Last week we began an explanation of agency and discussed three types:
- Seller agency, best demonstrated by the relationship that exists between a seller and his listing agent who is legally and ethically bound to represent the best interests of the seller;
- Sub agency; an implied contract between the listing agent and other agents who show or otherwise participate in the marketing of that listing. Sub agents must also represent the best interests of the seller even though they are working with a buyer to identify suitable properties, but not under contract to that buyer;
- Buyer agency; a contract (written or verbal) wherein an agent agrees to assist a buyer in locating a home, and represent that buyer's best interests in negotiating a purchase, and closing on a home.
Yet another type of agency is usually referred to as non-agency or no agency. Perhaps facilitation would be a better word. The agent who is working with the buyer identifies properties, arranges for showing and shows properties, informs the buyer about the process, assists in the mechanical preparation of offers and counter-offers (without suggesting strategies or negotiating on behalf of the buyer) and facilitates inspections and other transaction requirements such as obtaining insurance, identifying utility companies and so forth. This option is not yet legal in some states (Massachusetts for example) and is emerging as a new concept in other states. It will probably soon replace sub agency everywhere.
Non-agency might also be an option on the seller's side, where the agent would agree to write and place ads, enter the property into multiple listing, promote it to other agents, set up and monitor showings, present offers (with out negotiating or advising on the handling of same) and do the legwork leading to the closing such as scheduling inspections, obtaining a copy of the deed, and so forth. Where this option currently exists, it is usually provided by companies that advertise themselves as tools for FSBOs (for sale by owner) rather than as traditional real estate agents.
When buyer agency first became a force in real estate, many agents who practiced it worked in offices that were exclusively buyer agencies. Most offices continued to practice only seller and sub agency, others did not cooperate (i.e. share commissions) with buyer agents, and a few would not even allow their listings to be shown by buyer agents.
Today most offices offer both buyer and seller agency and, where it is still used, sub agency, so it is not unusual for a buyer client of one agent to buy a home listed by another agent in the same office. This is called 'dual agency' because the office or agency is representing both sides of the transaction. This dual allegiance should be fully transparent and disclosed to both buyer and seller, but is neither unethical nor illegal.
And, it is, of course, common for a single agent, (let's say Ralph, an agent with Pleasant City Real Estate,) to list a home (Bob Smith's) and thus represent Bob as a seller agent; assist Dotty and Carl Brown in locating a home (acting as a subagent to the seller of every home he shows them;) and contract to represent Hilary Jones as a buyer agent throughout her home buying experience. Three separate buyers, three separate transactions, so Ralph can certainly perform all three roles independently of each other.
Sometimes transactions don't always stay separate. If Carl and Dotty Brown decide to make an offer on Bob Smith's house, Ralph as agent for both of them, has a very clear course of action. He is Bob's agent but the Brown's are merely customers, not clients. His fiduciary obligation is to Bob and his seller's best interests should drive everything that Ralph does in trying to put together the deal.
But what happens if Hilary Jones falls in love with Bob Smith's house and wants to buy it? Can Ralph represent Hilary as a buyer agent and represent Bob as a seller agent, in other words, act as a dual agent?
Certainly Bob is ethically, and probably legally, required to divulge to both of his clients the existing relationships. Hilary is likely aware of Ralph's relationship as listing (seller's agent); his name is on the listing sheet and probably on a great big sign in front of the house. Bob, however, has no way of knowing that Hilary is a represented buyer. Once the dual agency is disclosed and with the consent of buyer and seller, Ralph clearly must cease advocating for either of his clients and become a facilitator. Even better, if the size and structure of the office permits it, Ralph should step aside and let his manager and/or another agent in the office represent at least one of his two clients, at least during the negotiation process.
Properly explained, dual agent and dual agency are actually pretty simple concepts, and they are not subjects with which buyers and sellers need to be particularly concerned. When and if dual relationships occur, if the situation is made fully transparent to all participants and handled in straightforward manner, there should never be a problem.
While all three types of agency ' buyer, seller, and sub ' require a certain standard of conduct on the part of the agent, the customer or client has responsibilities too.
A seller, for example, has an obligation to level with his agent. If there is a serious flaw in the property, the seller must disclose it to the agent. The agent may have a way of actually fixing the problem or of marketing the property to minimize the negative impact. Some 'flaws' such as a murder or suicide in the house (usually called stigmas) may not need to be disclosed to buyers, but if the flaw is one that must be revealed, the agent can end up in serious legal difficulties if he is suspected of withholding negative information. In some states it is the agent who is sued for non-disclosure, not the seller, and lack of knowledge may not be a defense. Agents are frequently viewed as 'experts' who should be aware of or make an effort to determine such flaws exist.
The seller must also level about relevant financial or personal information. If a seller is facing bankruptcy or foreclosure of the property, the agent must be told. In either case the seller could lose either control or actual ownership of the property, delaying or negating a pending sale, leaving the agent holding the bag for marketing expenses, and possibly making him vulnerable to legal action by a disgruntled buyer. If a sale is being forced by divorce or illness, the agent should be told if there is any chance those conditions may impact on showing the property or completing the sale in a timely manner.
A buyer also owes his agent the truth, in this case about finances, timing, or any other situation that may impact the home purchase (although, a subagent may have to share that information with the seller if it could affect the seller's best interests.)
A buyer also owes his agent loyalty. There is no reason to work with more than one agent in a market area and it is very unfair to every agent involved. In fact, with buyer agency, the buyer is usually legally obligated to work only with his agent and if he buys a property directly from a FSBO or through another agent he may actually be forced to pay his agent a commission.
When you interview an agent to either sell your house or help you find one, ask more than the usual questions. How many houses an agent has sold, how much he will advertise the house, or what commission he will charge are not nearly as important as understanding how or even if you will be represented. Make sure you understand how the agent views his responsibility to you and, just as important, what he expects of you in return. A good long talk about your legal and working relationship will go a long way toward preventing problems and misunderstandings and ensure a successful transaction.