July 13, 2015 in Real Estate

Just whom does a real estate agent represent?

You probably don’t buy and sell a home often. Real estate salesmen help with the process. But:

Are you sure how and whether this salesman represents you?

The issue of representation is known as “agency.” Therein lies the first confusion. Salesmen really aren’t your agents.

Wait … what?

Yes, “agent” is widely used in advertising, media coverage and in the industry. But real estate salesmen actually are agents of the broker, says Maggie Kasperski, consumer issues media representative at the National Association of Realtors, or NAR.

Real estate broker

A broker owns or manages a real estate office or franchise, teaches real estate courses, holds different licenses than salesmen, contracts with salesmen to work for the brokerage, and also works directly with buyers and sellers as salesmen do.

“The salesperson is designated as the broker’s (agent) in the real estate transaction,” such as finding sales leads and obtaining listings, Kasperski says. “Usually, state laws allow the salesperson to conduct a transaction up to a certain point, while final approval of contract and financial terms is left to the broker.”

Various terms like “single agency,” “dual agency” and “agency disclosure,” which we’ll explain later, also promote use of “agent,” even though it’s technically incorrect.

Make sure you know the answers to the following five questions before working with a real estate salesman or saleswoman.

1. How do you know how you’re represented?

Depending on laws and regulations in your state, you’ll get what’s usually called an “agency” or brokerage disclosure to sign. It explains how the salesman is allowed to work with you. You should get it either when you list a home for sale or begin a search to buy one.

2. How are you represented?

There are four primary ways to be represented:

More about representation

A growing number of states have regulations about designated agency, says Katie Reynolds Johnson, general counsel for NAR.

When a salesman represents you alone, the traditional duties “are care, loyalty and obedience, with related duties of disclosure and confidentiality,” says NAR associate general counsel Ralph Holmen.

When a salesman represents both the buyer and seller, the salesman can’t and isn’t expected to provide loyalty and, to some extent, disclosure, Holmen says. Doing that would conflict with similar duties owed to the other side.

Transaction brokers have only duties assigned by state law, Holmen says. In their limited representation, they don’t disclose price, terms and motivation to the other party in the deal, says Nancy Hogan, broker and general manager of Avatar Real Estate Services in Miami and former chairwoman of the Florida Real Estate Commission.

3. Is one type of representation better than another?

A salesman who works with only the buyer or only the seller is still the most common method, Johnson says.

Dual agency, which the buyer and seller must agree to, has for years been the topic of long and sometimes heated debate. “Although dual agency must always be disclosed, I do not think most buyers and sellers realize the implications and potential challenges,” says real estate attorney Tim McFarlin, managing partner at McFarlin LLP and real estate broker at Clear Point Real Estate Services, both in Irvine, California.

What’s dual agency good for?

Dual agency can work in special situations involving unique properties, such as raw desert land, unusual homeowners association rules, or when the buyer and seller have already crafted an informal purchase agreement without a salesman.

McFarlin’s salesmen usually work only with sellers. He says dual agency shouldn’t be illegal, “but it probably should be viewed more skeptically than it is, although the industry promotes its acceptability.” One reason: The commission for both sides of the deal stays in-house instead of being split with another real estate office, he says.

4. Is this really such a big deal?

Yes. People have sued over how they were — or weren’t — represented, and disclosures about that. Lawmakers and real estate attorneys continue to spend many hours crafting and amending laws and regulations about it.

“I see ‘agents’ violate agency (obligations) and cross the line because they want to make a deal,” Hogan says.

5. Where can you find out more about an agency before working with a salesman?

Contact a real estate attorney, advises Marla Martin, spokeswoman for the Florida Realtors.