Buyer vs. Dual Agency Under PA Law
Pennsylvania law on real estate agents provides:
“As a buyer agent, the licensee and the licensee’s company work exclusively for the buyer/tenant even if paid by the seller/landlord. The buyer agent must act in the buyer/tenant’s best interest, including making a continuous and good faith effort to find a property for the buyer/tenant, except while the buyer is subject to an existing contract…”
Isn’t this how every buyer thought it was supposed to work?
“As a dual agent, the licensee works for both the seller/landlord and the buyer/tenant. A dual agent may not take any action that is adverse or detrimental to either party but must disclose known material defects about the property…”
Let me ask you-how can you select an action that helps one side WITHOUT having it be detrimental to the other side?
A Legal Opinion of Dual Agency
“Be aware, by consenting to dual agency, you are giving up your right to have your agent be loyal to you, since your agent is now also representing your adversary. Once you give up that duty of loyalty, the agent can advance interests adverse to yours. For example, once you agree to dual agency, you may need to be careful about what you say to your agent because, although your agent still cannot breach any confidences, your agent may not use the information you give him or her in a way that advances your interests.
As a principal in a real estate transaction, you should always know that you have the right to be represented by an agent who is loyal only to you throughout the entire transaction. Your agent’s fiduciary duties to you need never be compromised.” NY Office of General Counsel
Buyers Agency–the best kept secret
Sellers of homes have never been able to pick up their product and take it to the town square to sell it. Like most commodities, real estate has historically been controlled not by the sellers, but by the middle-men – the sales people. Agents formed the marketplace site, called the Multiple Listing Service, which the sellers needed. With the advent of the internet, that marketplace has become virtual, and this shift in the real estate sales paradigm may make room for that best kept secret in residential real estate-the buyer´s agent.
The Old Days
It has not always been so. Until fairly recently, there were no “buyers agents”. During the early part of the 20th Century, listing agents had exclusive control over their houses. They advertised to find buyers, showed the houses and negotiated the price directly with the potential buyers. Sellers might, on occasion, list with more than one agent and then both had to compete to get an acceptable offer to the sellers in order to get paid for their time and effort.
The Multiple Listing
After WWII, agents got together in their areas and formed professional associations which ran what have become known as Multiple Listing Services. These gave the homes for sale much more exposure and also provided a means for any licensed agent to find, show and sell another agent’s listing for the published commission “split”. These agents, however, still for the most part represented the sellers and were known as “co-operative” agents-that is they were cooperating with the listing agent in getting the house sold and sharing in the commission paid by the seller for that purpose. Their duty was to a seller they may never have met. And that duty was to get the best terms for that seller.
The Open Market
The MLS marketplace system has been the system adopted in most areas of the country, and has been a boon for sellers. It allows the attributes of the homes to be available to large numbers of agents, including, with photos and video voice-overs touting the features of each room. With the seller’s permission, most listings included in the MLS system now are also placed on the popular website Realtor.com and other company-based internet sites. Most recently, agents have been able to pay the MLS a small fee to list all listings on their own websites, which has created some confusion among buyers who think the house is listed with Company A but see it on Company B’s website.
Buyers Agency, the Best Kept Secret—Part 2
The Discount Companies
A new way of listing has emerged lately, with certain so-called “discount” companies offering to list homes on the MLS (and usually including exposure on REALTOR.com) for an up-front flat fee. Unlike other companies, they do not wait for the house to sell to get paid. They usually ask the seller to handle the showings and pay a lower fee than is typical to any buyer´s agent who brings them a buyer. Many Sellers are not aware that some agents will not show such listings, both because the fee is lower and because the companies do not spend the time and energy to get the deals negotiated to closing. The jury is still out on whether this system serves a niche market and will survive.
While real estate sales practices over the years developed along the lines of making the listings more informative and more available to the public, another area of real estate became murkier-whose interests the agents represented during the process. Outside the real estate world, agency law was quite clear-an agent owed duties of loyalty, obedience, protection from harm, confidentiality, full disclosure and accountability of funds. Other occupations operated under this system without problems. But in real estate, agents were trying to get deals done under the system they had– the lines of responsibility and loyalty were blurred even where all parties had the best intentions. It was not until the late 1980´s that the commonly-understood concept of agency was applied to the sale of real estate in Pennsylvania. And it was not until 1998 that agents in Pennsylvania had to disclose to the buyers and sellers whose interests they were representing in a transaction.
This was a delayed response to an obvious problem. A study in 1973 by the Federal Trade Commission found that 71% of buyers thought the agent showing them properties was “their” agent and 73% of them had told that agent confidential information such as the highest price they were wiling to pay. This was long before buyer agency became an accepted practice at a time when almost all agents were legally required to represent the best interests of the seller.
Acceptance Of Buyer Agency Generally
Despite the obvious benefit to the buyer/consumer, the concept of a fiduciary-customer relationship in real estate grew slowly. In part, this may be a reflection of the commonly-held belief that the listing agent (and the company he or she works for) really knows the market and this particular house and is the best person to deal with, especially in an emotionally-charged purchase such as a home, where people do not behave as when buying a car. Perhaps there is a tendency to set aside the tenets of purchasing that guide in other areas because the consumer feels at some disadvantage in judging the market and in negotiating.
Buyers Agency, the Best Kept Secret—Part 3
Seller Acceptance Of Buyer Agency
Sellers, however, are slowly coming around to the idea of buyer agency. They see the buyers´ agents as bringing them a group of motivated, well-informed, financially-qualified buyers who can get to closing with little difficulty. Sellers are also happy not to be responsible for an agent´s mistakes, which was the case when cooperative agency was the norm and the agent was considered a subagent of the listing agent. A buyer might sue everyone for failure to disclose a problem with the house that the subagent knew about but did not disclose and the seller might end up with legal exposure even though they had never spoken to that agent about the house.
Buyer agency is still a tough sell, however, for the individual agent. It is always better to have 100% of the commission than to share with another agent. Agents try to find buyers for their listings and get those deals to finalize without violating their obligation to get the best price for the seller. So most companies practice what is known as “dual agency”, allowing their agents to be on both sides of the transactions and setting guidelines to avoid sharing of confidential information and to minimize conflicts between the duties to opposing parties. The listing agent brings the buyer and attempts to be fair to both as the terms are set. This is in conflict with common law agency principles and is a tight rope that is tough to walk, but is permitted under current Pennsylvania law. Sometimes two agents in the same office represent both sides of the deal, and if there is an issue that needs to be addressed at a higher level, their broker in charge has the unenviable position of having to decide between two clients to whom he or she has the same duties.
Exclusive Buyer agents
Foregoing listings, which is what a true exclusive buyer agent does, can mean loss of income in an already crowded field. (The barriers to entry in real estate are low, with many companies hiring anyone who passes the test as an independent contractor, requiring no payment of benefits or other employment costs.) Many agents will not represent both sides of a transaction, and act only as a buyer´s agent in a particular deal under an agreement that says they have duties to the buyer and not the seller. But only one-half of one percent of agents in the United State practice exclusive buyer´s agency-they only represent buyers, according to the National Association of Exclusive Buyers Agents. The concept has gained recognition in the commercial arena, with several nationally recognized companies touting themselves as “tenant-representatives” with success. But few companies sell themselves as buyer-only residential companies.
Benefits Of Buyer’s Agents
Studies have shown that people working with buyers´ agents see more homes, pay less and buy more quickly than those who do not have this representation. The National Association of Realtors recognizes that buyer agency is desirable and offers a course called Accredited Buyer Agency to its members, but there is no requirement that the graduates adhere to any stricter requirements than their state law permits, so they are free to practice dual agency. Those that practice exclusive buyer agency have charted their own course.
Buyers Agency, the Best Kept Secret—Part 4
Good buyers agents act for their clients as they would act if they were buying the house for themselves.
What does that really mean?
They help assess what type of house is really needed, wanted, available, affordable and advisable under all the circumstances.
They do this by:
- providing all the information, not just that which will make the deal happen
- showing all houses they can find even unrepresented seller´s houses (FSBO´s)
- writing letters to owners in neighborhoods the buyer has identified as desirable
- pointing out every problem they see with houses and reasons to think twice about buying them.
- educating as to comparable sales, appreciation rates, hidden loan fees, inspection issues, insurance problems and all the hazards that they have come to know about as a buyer´s advocate
- suggesting alternatives
- keeping their buyers´ motivations and weak negotiating positions to themselves
- continuing to look even after the buyer seems interested in a particular property that they have seen.
- recommending the best financial and non-financial terms in the agreement of sale that their experience tells them will be palatable to the seller
- presenting such a well-thought-out and professionally written offer that the seller wants to sell to their buyer
Buyer’s agents do what their buyers always thought their agent should do but didn’t!
Buyers Agents In A Buyers Market
Now that sellers have a new “virtual” marketplace in which to sell their homes, the pendulum will no doubt shift to the buyer´s agent as the professional of choice for savvy consumers. Using an exclusive buyer´s agent is merely an extension of that thought process and one that is also gaining momentum as the market has caused sellers to have to search harder for qualified buyers.