Understanding Agency Relationships Between Real Estate Clients
and Customers
You'd probably wonder what agency relationships might have to do
with you, regarding buying or selling real estate. Most people
are unaware of the importance of these types of relationships,
unless they do a lot of buying and selling of real estate and
have become educated in the importance of knowing what side your
agent is on. Yours or theirs?
In a traditional real estate setting here in Michigan
(especially up here in the more northern areas), most agents are
representing the seller and NOT the buyer. That's right! When
you walk into a traditional real estate office, in most cases
that agent is working for the seller, even if the house is
listed by another real estate company.
There have been many changes over the course of the last several
years which have often made agency relationships even more
confusing, but in most respects it has been an improvement,
causing a change for the better. Of course, in my opinion, there
is still room for improvement and clarification on this subject.
Even many real estate agents are confused about this issue. I
see it time and time again when talking with other agents in
classes that I've attended. It's amazing how often this subject
comes up in real estate classes.
Let me take a moment to explain of differences in agency
relationships and how they may affect you in a real estate
transaction.
In a traditional setting, an agent represents the seller or is a
sub agent for the seller. In this setting, when a home is listed
by a real estate company, that company automatically represents
that seller, because they have a signed exclusive right to sell
contract with that party. That company and it's agents have the
fiduciary responsibility to represent the best interests of that
seller. However, a sub agent to a seller is an agent who is
representing a seller that has their real estate listed by
another real estate company. These agents have the same
fiduciary responsibility to a seller, that the listing company
does.
When a buyer is working with a sellers agent, it is important to
keep personal information that they'd like to keep confidential
to themselves. For instance, maybe a buyer wouldn't want to
share the total amount they are approved for at the bank, or
what their top line price is for a home they are interested in
purchasing. If they disclose this information to a "Sellers
Agent" that agent has the fiduciary responsibility to share that
type of information with that seller. A sellers agent is limited
to what services they can provide to a buyer.
So, how does a buyer protect themselves? Hire a Buyers Agent of
course!
This is still a fairly new practice in the Northern Mid-Michigan
areas and to some "Old School" real estate companies, not fully
understood because of lack of education or the need to stick
with "the old way of doing things".
A buyers agent has the fiduciary responsibility to represent the
buyer in a real estate transaction. A buyer will then enter into
a contract with that Buyers Agent. To make is better understood,
it almost like listing a person, instead of a house. The buyer
agrees that they will work with that buyers agent only, as
outlined in their contract agreement. This agreement can last
from a few days to several months or years, depending on what
the buyer and agent agree on. The agent and client will also
agree on the geographic areas that this agreement covers. For
instance, an agent in Gladwin many not want to represent the
buyer in a transaction in Detroit. So it is wise to outline
these areas in the contract. (For example: the buyer and agent
agree that the contract only pertains to Gladwin and Clare
Counties). That way, a buyer could do other real estate
transactions through other agencies in parts of the state that
are not mentioned in the contract. This MUST be clear in the
contract unless a buyer wants their agent to represent them for
the entire state of Michigan.
The advantages of using a buyers agent are great. Services that
are provided to a Buyer-Client are as follows:
Pays full attention to the Buyer's Needs. Tell the buyer all
that is learned about the seller. Focuses on expanding the range
of choices to satisfy the buyer's needs. Find the best property
for the client. Promote the buyer's search. First opportunity to
view new listings. All properties are available and viewable,
and the sales price is negotiable. Give advice with FACTS.
Educate the buyer. Compare competing properties. Negotiate on
behalf of the buyer. Strengthen the buyer-client's negotiating
position. Share all known information about the seller. Provide
price counseling for the buyer-client. Negotiate approved
purchase agreement to safeguard buyer-clients. Suggest financing
alternatives that may be to the buyer's best interest. Continue
services to the buyer-client during negotiations. Attempt to
solve problems to the buyer-client's satisfaction.
Confused yet? There's more!
Now, just when you thought you were understanding things a
little better, we throw Designated Agency into the mix! This is
also fairly new for the entire state of Michigan. A few offices
in this area currently practice this type of agency, but most
stick with the more traditional Sellers and Buyers agency
relationships.
A Designated Agent is the party selected to represent a
principle/client in a designated agency office. Designated
agency has been legislatively created in many states, allowing
the management of a brokerage to establish a office policy,
whereby the managing broker appoints or designates a licencee
associated with that brokerage to act as an exclusive agent of a
principle/client, buyer or seller. No other licencee in the
brokerage has an agency relationship to represent that
principle/client.
Ok... so what the heck does that mean? Basically, an office will
choose to be a designated agency or traditional agency office.
They can't do both, (meaning that they can't use traditional
agency mixed with designated within a brokerage). When a agent
is assigned to a buyer or a seller client, that party's
information remains confidential between that agent, the broker
and that client only. Other agents within that brokerage will
not have access to the clients information, nor will they be
representing that client in any way.
Another way to clarify that is, in a traditional office, the
client is represented by the entire brokerage, weather they are
a buyer or a seller. In a designated office, the client is only
represented by the assigned agent and the broker.
I know! This even leaves some real estate agent's heads
spinning! It can be confusing. The best way to find out how you
will be represented, is to ask the agent you are going to be
working with and have them define their office policies
regarding agency relationships.