Representing Buyers

Once Upon a Time, the National Association of Realtors ®, a mere yet mighty trade association, ruled its members with an iron grip. These members were not called Serfs ®. They were called Realtors ®.

It promulgated an impressive array of rules and regulations - one of which provided that should any Realtor ® use the Multiple Listing Service to locate a home for a buyer, that Realtor ® became the sub-agent of the seller!

An unintended consequence was that Realtors ® who had never met the seller sometimes made unwise representations regarding the home, such as: "This place is a real cream puff". Under Common Law principles of agency going back to a time when there were real serfs such comments were attributable to the sellers. I suspect that the volume of litigation originating out of home purchases due to sub-agents is second only to the volume generated by misrepresentations by sellers themselves.

This concept of "subagency" has been discredited. That said, please bear in mind that no concept has universal acceptance or rejection. So you might still run across someone who practices sub-agency and who also believes that fluoride is a communist conspiracy.

Another result of this rule (and I have never determined whether it was intended) was that the buyer was essentially unrepresented.

Over the course of time solons have enacted laws that effectively supersede this rule. For example, in 1986 California enacted the Agency Relationships in Residential Real Property Transactions Law (reference Fiduciary Duty), which provides that in transactions involving the sale of one to four units, one of which is to be owner occupied, the listing and selling (a curiously inappropriate reference to the agent representing the buyer) agents must provide a written disclosure, in statutory format, to the principals. The disclosure is to describe the duties owing to the principals from the Seller's Agent, the Buyer's Agent, and Agent Representing Both Seller and Buyer.

In California the BROKERAGE owes to YOU a Fiduciary duty of utmost care, integrity, honest and loyalty .... FIDUCIARY. UTMOST. LOYALTY. Take note, the BROKERAGE owes the duty, as do all of those acting in the name of the brokerage. If Generic Brokerage represents the seller, then Bob and Carol and Ted and Alice, all of whom work at Generic Brokerage, represent the seller. So if Bob is the listing agent and Alice represents YOU, then Generic Brokerage is acting as a Dual Agent.

If you are involved in litigating a $100,000 dispute, would it be acceptable to you if Generic Law Firm represented both you and the defendant? Of course not. $100,000 is real money. Well ..... what if Generic Real Estate Brokerage represents the seller. Would it be acceptable to you if it also represented you? Or is $1,000,000 not real money?

Of particular interest is a section which provides that payment of compensation to an agent by the seller or buyer is not necessarily determinative of a particular agency relationship between an agent and the seller or buyer. Therefore in any given transaction the fact that the listing agent splits the commission with the buyer's agent would not disturb that buyer agent's fiduciary relationship with the buyer.

Normally when one retains a professional like a physician or attorney, one expects to pay more if the professional is more experienced. Well, the one bright spot in Reatltors' convoluted compensation mechanism is that the seller, and the buyer, may retain the very best or the least gifted - for the same price!

Nevertheless I have found through my discussion with prospective clients, through my teaching, and even through browsing the internet, that confusion persists in the consumer's mind about the definition of a buyer agent.

Part of the confusion is due to articles which appear in the national press or in real estate books that originate in jurisdictions which do not have legislation similar to the California statutes. This explains why one continues to hear and to read that "home buyers do not have an agent". Indeed that situation persists in some states.

Part of the confusion is also due to the emergence of exclusive buyer brokers - brokers who always represent buyers and who do not accept listings.

So there are, in California at least, three varieties, if you will, of buyer agents: First, brokerages that represents buyers, exclusively, in all transactions; Second, brokerages that represent buyers, exclusively, in some transactions (and sellers, exclusively, in other transactions); and, Third, brokerages who represents buyers AND sellers in the same transaction. Since we are legally fiduciaries, then "dual agency" is an oxymoron.

If this is not confusing enough, take a look at the Field case discussed in the Fiduciary Duty.


AGREEMENTS WITH BROKERS

By law, agreements with brokers to list your home must be in writing.

Curiously, there is no such requirement for buyers. I believe that if buyers and their brokers are to elevate their relationship to that which sellers enjoy with their brokers, a necessary first step is the execution of a written agreement with the brokerage (not with the individual licensee). What I advise is that the initial period be for a short term, or, that either party be able to terminate the agreement upon three, four, five days notice. The intent of a writing is not to create an umbilical relationship, but to clothe the relationship of principal and agent in proper attire.

Caveat: In any such agreement pay very, very close attention to any clause that commits you to paying an advance or loyalty fee. I do not use nor do I recommend them. In California, the Department of Real Estate must approve the language.


Copyright ©1996 through current year, Leopold A Rodriguez
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