chapter. This duty

survives both the subsequent establishment of an agency relationship and the closing of

the transaction;

(4) Provide services to each party to the transaction with honesty and good faith;

(5) Disclose to each party to the transaction timely and accurate information

regarding market conditions that might affect such transaction only when such

information is available through public records and when such information is requested

by a party.

(6) Timely account for trust fund deposits and all other property received from

any party to the transaction; and

(7)(A) Not engage in self-dealing nor act on behalf of licensee’s immediate

family, or on behalf of any other individual, organization or business entity in which the

licensee has a personal interest without prior disclosure of such interest and the timely

written consent of all parties to the transaction; and

(B) Not recommend to any party to the transaction the use of services of another

individual, organization or business entity in which the licensee has an interest or from

whom the licensee may receive a referral fee or other compensation for the referral, other

than referrals to other licensees to provide real estate services under the Tennessee Real

Estate Broker License Act of 1973, without timely disclosing to the party who receives

the referral, the licensee’s interest in such referral or the fact that a referral fee may be

received.

[Acts 1995, ch. 246, § 5; 1996, ch. 772, §§ 5, 6.]

COMMENT: To clarify every licensee’s responsibilities in a transaction, Tennessee law

provides a clear list of duties by every licensee to any consumer with whom they are working

…regardless of any agency relationships. Tennessee’s agency law supersedes the “common law

of agency.” Rather than dealing with a list of (non-real-estate-specific) “fiduciary duties” that

changes dramatically whenever an agency relationship is created or changed, both licensees and

consumers can now look to one clear set of real-estate-specific guidelines.

The “adverse facts” that must be disclosed to all consumers are defined in Tennessee law

as “conditions or occurrences generally recognized by competent licensees that have negative

impact on the value of the real estate, significantly reduce the structural integrity of

improvements to real property or present a significant health risk to occupants of the property.”

Confidentiality is another important aspect of Tennessee agency law. The list of duties to

all consumers in Tennessee law includes every licensee’s duty to safeguard any confidential

information from a consumer with whom the licensee is working, conveyed prior to that

licensee’s disclosure of an agency relationship …to create a healthy “balance” between the

client’s right to know and a customer’s expectations that a confidential information will be kept

confidential.

The law strikes a fair balance between the client’s right to be fully informed of

everything by his/her agent and the consumer’s expectation (being less informed about agency

law) that confidential information that has been shared with that licensee

– even if that licensee

subsequently discloses that he or she is the agent of the other party in a transaction – will be kept

confidential. Anything of a sensitive nature that a consumer tells or reveals to a licensee, prior to

the licensee telling that consumer that the licensee is someone else’s agent, must still be held in

confidence!

A Licensee’s Duties To His/Her Client (once an agency relationship

has been established)

62-13-404. Duty owed to licensee’s client.

Any licensee who acts as an agent in a transaction regulated by the Tennessee Real Estate

Broker License Act of 1973 owes to such licensee’s client in that transaction the

following duties, to:

(1) Obey all lawful instructions of the client when such instructions are within the

scope of the agency agreement between licensee and licensee’s client;

(2) Be loyal to the interests of the client. A licensee must place the interests of the

client before all others in negotiation of a transaction and in other activities, except where

such loyalty duty would violate licensee’s duties to a customer under § 62-13-402 or a

licensee’s duties to another client in a dual agency; and

(3) (A) Unless the following duties are specifically and individually waived, in

writing by a client, a licensee shall assist the client by:

(i) Scheduling all property showings on behalf of the client;

(ii) Receiving all offers and counter offers and forwarding them promptly

to the client;

(iii) Answering any questions that the client may have in negotiation of a

successful purchase agreement within the scope of the licensee’s expertise; and

(iv) Advising the client as to whatever forms, procedures and steps are

needed after execution of the purchase agreement for a successful closing of the

transaction.

(B) Upon waiver of any of the duties in subdivision (3)(A), a consumer shall be

advised in writing by the consumer’s agent that the consumer may not expect or seek

assistance from any other licensees in the transaction for the performance of the duties in

subdivision (3)(A).

[Acts 1995, ch. 246, § 6; 1996, ch. 772, § 7; 2006, ch. 738, § 2.]

COMMENT: A somewhat shorter list of duties to clients is prescribed if an agency

relationship has been established. Understand, however, that the duties to all consumers take

precedence over the duties to one’s client, if a conflict exists between the two.

Section 62-13-404 was amended in 2006 to include items (3)(A) and (3)(B) because of

the need to specify what real estate services a consumer should reasonably expect from the

licensee with whom they are working.

Disclosing Agency (or Facilitator) Status

62-13-405. Written disclosure.

(a) If a licensee personally assists a prospective buyer or seller in the purchase or

sale of a property, and such buyer or seller is not represented by this or any other

licensee, the licensee shall verbally disclose to such buyer or seller the licensee’s

facilitator, agent, subagent or designated agent status in the transaction before any real

estate services are provided. Known adverse facts about a property must also be disclosed

under the Tennessee Residential Property Disclosure Act, title 66, chapter 5, part 2, but

licensees shall not be obligated to discover or disclose latent defects in a property or to

advise on matters outside the scope of their real estate license.

(b) The disclosure of agency status pursuant to subsection (a) must be confirmed

in writing with an unrepresented buyer prior to the preparation of an offer to purchase.

The disclosure of agency status must be confirmed in writing with an unrepresented seller

prior to execution of a listing agreement or presentation of an offer to purchase,

whichever comes first. Following delivery of the written disclosure, the licensee shall

obtain a signed receipt for such disclosure from the party to whom it was provided. The

signed receipt shall contain a statement acknowledging that the buyer or seller, as

applicable, was informed that any complaints alleging a violation or violations of § 62-

13-312 must be filed within the applicable statute of limitations for the violation set out

in § 62-13-313(e). The acknowledgment shall also include the address and telephone

number of the commission.

shall not be construed as, or be considered a substitute for, a written agreement to

establish an agency relationship between the broker and a party to a transaction as

referenced in § 62-13-406.

(d) Upon initial contact with any other licensee involved in the same prospective

transaction, the licensee shall immediately disclose such licensee’s role in the transaction,

including any agency relationship, to this other licensee. If the licensee’s role changes at

any subsequent date, such licensee shall immediately notify any other licensees and any

parties to the transaction relative to such change in status.

(e) Real estate transactions involving the transfer or lease of commercial

properties, the transfer of property by public auction, the transfer of residential properties

of more than four (4) units, or the lease or rental of residential properties shall not be

subject to the disclosure requirements of §§ 62-13-403, 62-13-404 and this section.

[Acts 1995, ch. 246, § 7; 1996, ch. 772, §§ 8-11; 2006, ch. 776, § 3.]

COMMENT: Many licensees assume that, because the disclosure doesn’t have to be

confirmed until the time of contract, that the disclosure can be safely delayed until then. This is

incorrect!

In Tennessee, BEFORE providing any real estate brokerage services to a consumer

(e.g., showing property), every licensee must disclose his/her agency or facilitator status in

the transaction to that consumer.

This first disclosure of agency status before any services are provided can be either verbal

or written ...but it MUST be made prior to providing any real estate services! It must then be

confirmed in writing prior to preparation of an offer. This early disclosure is much more in

keeping with the REALTOR

Code of Ethics requirement, and it should reduce the number of

arbitrations and procuring cause disputes that result from late disclosures.

Note also that the disclosure of agency status does not simply refer to the disclosures that

licensees make to consumers. The law also requires disclosure of agency status to other licensees

in the same prospective transaction.

This section of agency law also requires prompt disclosure of any and every change in

agency status. The Tennessee Real Estate Commission has also said that any such change in

status must be documented when it occurs, so that a Commission auditor can verify that in

fact the change was disclosed.

Designated Agency

62-13-406. Designated broker – Managing broker.

(a) A licensee entering into a written agreement to represent any party in the

buying, selling, exchanging, renting or leasing of real estate may be appointed as the

designated and individual agent of this party by the licensee’s managing broker, to the

exclusion of all other licensees employed by or affiliated with such managing broker. A

managing broker providing services under the provisions of the Tennessee Real Estate

Broker License Act of 1973 shall not be considered a dual agent if any individual

licensee so appointed as designated agent in a transaction, by specific appointment or by

written company policy, does not represent interests of any other party to the same

transaction.

(b) The use of a designated agency does not abolish or diminish the managing

broker’s contractual rights to any listing or advertising agreement between the firm and a

property owner, nor does this section lessen the managing broker’s responsibilities to

ensure that all licensees affiliated with or employed by such broker conduct business in

accordance with appropriate laws, rules and regulations.

clients, managing broker and any designated agent(s) in a designated agency situation.

[Acts 1995, ch. 246, § 8.]

COMMENT: With “designated agency” a managing broker may designate – by written

office policy or by specific instruction – an individual licensee to be the individual agent of a

seller or buyer client, to the exclusion of all other licensees in the same firm …to preserve the

consumer’s right to an agent/advocate even with in-house sales.

This feature of the agency law is, for many, one of its most positive benefits. Much of

the industry has never fully understood the fact that, under the common law of agency, the office

(not the individual) is considered the agent, making ALL licensees in that office agents of any

buyer-client or seller-client of anybody in the office! Dual agency is therefore created and has to

be disclosed to all parties even when a transaction involves two different licensees with the same

firm.

A firm’s use of designated agency can greatly reduce occurrences of dual agency,

disclosed or undisclosed. Use of this option, nevertheless, should probably be accompanied

by an office policy that prescribes, for example, what kinds of information may or may not

be shared among sales associates.

Limitations on Consumer Liability

62-13-407. Liability.

A client or other party to whom a real estate licensee provides services as an agent,

subagent or facilitator shall not be liable for damages for the misrepresentations of the

licensee arising out of such licensee’s services unless the client or party knew, or had

reason to know, of the misrepresentation. This section shall not limit the liability of a

licensee’s managing broker for the misrepresentations of the managing broker’s

licensees.

[Acts 1995, ch. 246, § 9; 1996, ch. 772, § 12.]

COMMENT: A client’s liability for his/her agent is limited to those statements or

actions (by the agent) for which the client/consumer may be directly responsible as well as any

misrepresentations by an agent that the client knew about but did not correct.

This provision removes most of the drawbacks of an agency relationship for the

consumer entering into an agency agreement with a licensee. A consumer does not have to

accept unlimited liability or greater exposure if they become a real estate licensee’s client. This

provision may also “control” a broker’s liability for the unintended actions or statements of any

subagents, if subagency is even offered.

Tennessee Law versus Common Law

62-13-408. Application.

This part shall supersede common law to the extent common law is inconsistent with the

provisions of this part.

[Acts 1995, ch. 246, § 10.]

COMMENT: Expanding upon the same idea in section 62-13-402(c), this conclusion of

the agency law underscores the point that Tennessee law supersedes the common law of agency,

taking precedence over common law if a conflict exists between this legislation and common law

(especially since “common law” has not always been consistent when applied to real estate

relationships).