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February 27, 2012

Who's representing you?

If you're buying or selling a house, did your real estate agent explain the difference between a buyer's agent, a seller's agent, a cooperating agent and a dual agent?

No? Maybe?

It's the sort of thing that might sound like WSIGAC -- why should I give a carp -- but consumer advocates suggest paying attention. Agents in Maryland are supposed to give you a disclosure form to sign at your first appointment with them so you understand who they (and their bosses) are actually representing at the negotiating table.

Are they a seller's agent or a cooperating agent in the transaction? Then their "duty of loyalty" is to the seller alone, the state says. They can help someone else buy the house, but they're not representing that buyer -- surprising the heck out of some buyers.

If they're a buyer's agent in the transaction, they're representing the buyer and have a signed agreement from the buyer to show for it. A "presumed buyer's agent" is representing the buyer without a signed agreement and will need to get one before submitting any offers on property.

"Dual agency" happens when the buyer and seller in a single transaction end up being represented by agents working for the same real estate broker. Maryland law bars a single agent from representing both parties, but the agent's broker can do so, according to the Maryland Real Estate Commission.

John F. Sullivan, a Maryland agent who works only for buyers and thinks dual agency is fraught with conflicts of interest, is hoping the General Assembly passes a bill that would make the disclosure form disclose more -- bringing the state into a tug-of-war between a trade group for Realtors and the trade group for brokerages that represent buyers only.

He's planning to testify this week that "chronic misunderstandings about agent fiduciary responsibility have contributed to the foreclosure crisis both in Maryland and across the nation" -- namely that buyers weren't given good advice by agents about what they could actually afford, and thus did not have their best interests protected.

Senate Bill 644 would add the terms "exclusive buyer agent" and "exclusive seller agent" -- the intent is that only agents working for brokerages that just represent buyers could call themselves the former, and only agents at brokerages that just represent sellers could call themselves the latter, Sullivan said.

The bill would also require that consumers be given an explanation of what "single agency" means (the opposite of dual -- representing only the buyer or the seller in the same transaction) and what a "subagent" is (someone assisting the buyer but employed by the brokerage being used by the seller).

Oh, and the consent form a buyer and seller are supposed to sign if they end up with same real estate broker? It would be changed to say that "there will likely be a conflict of interest because the interests of the seller and the buyer are different or adverse" -- rather than the current "may be a conflict of interest" and "may be different or adverse." 

"If passed, these changes to the Real Estate Brokers Act ... would provide the consumer with all of their agency choices when selling or buying their home," Sullivan, an exclusive buyer agent who is vice president of Buyer's Edge Co. Inc., wrote in an email. "It would be the first of the 50 State agency disclosure statements in the country to provide the consumer with all their agency options including exclusive buyer, exclusive seller and most importantly single agency."

The Maryland Association of Realtors says thanks but no thanks. Mark Feinroth, director of regulatory affairs with the trade group, said the National Association of Exclusive Buyer Agents asked the state real estate commission to change the disclosure form last year. The commission declined. This bill seems to grow out of that request and "makes a big change in agency law that's really unwarranted," he said.

"We think this is an effort by the exclusive buyers' agents to have their business model shown as a preference in the process and in the form," Feinroth said. "They're certainly entitled to their business model ... but we don't think it's appropriate for any business model to be preferred in the statute. And we think that's really what they're asking."

Agency -- who's representing whom -- "is already the most difficult concept to train licensees in, and it's a very difficult concept to explain to consumers," Feinroth said. "I think this will make it even harder to understand."

The Maryland Real Estate Commission voted to oppose the bill. The executive director said through a spokeswoman last week that the commission wouldn't comment on the reasons until the hearing, which is scheduled for Wednesday at 1 p.m. in Annapolis.

Sullivan, the exclusive buyer agent, said it doesn't surprise him that the commission opposes it because a majority of the members are industry players, and the industry likes the disclosure form as is.

He is trying to get consumers to think twice about what type of agent to hire. He was president of the National Association of Exclusive Buyer Agents in 2009, when the group surveyed members about their transactions in the previous three years and then determined how many ended in foreclosure. It was 0.8 percent, less than half the rate of foreclosure nationwide, the trade group said.

Sullivan says clear disclosure would be better for sellers, not just buyers -- and for agents, too. This piece delves into the legal implications for agents when they purposely or accidentally breach their fiduciary duty.

What do you think?

Posted by Jamie Smith Hopkins at 6:00 AM | | Comments (11)
        

Comments

Agency is not difficult to train or explain to licensees or consumers.

What is difficult for real estate licensees is trying to get consumers to agree to the anti-consumer agency structure promoted by traditional real estate brokerages.

That is why the Maryland statute is difficult to understand and why it needs the improvements Mr. Sullivan is suggesting.

Currently agency related issues are the top cause of legal disputes in residential real estate and consumers are harmed when these relationships are not crystal clear. This statistic by itself shows improved agency disclosure forms are warranted.

This step is long overdue.The current state of affairs keeps consumers from knowing that they can actually CHOOSE an agent that won't abandon them.

Requiring disclosure of the true options available is a good step. Good for John Sullivan's voice for consumers.

Maybe someday the states will actually get to the point where they prosecute seller's agents for the common practice of advertising that they will provide buyer agent services - without disclosing that they might not be in a position to do so.

Noncompliance with real estate disclosure laws has been a persistent problem and has lead to thousands of lawsuits by consumers against real estate licensees. Widespread noncompliance with real estate disclosure laws has helped tarnish the reputation of the entire real estate brokerage profession. This is also unfair to the large number of ethical real estate licensees who comply with current disclosure laws.
Effective disclosure is important because in many relationships, the real estate licensee has a fiduciary duty to his or her client of undivided loyalty, obedience, confidentiality, full disclosure, accounting, and reasonable care and diligence. Unfortunately, most home buyers believe that if they call the licensee whose name is listed on the “For Sale” sign in front of the house, they become the client of that licensee. They assume that they can provide the licensee information, such as how much they are willing to pay, that they would never have provided to the seller.
However in most cases, that licensee has owes those fiduciary duties only to the seller of the home. Anything the buyer tells the seller’s licensee can then be used to the seller’s advantage in negotiations. Four studies by National Association of Realtors® (NAR) since 2002 show that only about 30 to 35% of home buyers actually receive agency disclosure statements at the first meeting with a licensee. This is a level that is virtually unchanged since it was first revealed by the Federal Trade Commission in 1983. In addition the respondents in NAR’s 2002, 2005 and 2007 reported that 39% 42% and 36% didn’t receive or were not sure that they received an agency disclosure statement. In the fifth study in 2011, NAR stopped asking the question but 73.33% of the Realtor® respondents ranked agency disclosure among their top three concerns citing it as an area marred by sloppy practices.
In a 2006 Realty Times article Laurie Janik, general counsel for NAR, stated: “these statistics are truly disappointing to me. I would have thought the number on compliance with agency disclosure would be increasing year by year as agents become accustomed to making them on a regular basis.” She also commented that “Agency disclosure benefits everyone. It helps avoid any confusion among buyers and sellers as to whom the agent represents. It also helps the agent avoid creating unintended agency relationships with consumers.
Since Maryland discarded the common law of agency in the late nineties, the whole arena of disclosure has dissolved into a morass of confusing disclosure statements, and improper implementation. Real estate licensees themselves often do not understand the rules of disclosure. So how does the consumer stand a chance? In Maryland enforcement of state agency disclosure requirements is lax to non-existent. According to a Maryland Real Estate Commission spokesperson, unless an agency is being examined for other violations, compliance with agency disclosure is not examined.
The American Homeowners Grassroots Alliance believes that SB 0664 State Real Estate Commission – Licensees – Inspection of Records and Agency Disclosure Requirements, as amended, is an opportunity for the State of Maryland to eliminate the conflicts in the Real Estate Brokers Act (the Act) as it relates to the functions a licensee can perform on behalf of the consumer and to lead the country in providing the consumer with all of their agency choices when selling or buying a home. The Maryland Real Estate Brokers Act is deeply flawed and contains conflicting provisions. The biggest problems are these:
• The current law contains conflicting and misleading language;
• There are categories of agency that have common and everyday meaning that are not included in the current law or disclosed to the consumer in the current agency disclosure form;
• Maryland’s law is clear as to the “when” and “how” disclosure is made to consumers but agents non-compliance has rendered it useless since the consumer will have already disclosed confidential information to the licensee before the consumer is informed of whom the licensee represents;
• Compliance by real estate licensees with the disclosure law has been abysmal and known since 1983 with no concerted effort to improve it by the Realtor® dominated State Real Estate Commission or industry;
• There is no effort to enforce compliance with agency disclosure.
SB 0644 addresses these issues. It would require that a licensee provide a real estate consumer an accurate description of the fiduciary and/or other duties or services that the licensee would or would not be providing the real estate consumer. It would require that a licensee obtain the consumer’s written confirmation that they have received and understand the information, and it would require compliance audits and penalties for noncompliance.
The American Homeowners Grassroots Alliance believes that SB 0644 would lead to better consumer understanding and improve compliance with Maryland real estate disclosure laws. The requirements are simple and would not impose undue hardships on real estate licensees. By reducing misunderstandings and lawsuits it would enhance the current low public perception of the real estate brokerage profession. It would also put the state of Maryland in the forefront of protecting its’ real estate consumers.

Bruce Hahn
President
The American Homeowners Grassroots Alliance

The American Homeowners Grassroots Alliance is a nonpartisan consumer advocacy organization dedicated to assisting the nation's 70 million homeowners understand significant policy issues affecting homeowners and homeownership, and empowering homeowners to make their voices heard by state and federal officials.

Having formally served as Chief of Investigations for a State Real Estate Commission, I can speak with some authority on the subject of agency as it relates to the real estate industry. The real estate industry has for years done all things possible tp make their ranks lawsuit proof by getting states to abrogate the Common Law of Agency as it had been practiced for over 100 years, followed by poor disclosure laws and regulations warning consumers of their rights.

What instigated the movement to do away with agency relationships in real estate transactions was the innovation of buyer representation, and a nationwide study conducted by the Federal Trade Commission both taking place during the 1980s which revealed the consumer was not aware of their right to be represented..

A Realtor sees this very poorly written disclosure statements used by many states as a way to fool the consumer into thinking they are getting true and full representation when in fact they are not. As seen by Realtors, no agency equals no liability which equals not losing in court when an injured seller or buyer brings a lawsuit against a Realtor

Having been a founding member of Single Agency Realty Association in Maryland in the 80s, I remember what a hard battle it was to get any kind of agency disclosure document, to get buyer agents even given equal access to properties, to get buyer agents' commissions on MLS, etc. I can't imagine MD will be receptive to having only EBAs represent buyers. I personally am comfortable that my broker (not in MD now) oversees all transactions but is "arms length" about my advice to my client buyer and my colleague's with his client seller. I have talked at length with my favorite NAEBA friend and understand the position, but I feel a responsibilitiy to help people sell when I've previously represented them in their purchase. Good luck.

I think agency is very confusing for the consumer. I have run into buyers who never realized their agent was not working for them.

I also agree with John about dual agency and in our state designated agency. I think in a transaction, an agent/brokerage should only represent one person only.

The consumers of real estate services are really left in the dark by all of the clouding of the issues regarding agency relationships by the real estate community. There are real choices for consumers that make sense.

There are many companies that just represent sellers and have no interest in representing buyers. Many of these "exclusive seller brokerage firms" offer fee for service type programs and full service listing programs as well.

There are also "exclusive buyer brokerage firms" who only represent buyers. Most of the traditional agents think that exclusive buyer’s agents are crazy "why would you give up more than half of your potential business?" They miss the point that some people like to honestly and without any reservations or conflict help home buyers. These firms attract plenty of consumer savvy buyers who aren't interested in all of the conflicts associated with working with traditional firms who think they can represent both sides of a deal with no issues.

The traditional real estate firms are in nearly total control of all of the State real estate commissions and will always fight true full disclosure. It is absolutely not in their best interests to discuss with a buyer or seller what can happen when one firm is trying to represent both sides of a transaction.

Let's just see how those discussions would go:

Question from Seller - What would happen if two days before settlement we have one of these storms and our basement floods and the buyer is represented by someone else from your company? What if the buyer says that they don't want to buy the house anymore because they didn't bargain to buy a house that floods? How can your company protect me?

How about the buyer? Who will be able to advocate for their position, i.e. that they just want out? Is their agent is getting a bonus commission for selling an in-house listing (yikes!)? Are they able or willing to help their client bust the deal?

The broker (who both of the agents work for) is the one who is responsible to all parties. What are they supposed to do? They actually have a contract with both parties to represent each parties interests...It is just a huge mess and these types of things do happen all of the time.

How many people go through a smooth as glass real estate transaction?

These issues will likely only be resolved on a Federal level with a mandated disclosure form that specifically points out all of the options out there for consumers. Maryland can take a big step in the right direction with this legislation and show that consumer protections are important and should take precedence over “business as usual”.

I am so proud to work for a single agency company that only represents buyers. My clients always know that I work for them and NEVER for the seller. When they come to me and ask why I don't work for sellers, I tell them that I can not arm wrestle myself. When I fight for my buyers, there is no conflict of interest. I know I can give them my all.

While traditional agents may get paid for two sides of a transaction, they have to address the kinds of issues that Stephen Israel mentions in his comment above. His example is a great one. Dual agency is conflicted. No one would ever use the same firm as their spouse during a divorce. Why would you use the same agency as the buyer or seller you are negotiating with in a real estate transaction?

I work at an Exclusive Buyer Agency that works in three different states that each have different rules and disclosures for agency. I dream of the day when there is a National Agency Disclosure Form.

Thanks for covering such an important consumer issue.

This is exactly the same situation that is occurring in New York State. There are so many people who are under the misconception that by going on the Internet, and finding properties to view, that they will save money by going directly to the Seller's Agent. However this is like going to court without an attorney, and trying to use your opponents lawyer to represent you. What most people don't realize is that the Sellers' Brokers will be cordial, but their first responsibility is to sell the property that they represent for as much money as possible. This is the mandate of the contract that they have with the seller, and they are supposed to make it known that the seller is the one they represent, but this almost never happens.

Agency -- who's representing whom -- "is already the most difficult concept to train licensees in, and it's a very difficult concept to explain to consumers," Feinroth said. "I think this will make it even harder to understand."

Hmm... Let's see:

Check One:

⌂ The company represents YOU, the Buyer, ONLY in the transaction

⌂ The company represents, NOT YOU, but the Seller ONLY in the transaction.

⌂ The company MAY (*attempt to) represent both of YOU, the Buyer AND the Seller, in the same transaction.

⌂ The company DOES (*attempt to) represent both of YOU, the Buyer AND the Seller, in the same transaction.

⌂ The company doesn't represent you OR the Seller. It's just "facilitating" the transaction.

Doesn't seem difficult or complicated... unless you leave out the option of exclusive representation...

Read more on my blog at: http://actvra.in/xj7

While Agency is not difficult to explain, most agents are still confused regarding this issue. Baltimore real estate agents are required to take Agency training every 2 years. I am still amazed at the questions I hear from seasoned agents when I attend what should be routine training.

In general, I feel that an agent CAN NOT effectively represent both a buyer and seller. That does not mean that agents from the same broker cannot be on both sides of a transaction, just not the same agent.

Most buyers do not understand that the seller’s agent has been retained by the seller and they are technically representing their best interests. Buyers will not get a “better deal” by executing a contract with the seller’s agent. In most cases, they will not be informed of their options and are not as effective when negotiating price and terms with the seller.

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About Jamie Smith Hopkins
Jamie Smith Hopkins, a Baltimore Sun reporter since 1999, writes about the regional economy. Her reporting on the housing market has won national and local awards. Hopkins is a Columbia native and has lived in Maryland all her life, save for 10 months spent covering schools in Ames, Iowa.
She trained to become a wonk by spending large chunks of time as a geek and an insufferable know-it-all.
Baltimore Sun articles by Jamie
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