What's Agency Got To Do With It Anyway?

By
Real Estate Broker/Owner with Catskill Country Real Estate

(Originally a response to:  Are you a customer or a client? Do you know the difference?)

 

Interesting no one has mentioned the double dip regarding agency relationships.  The reason broker/agents are not inclined to disclose who is working for whom centers on the commission factor.

 

By example:  If I represent the seller (seller's agent) I am advertising the property.  Hopefully my skillful marketing brings a buyer.  The potential buyer calls ME (the seller's agent) to see the property.  I show MY listing, the potential buyer likes MY property.  The potential buyer signs a purchase offer.

 

I now have accomplished an "in house deal".  Instead of splitting the commission with another agency, I get to keep the entire commission in house.  That means, ME, the agent gets 50% more in commission dollars.  Had the potential buyer used a buyer's agent, the co-broke fee is usually split 50/50. 

 

Hence: If there is a 6 percent commission for selling a $100,000 property, the agent receives $3000 and his broker receives $3000.  On a co-broke, where a buyer's agent is being used, the split goes like this:  Seller's Agent gets $1500-Seller's Broker gets $1500-Buyer's Agent gets $1500-Buyer's Broker gets $1500.

 

It is evident from the above commission splits why most people in this business want to conclude "In House" deals.  Simple math and benefit analysis should clear up the concept here.  This is not a definitive example of all the ways a buyer or seller's agent can get paid.  There are many variations on the theme, but the example I've given illustrates the main point:  Doing an "In House Deal" pays double in commission dollars.

 

There is nothing illegal, immoral or unethical in the above example.  (Get a legal opinion in your State please.)  The caveat, however is:  You must disclose you are a seller's agent--which means to the potential buyer--"I represent the seller.  I have certain legal responsibilities owed to that seller."  Even as a seller's agent, I must maintain a certain legal level of representation relative to the buyer.

 

For instance, if I know the property I am showing the potential buyer has a mold issue, I must absolutely disclose that fact regardless of whom I represent (read agency relationship here.)  This is a "material fact".  All known material facts MUST be disclosed no matter the type of agency in play.

 

Janna outlines the practical agency differences well.  In the real world, I would certainly have a buyer's agent represent me when buying a property.  The primary difference in the buyer and seller agency distinction is a term called loyalty. (In NYS anyway).

 

I am very careful to disclose to potential buyers the listings I personally handle, those my agency handles for sellers, and the properties (most) where I should probably be a buyer's representative.  If potential buyers were to read (I mean REALLY read) the "NYS Disclosure Form for Buyer and Seller", they'd determine agency was a CRITICAL term to thoroughly digest and understand.  I have a definitive website page explaining agency for NYS Buyers and Sellers. 

 

In conclusion:  Disclosure, disclosure, disclosure, is right up there with location, location, location.  In the end, you do yourself, your clients, your customers, and your agency a service by conducting business morally, ethically, and of course, within the scope of your state's law.

 

John Kavaller

http://www.catskillcountryrealestate.com

 

 

 

Comments (2)

Bill Gillhespy
16 Sunview Blvd - Fort Myers Beach, FL
Fort Myers Beach Realtor, Fort Myers Beach Agent - Homes & Condos

Hi John,  I understand that some states do not allow an agent top represent both buyer and seller.  Having done several transactions where I represented both sides and having fully disclosed that status I don't agree there is a material conflict in dual representation.  I understand how it can be distorted to favor one side or the other but that can be said about most any type of representation !

Sep 04, 2011 06:47 AM
John Kavaller
Catskill Country Real Estate - Jeffersonville, NY
John Kavaller

Hello Bill, 

NYS allows dual agency.  The disclosure form thoughly discusses the meaning of all allowable agencies within our state.  The state actually notes the inherent diffculities associated with dual agency in the disclosure as well.  The consumer needs to be informed.  The information is provided in relatively easy, non-legal terminology.  Arguing "material conflict" would take a very long discussion for sure. 

I believe an honest professional can do a good job for both sides.  My preference, however, if I were to be a buyer in NYS, would be to have a buyer's agent on my side.

John

 

Sep 04, 2011 06:58 AM