Agency – Explained
Understanding who’s working for you.
Real Estate is complicated enough as it is, but there is one critical aspect you need to understand: Who is working for Whom? Everyone knows that when you drive by a real estate sign the “listing agent’s” name and phone number are there for you to contact. Clearly, if you want information about that property, it makes sense to call the number on the sign. But, if you are a buyer, understand that you are calling the listing agent who is hired by, works for, is accountable to, and is paid by the seller. The Listing Agent represents the Seller; the Buyer’s Agent represents the Buyer. That sounds simple enough, but the deeper implications are meaningful.
According to the Virginia Realtor® Code of Ethics, Realtors®, have certain obligations to their client. A client is a person with whom you have an “agency” relationship. These obligations include honesty, obedience, loyalty, disclosure, confidentiality, accounting and reasonable care and diligence” A buyer’s agent owes these obligations to their client, not the seller. A listing agent owes these obligations to their client, not the buyer. A Realtor owes those duties only if they are in an agency relationship with you. An agency relationship provides specific benefits to the client that does not exist outside of an agency relationship.
Imagine it this way; you are party to a lawsuit - you need someone to represent you, someone who will look out for your best interests. You probably wouldn’t hire the same attorney who is representing your opponent in the lawsuit. It is not possible for the attorney to obtain the best possible outcome for both sides of the lawsuit, as each side has a different objective. And, your attorney would not work to represent you unless you had hired him to do so. Simple solution, ask your Realtor® to work for you.
There are a number of common misconceptions that buyers have about agency representation:
v If I work with a buyer’s agent, I have to pay their Commission.
Ø No. The commission is paid by the listing broker at the time of settlement. Many agents use a Buyer Agency Agreement, for good reason. That agreement protects the buyer. There is a clause in that agreement that says if for some unusual reason the seller does not pay the buyer agent’s commission, the buyer will. Don’t get excited – that’s a rare event under unusual circumstances. Just cross that paragraph out if you don’t want to be put in that position. The agent will work with you anyway, and everyone will be more comfortable that they understand what the expectations are and what the outcomes will be.
v If I don’t use a buyer’s agent, I can cut a better deal on the price of the property.
Ø No. The commission paid to the listing agent is negotiated in a separate agreement at the time of listing. The seller is obligated to pay that commission whether there is a buyers’ agent or not. The commission does not automatically reduce if there is only one agent. The MLS listing indicates the commission to be paid, and that’s what will be paid, unless the listing agent and the seller come to some other agreement. Typically the full commission is due to the listing agent for both sides of the deal.
v The Listing agent said they could represent both sides of the transaction equally.
Ø While the agent can do that, ask yourself if they should do that. Let’s say you just met the listing agent when you found the property you want. You want to make a low-ball offer. The agent’s duty to their seller is to get them the best possible price. Will that be the same price as your “low as I can get” buyer offer? Now, there are times when an agent will have a legitimate reason to represent both sides of the offer, we’ll discuss that later.
Ø That’s a sure way to get your friend in hot water. Agents are protective of their hard work, and the law supports them. There is a thing called “procuring cause”, which means if some other agent did all the work and your friend got paid all the money, the other agent can file a complaint and possibly be entitled to collect your friends commission. Besides if they are really your friend, they would want to provide you the full services you are entitled to, not short change you just for the money.
v I don’t want to be restricted to just one agent, I want all of the agents I call to be working for me so that I have a better chance of finding the property I want.
Ø All agents can see the full list of properties available, so your agent will see everything that meets your criteria. First, be sure you find an agent that you feel you can trust and with whom you have a comfortable rapport. Then, stick with that agent. A good buyers’ agent is learning from every inter-action with their client. If the agent shows them a property and they didn’t like three things about it, then the agent has a better idea of what they will like and can select properties closer to their search criteria. Clients very often express that they are looking for something specific, but an astute agent can deduce from watching their reaction that there are other criteria that the client hasn’t thought to verbalize that are equally critical to finding the right property. The more inter-action with one agent, the better the agent can assist you. It benefits you to be loyal to your agent. Agents work hard behind the scenes along with what you see them do. Agents do not get paid until they find you what you are looking for and you go to settlement. Think about how many hours you would spend at a job where after all your efforts the client decided not to pay you. A good agent works hard for you, and is willing to do so because they enjoy what they do. They do not enjoy working hard for you only to find out that despite their hard work you bought your property through another agent who hadn’t invested near as much time and effort in your best interests.
Dual Agency - Now what if you have a friend who is an agent, who has been looking diligently for the right property for you. And that same agent has worked with a client for years, helping them buy and sell previous properties. The agent gets a call from his long-time client who wants to list their property. The moment the agent hears the news, he immediately thinks of his dear friend and how this is exactly the property they have been searching for. Now what? Ok, this really does happen, and the agent feels a strong sense of loyalty and commitment to both the buyer and the seller. Well, the agent is allowed to represent both sides of the deal . . . but very carefully. This is called Dual Agency. Special care must be taken in this situation. The seller has confidential information that he has shared with the agent, maybe about his finances, or his criteria for selling, etc. The agent already knows a great deal of confidential information about his friends’ finances, price range and ability to purchase. So how does the agent assist the buyer in making a “great deal” while ensuring that his client gets a “great deal”. Now that’s a tough one. In the case of dual agency, the agent must be skilled, competent and operate with a high level of integrity. It can be done, but carefully, and all parties must agree in writing to this arrangement.
Designated Agency - Let’s say in this same scenario the agent or one of the parties doesn’t feel comfortable with dual agency. That’s where Designated Agency is another option. In this case the agent goes to his broker and indicates that dual agency isn’t a good option for this transaction. The broker “designates” or selects another capable agent in their office who can represent one of the parties. This too requires all parties to agree in writing. While you may think agents who work together will “conspire” against their clients, rest assured they will not. Remember, they are each legally bound to represent their clients’ best interests and the agents take that very seriously. Now with a designated agent, confidentialities are maintained and each side has an advocate working for their best interest.
So, the bottom line is that it benefits you to find a well-qualified Realtor®, who you feel comfortable with, who is in the geographic area of your search, to represent you. When the agent represents you, you can share with them your criteria, goals and limits and let them work hard for you. You will win in the end.