Probably one of the most confusing areas in real estate
transactions is understanding whom an agent represents,
the buyer, the seller or both.
Many
people pay too little attention to this or do not realize
its importance. For example, you walk into an open house
hosted by a very friendly agent. The host agent is not
the same one whose name is on the sign in front of the
house. The agent shows you around, you like the house
and you decide to write an offer. Who is the agent representing?
To whom does this agent’s loyalty belong, you or
the seller? Is it both? How can an agent be loyal to both
a buyer and seller?
The
reason for the confusion has to do with an ever changing
history in custom and practice in how agency relationships
are defined. Let’s start with some simple definitions.
Under
the California Civil Code, an Agent is one who
represents another, called a principal, in dealings with
third parties. In California real estate agents work under
one of two licenses, a broker license or a salesperson’s
license which allows agents to sell real estate. The Broker
License requires more education and/or experience
and allows an agent to work independently as agent for
either buyers or sellers. An agent with a salesperson
license must work under the supervision of a broker. Some
brokers choose to affiliate with other brokers as salespersons
or broker associates and work under the license of the
supervising broker. A Realtor is a member of a
professional organization that promotes real estate issues,
provides education, sets standards for its members, etc.
One does not have to be a Realtor to be an agent.
Now,
an agents duty to a principal (you as the buyer or seller)
is of utmost importance. It is a “fiduciary”
relationship. This means the agent owes his/her principal
a duty of the utmost care integrity, honesty and loyalty.
By law if you are involved in a listing, purchase, sale,
exchange, or lease of over one year involving a one to
four unit dwelling in California it must be disclosed
to you the nature of agency relationships. This is usually
done with preprinted forms. In addition, when an offer
is made, it must be confirmed in writing by you, as buyer
or seller, which relationship applies to you.
When
a seller lists a house, the agent with the listing now
represents the seller. Most consumers do not fully realize
that a listing to sell a house is a contract between a
seller and the broker for whom the agent works, not the
sales agent. (Unless of course the sales agent is the
broker.) Therefore the broker and all the agents of that
broker by definition represent the seller.
How does an agent come to represent a buyer? If an agent
is not representing the seller, then can agent can represent
the buyer. In some cases this can be formalized in a buyer
broker contract. This obligates a buyer to work with a
particular agent who represents the buyer, and it obligates
the agent to work on the buyer's behalf.
As
a consumer it is usually in a buyer’s best interest
to interview several agents, find one that is compatible
and has the expertise needed, and work with that agent
exclusively as a buyer’s agent. The very best agents
will work hard on a client’s behalf, but they also
want to know they will get paid for their work.
Dual
agency is created when an agent represents both a buyer
and a seller. This can happen in three basic ways: (1)
a listing agent finds a buyer, (2) another agent working
for the same broker as the listing agent finds a buyer,
or (3) an agent representing a buyer sells one of his/her
broker’s listings to that buyer.
There
is a good deal of discussion within the real estate industry
about the ethics and propriety of dual agency. It is perfectly
legal (check with your state regulations) provided it
is disclosed. Often an agent who is a dual agent earns
a larger commission since there is only one agent involved.
Some agents feel that as long as they are fully open and
honest with all parties, they are meeting their fiduciary
duties to both buyer and seller. These agents often describe
their role as a facilitator, not taking sides.
I
believe that dual agency is like walking on an extremely
thin tightrope. I prefer to avoid dual agency when possible.
I believe when I represent a seller it is my duty to market
the home and obtain the best possible terms for the seller;
for a buyer it’s the opposite. Buyers rightly rely
on their agent to find them the best deal possible. To
me this creates an inherent conflict of interest in a
dual agency.
If
you find yourself working with a dual agent be sure you
understand how the agent sees his or her role and you
feel comfortable with it. If not, find another agent to
represent you on your side.
When
everyone knows who is looking out for whom, all parties
know where they stand and have the have best chance for
mutual success.
