The Consumer Federation of America
released a report in January 2019 titled,
Home Buyer & Seller Confusion and Costs related to diverse and poorly enforced State laws about the Role and Responsibility of Real Estate Agents
I encourage all home buyers and sellers to read this extensive report since it impacts one of the most expensive financial decision you will make in your lifetime. The author of the report Stephen Brobeck had this to say,
"Today, many home buyers and sellers do not know whether their agent is representing their interests, those of the other party, or those of neither. Given the huge expenditure of a home purchase and the conflict of financial interests between seller and buyer, it is important that consumers know who their real estate agent is actually representing. "
Every State has different rules about representation but all States are required to disclose the relationship between the agent/Brokerage and the buyer or seller. The problem is-these disclosures are really confusing.
According to the CFA survey, two-thirds of consumers think real estate agents are required to represent the best interests of the buyer or seller they are working with. This is a case where not understanding who represents whom could have negative consequences for the buyer or seller.
Example 1 of representation confusion:
Homebuyer Bob sees a listing and calls the listing agent to see the property. He LOVES it and tells the agent he wants to write an offer. In some States, the listing agent can write the offer for Buyer Bob and act as a dual agent.
In this scenario, you have the agent who has a signed agreement with the seller and has promised to get the seller the best price for their property--now writing an offer for the person buying the house.
Buyer Bob wants the best deal too and expects the agent to have his best interests in mind. After all, he's making a huge purchase and shouldn't the agent be looking out for him?
The Consumer Federation of America is calling on State Officials to improve and enforce real estate disclosure laws. The CFA is also calling for an end to Dual Agency. (example 1 above)
Example 2 of representation confusion:
Homebuyer Bob sees a listing and calls the listing agent to see the property. He LOVES it and tells the agent he wants to write an offer. In some States, the listing agent can provide "ministerial acts" meaning they can offer Buyer Bob information but not advise him on price, negotiation strategy or home inspection. Buyer Bob would be on his own to determine how to proceed with the transaction since the listing agent has a signed agreement with the seller.
Example 3 of representation confusion:
Homebuyer Bob sees a listing and calls the listing agent to see the property. He LOVES it and tells the agent he wants to write an offer. In some States, the listing agent can do ministerial acts but may choose to offer Buyer Bob the option of a designated agency relationship agreement. Designated agency exists when a home buyer chooses to be represented by an agent working for the Brokerage selling the house of interest. The Broker acts as the "dual agent" allowing both the seller and buyer to be represented by the same Brokerage. It's a nice arrangement for the Brokerage since the commission from both sides of the transaction stays with the Brokerage. However, is this serving the best interests of the buyer and seller? What happens if negotiations stall or the buyer wants out of the deal, how hard will his agent and the Brokerage work to get him out?
Here are a few more examples of confusing representation. There's the subagent who works for the buyer but owes a fiduciary responsibility to the seller. And there's a transactional agent who doesn't work for either the buyer or the seller.
It's easy to see why the Consumer Federation of America is asking State Officials to clean up the confusion, do away with dual agency and consider the rights of home buyers and sellers.
Here are links for more information about how to protect your best interests as you buy or sell a home.