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IT'S THE LAW

Michigan law states in part under Article 25 of Public Act 299 of 1980, as amended, Section. 339.2517. (1) A licensee shall disclose to a potential buyer or seller all types of agency relationships available and the licensee's duties that each agency relationship creates, before the disclosure by the potential buyer or seller to the licensee of any confidential information specific to that potential buyer or seller.

IT CAN BE SIMPLE - OR CONFUSING

If your desire is to not spend a lot of time trying to understand the often confusing and complicated issue of AGENCY ( who represents who, when, and to what degree ) then simply put, the purest form of agency with the highest degree of representation for a Homebuyer is representation by a "true" exclusive buyer's agent  ( EBA ).

What does this mean?

CAVEAT EMPTOR

IF YOU WANT TO KNOW MORE ABOUT AGENCY

As a buyer, your first concern must be how and by whom you are represented in the real estate transaction.  Chances are, you'll be surprised!

One of the most common misconceptions that is shared by a large number of Homebuyers is that when working with a real estate agent, he or she will "automatically" represent you as a buyer.  Be aware that this is not the case and that unless specifically spelled out in writing (in the form of a contract), in all probability the agent will be representing the seller.

For years the traditional relationship has been that a real estate agent's primary loyalty was to the seller of the property. This relationship was in effect whether the agent was the listing agent or working with a buyer. This situation caused many Homebuyers to be confused - assuming that the agent that had been driving them around showing them houses for the last 3 weeks was representing them. In reality, the agent was representing the owners of the houses they saw, and was obligated to reveal to those owners any information that they knew about the buyers that may benefit them.

Fortunately, over the past years some strides have been made within the real estate profession to better service the buyer. The most important of these being the advent of exclusive buyer representation - real estate professionals who only work for Homebuyers, never sellers.

Unfortunately, there has also been an attempt within the real estate profession to keep the issue of who represents who a confusing one and to ultimately dilute centuries of common law agency.  In essence, most real estate companies today offer only watered down versions of buyer representation.

Many states, Michigan included, require disclosure regarding a real estate agent's agency position. This disclosure is accomplished by way of a form which must be explained as soon as possible upon any interaction between yourself and an agent, and definitely before you offer any confidential information to the agent. For a sample of what a Disclosure Regarding Real Estate Agency Relationships form typically looks like go HERE.

THE FOLLOWING IS A BASIC SUMMARY OF THE TYPES OF AGENCY

SELLER AGENCY: Seller agents list property and represent the seller. The "default" situation. Unless disclosed to the contrary, all agents involved in a real estate transaction (and their Brokers--with whom a listing agreement is actually with) represent, and owe their allegiance, to the seller. Remember that if you are buying a home and call the listing company, it is the legal obligation of the company's agents to get the highest price and best terms for the seller. Any information given by a prospective Homebuyer to the seller’s agent must be told to the sellers. This includes any reference to the buyer's financial and personal data, potentially increasing the cost of the home. This agent lists homes, holds open houses, always pushes the office listings first, and strives to get the highest price for their client - the seller. Will this agent show you, the buyer, houses for sale? Sure they will! Preferably their listings, or at least the office listings. But will this agent represent you? Protect your confidentiality? Bargain on your behalf? No! They can't, because they already represent the seller.

BUYER AGENCY: When an agent represents the buyer, that agent "rejects" the implicit seller agency and thus owes loyalty to the buyer. Most buyer agents also list and sell homes causing a potential conflict of interest among other problems. (see our "FAQ" and "questions to ask your potential agent" section for more information).

DUAL AGENCY: This occurs when two agents, or the same agent, working for the same Broker each represent a buyer and a seller in a transaction. This situation must be disclosed to both the buyer and the seller. Privileged information (e.g. the price that a buyer will pay or a seller will sell at) cannot be disclosed to the other party without the express permission of that party. Duel agents are real estate agents whose company lists property for sale, but act as buyer agents on those properties. Unfortunately, for buyers and sellers, dual agents are legal in most states, including Michigan. While dual agents attempt to justify this practice, consumer advocates warn NEVER to use a dual agent. The National Association of Realtors wrote that the practice of dual agency is as dangerous as playing Russian Roulette. If a real estate company lists property and represents the seller - you can strongly doubt any attempted claim that their agents can properly represent Homebuyers. The only interest fully-protected in a dual agency is that of the agent and the Broker, who pocket both sides of the commission. In truth, dual agency serves neither the seller nor the buyer well.

TRANSACTION COORDINATOR: Also known as a facilitators, finders, and statutory agents. These are true non-agents because there is no liability for wrongdoing. The attempt by a growing number of real estate agents to avoid the responsibility owed to buyers and sellers is legal in a few states. Services by transaction brokers are substantially reduced from those of true agents.

DESIGNATED AGENCY: This is a very new and controversial agency category, and again an attempt for the traditional real estate company to have their cake and eat it too (to "represent" both the seller and buyer in the same transaction). In this scenario, the buyer can have an agent be their Designated Buyer's Agent for a particular in-house transaction, while the other agent (listing agent) is a Designated Seller's Agent. Neither agent represents both parties in the same transaction. But their broker does. However license law dictates that agents may not act independently of their Broker. Agents act for the Broker, e.g. in his place. The notion of an independent, Designated Buyers Agents in a firm that takes listings is nothing short of smoke and mirrors. Confusing? Think of it this way. Your favorite football team is in the Superbowl, only this Superbowl is played a little different. There's only one team in the game. The team's Offense (the seller) plays the same team's Defense (the buyer) with the coach (the broker) responsible for directing the play of both sides. Regardless of the outcome of the game the coach (the Broker) can always claim victory.

EXCLUSIVE BUYER AGENTS: Agents that represent Homebuyers 100% of the time and never represent sellers. These agents are required by law to get the best price and best terms for the Homebuyer. All consumer advocates recommend that Homebuyers take advantage of the benefits offered by exclusive buyer agents. Exclusive buyer agents are specialists in the homebuying process. This higher level of professional service for buyers has resulted in an average of over 5% savings and greater satisfaction for Homebuyers. Because these agents do not list property, they do not have company listings to try to sell to you first. Instead, all homes are available to Homebuyers without bias, including For Sale By Owner, New Construction, and Multiple Listing Service homes (other Realtor listings), and more. Exclusive Buyer Brokers will better protect the interests of buyers than dual agents, sub-agents, designated agents, or "secret agents", and they are more likely to negotiate a lower sale price on a home.

According to the Consumer Federation of America,
when interviewing real estate agents or buyer brokers to buy a home,
"Make certain at least one is a Buyer Broker that works exclusively with buyers."

NO DUAL OR DESIGNATED AGENTS!

By agency law, a listing real estate company and all of their agents represent the individual(s) selling the home. If they say they can represent the buyer and the seller that is dual (i.e.: double, like a spy) agency or designated (also called split) agency. Confused? So are most traditional brokers and agents! If they try to minimize or downplay its importance to you be very careful. It is at this point that dual or split agents may begin to protect their commission checks rather than your interests. An Exclusive Buyer Broker does not take listings and never represents sellers. They will not "steer" you into looking at their company inventory of homes for sale, because they do not have any!

The entire foundation of exclusive buyer representation is not having any real or potential conflicts of interest with a buyer/client. When representing a buyer/client who has a home to sell a true Exclusive Buyer Broker chooses not to "list" the property for sale. In other words, they turn down thousands of dollars in full commissions each month because their client's best interests are at stake. An Exclusive Buyer Broker will never change their fiduciary relationship with a buyer/client during their entire home buying process, whereas 99% of so called "buyer agents" and their brokerages gladly represent sellers and may "switch" their relationship with you.

Remember that while buyers and sellers need not be adversarial in actions and attitude, their personal interests are adverse. Buyers want the lowest price and best terms, and sellers want the highest price and best terms. We do not make wild claims that we will save a client $100,000 on their next home purchase. We do negotiate for our clients without any chance of real or perceived conflicts of interest. You would not expect less from your doctor, accountant, or attorney, so why potentially settle for less on the biggest financial transaction of your life?

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© Copyright 2008-2009 David Mills / The Buyers Real Estate Company