Are You My Realtor? Beyond Dual Agency.
Homebuyers and sellers looking to negotiate the best commission rate, obtain the highest level of service, and protect their legal rights in the event of a dispute can start off on the right foot by making sure they understand the form of representation their broker or agent is providing.
Consumers may assume that, like a lawyer, a real estate agent always represents their interests and their interests alone. But the rules governing the agency relationships between consumers, real estate brokers and their agents vary from state to state, and have been completely rewritten in the last 25 years.
Laws in most states allow real estate agents to “double dip,” representing both the buyer and seller in the same transaction without owing either party their undivided loyalty. Licensees in 25 states are now permitted to provide services to one or both parties as non-agency “facilitators” or “transaction brokers,” owing limited or no fiduciary duties to act in their clients’ best interests.
Depending on where they live, buyers and sellers may receive services from Realtors who are acting in an agency capacity as sub-agents, single agents, disclosed dual agents, or designated agents. Or they may have the option of working with non-agency transaction brokers, facilitators or intermediaries.
Many states also allow brokers to provide limited services to unrepresented buyers as “customers” rather than clients. In theory, providing consumers with a range of options for working with real estate brokers and their agents gives buyers and sellers flexibility to choose the form of representation that works best for their situation.
Experienced buyers or sellers, for example, may be comfortable working with a transaction broker or a “dual agent” who doesn’t owe them loyalty — especially if that helps them negotiate a reduced commission rate.
But consumers who don’t understand their agency relationship with their broker or agent may be at a disadvantage when searching for properties, marketing their home, or negotiating a sale — and may be more likely to blame their agent if they’re not happy with outcome of a transaction.
Buyers and sellers should insist at “the first substantial contact” that brokers disclose whether they will represent their financial interests at all stages.
If not, the group advises, consumers should ask whether the broker will represent the financial interests of the other party, or simply serve as a facilitator or transaction broker.
In general, consumer advocates warn, buyers and sellers alike rely on their brokers and agents to put their clients’ interests first. When brokers or agents owe limited or no fiduciary duties to their clients, buyers and sellers may have little or no legal recourse if they get bad advice or are victims of incompetence. Transaction brokers, facilitators and intermediaries are largely immune to claims of professional negligence.
Today, most states — Florida being the notable exception — require real estate brokers and agents to disclose agency relationships, including who they are representing and what duties they owe their clients.
(In Florida, licensees are presumed to be operating as transaction brokers, and aren’t required to provide agency disclosures unless they intend to represent consumers as singe agents.) But it’s difficult to gauge the effectiveness of disclosures. Most states require that disclosures be presented in writing, but a few allow brokers to provide spoken explanations.
Most states require that agency disclosures be provided early in the process, before confidential information is shared. But some allow agency disclosures to be provided in purchase contracts, after most of the negotiating has already been concluded.
One in five homebuyers surveyed by the National Association of Realtors from 2001 through 2006 reported they had not received written agency disclosures, and 17.8 percent weren’t sure whether they had or not.
One study that analyzed MLS data from 1,334 Utah home sales in 1999 and 2000 found that the impact of agency representation varied by property size.
For small- to medium-sized homes, buyers represented by their own agents paid about 2 percent less then those who were represented by the listing agent, or who were unrepresented “customers” of the listing agent. But the study found that the benefit of working with a buyer’s agent could easily be canceled out by generous commission split offers.
For small- to medium-sized homes, a 1 percentage point increase in the buyer’s agent commission was associated with a 2.9 percent increase in the average sales price, or $3,819.
“Although buyers do not appear to be any worse off by employing a buyer’s agent from the same firm as the listing agent’s, the same argument does not hold for sellers,” researchers Joachim Zietz and Bobby Newsome concluded. While buyers never paid more if they worked with a buyer’s agent acting as a designated agent of the listing broker, the study found an interesting effect for sellers: Sellers of medium- to large-size properties agreed to larger price reductions, averaging 3.7 percent, when the buyer was represented by a designated agent. Â They theorized that listing agents might be more likely to pressure sellers to agree to a price reduction if an offer was coming from a buyer represented by another agent at their firm.
A study of Atlanta home sales from 1989-91 showed that compared to buyers who relied on sub-agents, buyers represented by their own agent paid 31 percent less in closing costs including real estate commission, loan origination fees, loan discount points, and other fees. Sellers’ closing costs in those instances increased by 10 percent.
That study found a significant effect on buyers’ closing costs for homes in the upper price bracket, but not for lower-price-bracket sales. In addition, the study found sellers’ closing costs were significantly higher for homes in the lower price bracket, but that there was only a moderate effect for more costly homes.
What A Buyer’s Agent Will Do For You:
Information & Counseling
- Explain the forms of agency available to you and explain how different relationships may affect the level and type of service a Buyer may receive from a real estate agent.
- Offer to enter into a written Agency Agreement with the Buyer. The agreement will include fee structure and payment method and the responsibilities of both parties.
- Pledge absolute confidentiality to a Buyer when representing him/her.
- Counsel the Buyer regarding his/her financial qualifications and assist the Buyer in finding and working with mortgage lenders.
Searching For A Property
- Discuss preferences in size, areas, styles, age, floor plans, and develop a property profile.
- Search the entire real estate market, including the Multiple Listing Service (MLS), properties for sale by owners, short sales, foreclosures, custom builders, and upcoming developments.
- Provide information and insight about communities
- Unbiased assessment of the pros and cons of each property
- Inform the Buyer about any defects or problems he/she has observed or discovered regarding the property.
- Prepare a comparative market analysis, to determine the property’s fair market value.
- Explain the choices available in each section of an offer to purchase and explain the alternatives available to the Buyer.
- Advise the Buyer to seek legal counsel where appropriate.
- Prepare the offer to purchase in a manner which will protect the Buyers interest. Will provide proper disclosures regarding agency representation and any other matters as required by law.
- Develop negotiation strategies with the Buyer, including pre-set limits on key points of negotiation when the Buyer wishes to do so.
- Counsel the Buyer regarding the time requirements in the contract and encourage the Buyer to have professional inspectors inspect the property if the contract is accepted.
After The Offer To Purchase Is Accepted
- Will counsel the Buyer about home inspections, and provide the names of real estate inspectors. Will encourage the Buyer to be present during inspections.
- Will explain options available to the Buyer regarding items in the inspection report.
- Where appropriate, will notify the Seller or the Seller’s Agent in writing of inspectors’ findings and the Buyers choice of any options available to the Buyer.
- Assist in locating a mortgage and property insurance
- Maintain contact with the Title Company and Mortgage Company to insure that the Buyers interests are being protected.
- Will review the settlement statement with the Buyer at or before closing.
- Will attend the closing with the Buyer and be prepared to answer questions the Buyer may have.
Assist with temporary housing alternatives and movers