When you work with a Realtor, there are several ways you can be represented in a transaction. These are known as types of agency, since you are hiring someone to represent your interests, and be your agent.
An agent who represents only the buyer in a transaction is the buyer’s agent. Some agents only represent buyers, and this type of representation is known as exclusive buyer agency. The availability of agents that only represent buyers varies from market to market. Whether or not they are exclusive buyer agents, those who have recognized professional specialization beyond the minimal standards often have the Accredited Buyer Representative (ABR) designation.
An agent representing the seller is a seller’s agent. Now, most sellers expect that their agent will sell their property to their own anxiously waiting buyers. If a seller’s agent does indeed sell to a buyer, a different type of agency is in place, depending on the regulations of the state where the transaction occurs.
Both buyer and seller agents represent their clients in a transaction, negotiate, and take steps to safeguard their client’s wellbeing. For example, a sellers agent, in reviewing and presenting a buyers offer, will take note if the initial deposit is not substantial, or if the mortgage commitment has conditions which might derail the contract, and advise their client accordingly. And a good buyer’s agent will always ask to present the offer in person to the seller and their agent; if that is not possible they will remain in close contact with every step of the negotiation.
Often, Realtors both list the home for the seller, and bring buyers with whom they have buyer agency agreements. When a real estate agent lists a home for sale and presents an offer from their own buyer which the seller accepts, the agent is representing both parties in the transaction. This is known as dual agency, and is permitted in some states, with the provision that the possibility for this to happen is disclosed. Disclosed dual agency allows for limited disclosure to each client, and confidentiality for each client must be maintained.
For example, if I list your home, and a buyers agent submits an offer, while telling me “the people are really anxious, they have to move by September 1” I can pass that information on to the seller whom I represent. The seller may decide “Well, if they are THAT anxious, let them come up $10,000”. However, if I present an offer from a buyer whom I represent, I cannot tell the seller “these people have to move by September 1, and they really really really will do whatever it takes to buy your house.” I have to maintain the confidentiality with the buyer, remind the seller that I am functioning as a disclosed dual agent, and present the offer honestly on it’s own merits. The seller may still decide to ask the buyer to come up $10,000, but I cannot tell them that the buyer is willing to do that until the buyer authorizes me to say so.
Why do you need to establish a formal agency relationship with a Realtor? Your own self interest in a transaction is the most important reason.
Let’s suppose that you find open houses that interest you on the internet. You visit some, and fall in love with a particular house. You develop a good rapport with the Realtor who is there, representing the seller. She pulls up other listings for you to visit, other open houses. You go, and you come back. This is the one. She writes an offer. You tell her that you could pay full price if you have to, but based on the other homes in the area, you are offering $10,000 less than the asking price.
Unless you have signed a buyer agency agreement with this agent, she does not represent your interests. If the seller asks her if you can meet the full price, she is legally obligated to tell them what you have told her. Before you share information with her, make sure you understand how she represents you, and how the seller is represented.
A disclosed dual agent cannot disclose the price that the seller is willing to accept, or the price the buyer is willing to pay, with out their permission. Amazingly, as a buyer’s agent, I have encountered some seller’s agents who freely tell me “how low they will go”, and as a seller’s agent, I have encountered buyers agents who tell me the buyer’s life story. I can pass that information on to my client if it is not dual agency. I treat customers of other agents in my broker’s office with the same confidentiality as my own clients, since I often have access to their information. Sometimes, an agent will arrange for their manager to be present when an offer involving dual agency is presented to the seller, so that fairness and balance in the transaction is maintained.
In some states, a broker is allowed to assign sales associates designated agency for a buyer and a seller in a transaction. The broker maintains dual agency, but the sales associates have an obligation to negotiate and advocate on behalf of their respective clients.
Other states do not allow dual agency, but require that sellers become transaction agents. Transaction agents do not advocate for either buyer or seller in a transaction. Some states also allow subagency, that is allowing an agent to represent another agent. Many brokerages do not permit subagency, even if it is allowed by law.
You should be informed in writing as to the different ways a Realtor can represent you in a transaction within your state. When working with buyers, I ask them to sign a buyer agency agreement which details the amount of time we expect to work together, any commissions they may owe (usually none) and informs them of the possibility of dual agency when I show them homes listed by me or my brokerage. I also give them information from my state which explains the types of agency that are practiced. We talk before we jump in the car about how I can best represent them, and I answer whatever questions they have at that time. Also, when listing a home, I present sellers with the same information, answer their questions, and obtain their permission for dual agency should the situation arise.
It may seem confusing at first, but when working with professionals, it is important that you understand how they represent you and your interests in accordance with state law and ethical practices.