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Types of Agents
You are about to enter into the confusing world of "real
estate agency". Many real estate agents are as confused about "agency"
as buyers and sellers are. Many agents, buyers, and sellers take the
attitude that agency doesn't matter and that buyers want to buy and
sellers want to sell so don't confuse me with this agency stuff.
Well, if you really want to be protected when you buy
your next home, you had better become knowledgeable about agency. If you
don't, you may very well end up, unknowingly, in the wrong relationship
with a real estate licensee and end up paying too much for a home,
buying the wrong home, getting the wrong financing, or end up with
unexpected repairs and surprises.
In November, 1986, the National Association of Realtors®
published a booklet titled: "Who Is My Client? - A Realtors® Guide to
Compliance with the Law of Agency". This guide still stands today as one
of the most comprehensive and accurate sources of information concerning
real estate agency. Our discussion of agency will begin with quotes from
this guide. The following discussion is detailed and involved and you
won't read or hear about any of this stuff probably anywhere else. But,
if you really want an understanding of how real estate agency should
work, you need to take the time to read and understand this material.
From the PREFACE: "The legal concept of "Agency"
with which this booklet is concerned is beyond question the most
fundamental of all the legal concepts applicable to the real estate
profession and professional. It is the very nature and function of the
real estate broker, appraiser and manager to be an agent. The law of
agency literally defines the "species" and gives real estate
practitioners their identity."
From Section II. WHAT IS AN AGENT?: "An agency
relationship is defined under the common law as follows:" (1) Agency is
the fiduciary relationship which results from the manifestation of
consent by one person to another that the other shall act on his behalf
and subject to his control, and consent by the other so to act.
(2) The one for whom action is taken is the principal.
(3) The one who is to act is the agent.
From Section III. HOW ARE AGENCY RELATIONSHIPS
CREATED?:
"Agency relationships are created when the principal (the buyer or
seller) delegates authority to the agent to perform acts on behalf of
the principal and the agent consents to the delegation. An agency
relationship does not require a writing, a contract, nor compensation
paid by the principal to the agent. An agency can also be created by the
conduct of the parties toward each other regardless of what label the
parties use, or do not use, to describe their relationship. Thus, agency
relationships can result unintentionally, accidentally, or
inadvertently."
The basic agency choices in New York State, and most
other states as well, are: Seller Agent, Buyer Agent and Dual Agent.
These are pretty self-explanatory and the definitions in
the NY State Disclosure Form are fairly clear and understandable. We
have made copies of these available elsewhere on our web site.
A Seller Agent represents and owes client level services
to sellers, works "for" sellers and works "with" buyers as customers,
not clients.
A Buyer Agent represents and owes client level services
to buyers, works "for" buyers and works "with" sellers as customers, not
clients.
Dual Agency, however, becomes less clear. Many agents
will have you believe that dual agency is in the best interest of buyers
and sellers. Nothing could be further from the truth. Dual Agency is in
the best interest of the agent and the real estate company, not the
seller and certainly not the buyer. Because of the confusion surrounding
the concept of Dual Agency and the latest option in New York State,
"Designated Agency", we have devoted a separate section to a discussion
of these.
New York State currently adds another agency option
called Broker's Agent. A new disclosure form is in the works and I
suspect that Broker's Agent will no longer be on it. Very few seem to
really understand what a Broker's Agent is or isn't and to compound the
confusion there is no place on the current disclosure form to indicate
that an agent is acting as a Broker's Agent.
A Seller's Agent or a Buyer's Agent can hire Sub-agents
or Broker's Agents to assist them in representing their respective
clients. The difference is that Sub-agents are agents of the Seller or
Buyer, whereas, Broker's Agents are agents of the Broker. The
significance has to do with "vicarious" liability for for the actions of
the Sub-agents or Broker’s Agents. With Sub-agents, the Seller or Buyer
are “vicariously” liable for the actions of the Sub-agents. With
Broker’s Agents, the Broker is “vicariously” liable for the actions of
the Broker’s Agents.
What is “vicarious liability:? It means that a seller or
a buyer would be at least partially liable for misstatements or wrongful
actions of Sub-agents hired to assist them in selling a home or buying a
home. If the agent making the misstatements or wrongful actions were a
Brok3er’s Agent, the Broker is responsible, not the Seller or Buyer. It
is in a seller’s or buyer’s best interest to have Broker’s Agents, not
Sub-agents, assisting in the process of selling or procuring property in
order to avoid potential liability for the actions of agents they don’t
even know.
Currently, when a property is placed in the MLS,
(Multiple Listing Service), there is a blanket offer of Sub-agency to
all members of the MLS. Supposedly, blanket Sub-agency was eliminated
from most MLS systems, however, in reality it still exists because many
agents continue to operate as "implied" Sub-agents.
An agent showing a home can be a Seller's Agent (this is
the agent who took the listing and the buyer would be considered their
customer as opposed to being a client), a Buyer's Agent (the buyer would
be a client of the Buyer's Agent), a Broker's Agent, a Dual Agent (if
the buyer started out as a buyer client of the agent and the listing is
an in-house listing), or a Seller's Sub-agent. As no one operates as a
Broker's Agent (and there is no place on the disclosure form to indicate
that one is a Broker's Agent), if the agent showing the home isn't the
listing agent, a Buyer's Agent or Dual Agent, the agent is an "implied"
Seller's Sub-agent due to their actions. Most seller's don't realize
that they are therefore responsible for and have "vicarious" liability
for the wrongful actions and misstatements of any agent who shows their
property as a Seller Sub-agent. Interesting situation isn't it?
Some states have other agency, and non-agency, options.
Florida, for example, has a "non-agent" status, where the real estate
"licensee" isn't an agent and owes no client level services to a seller
or a buyer. Oklahoma is actually in the process of eliminating the
ability of a real estate licensee to operate as an agent. A law is in
the works to make it illegal for one to act as an agent in a real estate
transaction. Talk about extremes. Other options around the country
include, "transactional broker" and "facilitator". These have different
meanings in different states. If you are considering buying in a state
other than NY, get a hold of any agency disclosure forms that are in use
to see how they define these particular forms of agency or non-agency
status.
Any way that you look at these, they are "watered gown”
forms of representation, promoted solely for the benefit of the real
estate industry, and not the consumer. Any changes in the common law of
agency as it pertains to real estate is real estate industry driven in
the name of consumer protection, but the opposite is actually reality.
The motives are reduction of risks and liability and in the process
responsibility of on the part of the real estate industry to consumers.
Yet agents till want the full compensation that they have been used to
getting. Hopefully more and more consumers will catch on and seek true
representation whenever it is available to them.
Your course of action should be to seek out true common
law of agency representation. Seek out those agents who remain true to
common law of agency fiduciary duties and true client level services.
Avoid at all costs any relationship which results in less than full
representation by the agent.
“A real estate broker should have one and only one principal per
transaction.”
From Section IX. THE ALTERNATIVES TO DUAL AGENCY:
SINGLE AGENCY OR SUBAGENCY: "As a practical matter, real estate brokers
should avoid dual agency relationships. Creation of a lawful disclosed
dual agency relationship is so difficult that a real estate broker who
attempts to conduct his day-to-day affairs as a disclosed dual agent is
playing the professional equivalent of Russian roulette. The obvious
alternative to dual agency is single agency: A real estate broker should
have one and only one principal per transaction; he should loyally and
diligently pursue the legitimate interests of his principal; and he
should scrupulously avoid accepting or exercising any authority on
behalf of the other party to the transaction."
From Section VIII. Part D. The Seller's Agent
Leads the Buyer to Believe the Agent Is Representing the Buyer: "Real
estate brokers representing sellers cannot perform their obligation to
procure a ready, willing, and able buyer for their client's property
unless they seek out qualified buyers. A real estate transaction by
definition requires a seller and a buyer. Thus, it is perfectly natural
and necessary for real estate brokers representing sellers to do
everything they can to attract buyers. Buyers are attracted to brokers
with whom they feel comfortable and are able to develop rapport and
communication. This is no surprise because this is the essence of
selling."
"Too often, however, brokers in their zeal to arrange a
sale satisfactory to both parties encourage the buyer to believe that
the broker is working "for" him rather than "with" him. Simply put, the
broker allows or even induces the buyer to believe that he is the
broker's client, when, in fact, the broker has already established a
client relationship with the seller by executing a listing agreement or
by acting as a subagent of a listing broker."
"The broker who permits the buyer to believe he is
acting as the buyer's agent when the broker has already formed an agency
relationship with the seller is a classic example of the "accidental"
dual agent. But he is a dual agent, nevertheless. The accidental dual
agent creates an express agency with the seller by executing a listing
agreement, and he creates an implied agency with the buyer by allowing
him to believe the broker is acting on his behalf."
Examples of words or phrases often used by real estate
brokers that can create implied agency relationships with buyers are the
following:
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"I'll take care of everything. I'll handle the sale
for you."
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"This listing has been on the market for six months.
That tells me it's overpriced. Let's offer $80,000 and see what they
say."
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"Trust me. I'm sure the seller won't counter at that
price."
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"If the seller is going to insist on a full price
sale, I think you should tell him no. Then we can try an offer on
the Maple Street house your wife liked so much. I'm sure those
sellers will be more realistic."
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"If they insist on the full $100,000, I'll remind
them that the furnace is 15 years old and the carpet if fraying.
That should justify at least a $3,000 reduction."
OK, enough of the detailed stuff. What does all this
mean to homebuyers? Simply put: " A real estate broker should have one
and only one principal per transaction ". In other words, if you want
your interest looked out for, the agent you are working with cannot
represent sellers of homes that you might be interested in. Otherwise
they will encourage you to let them be a dual agent. If you consent to
such an arrangement, you give up their undivided loyalty and full
disclosure of all material facts concerning the seller and the property
you wish to buy.
Any agent or broker who truly had your interest in mind and found
themselves in the conflict of already representing the seller of a home
you are interested in, should refer you to another agent with another
company to represent you. They generally don't because they would lose
out on both sides of the commission split. Dual agency is dollar driven.
If you have stayed with me up to this point and have digested the
excerpts from the National Association of Realtor's® own publication for
it's members, it becomes very clear that dual agency is very risky for a
broker to practice. Financial incentives are the only reason that such
practices have proliferated in recent years. Many firms even offer a
higher commission split to their agents who sell in-house listings.
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