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December 16, 2018

Representation in a Real Estate Transaction

You need to understand exactly who represents you at all times to be effectively represented in a real estate transaction. Who represents who is often not very clear, even to real estate licensees involved in the transaction.

Seller's Agent

A sellers' agent is a broker who represents the sellers in a transaction.  Listing agent is not a good term for a seller's agent now that brokers can list both sellers AND buyers.  Currently, if you work with a real estate professional, but have no contract with that licensee, the chances are that you are working with a seller's agent.  Most real estate licensees now work as sellers' agents either directly or as subagents of the sellers' broker. 

Just because one licensee lists a seller's property and another licensee in the office brings the buyer, that does not necessarily mean there is any differentiation in agency.  Agency refers to the broker only.  The broker is the agent.  The broker could be representing the sellers exclusively in the transaction if that is his office policy -- even though one licensee has the listing and another licensee brought the buyers.

Most buyers now send an agent who represents their enemies, the sellers, to deal with those sellers.  This situation does not lead to you being represented to your best advantage in the transaction.  This condition exists because of the structure of the Multiple Listing Service (MLS).

Multiple Listing Service

The Multiple Listing Service (MLS) is a service to which real estate brokers belong in order to share their listings and commissions with fellow members.  The Multiple Listing Service is a national franchise structure created by the National Association of REALTORS®  (NAR).  The MLS allows you access through your broker and his sales associates.  You have access to all the properties listed for sale by the many different firms that are members of the service. 

MLSs do not allow buyers to use their services directly.  In today's world of computers, people can easily create services like the MLS using database programs.  The MLSs already are in competition with private real estate databases. These private services are similar to the MLS but generally, have different rules about who may have access to the listing information.

After the real estate industry instituted exclusive seller listing agreements, it started building a protective cocoon around those agreements using the Multiple Listing Service.  Real estate licensees traditionally avoid stepping out of the model that the industry created.  Many people in the real estate say consumers are treated fairly in real estate transactions and, for the most part, everyone benefits.  Consumers are quite uneducated about what is actually going on.  If you look, the Multiple Listing Service is currently very anti-consumer. 

The protected turf of the Multiple Listing Service is now being pointed, prodded, and looked at very carefully by some federal consumer agencies such as the Federal Trade Commission.  These agencies want to see if the real estate industry engages in some sort of price fixing or market manipulation.  They want to know if some sort of anti-trust and/or anti-consumer situation exists.

Dual Agent

As defined in the"Terminology" article in Part Two of this series, a dual agent is a broker who represents both the buyers AND the sellers in a real estate transaction.  The broker may represent both parties either by himself directly or through one or two sales associates.  Dual agency is legal in most states.  Dual agency has the potential for imagined or real conflicts of interest because the broker is representing both the sellers and the buyers.

In a typical in-house transaction the broker would be a dual agent, even though there may be three people involved.  These people are the broker of the office, the licensee who obtained the seller listing, and the licensee who represents the buyer.

A broker may practice dual agency if the broker or one of his sales associates lists a property and he or one of his sales associates in the same office sells you that property.  If a broker has the policy of dual agency, the broker or sales associates should let you know that, while they exclusively represent you now, in the event that one of the agents in their office brings the sellers, they will represent both you and the sellers in the transaction.

Divided Agency

As we defined it in the "Terminology" article,  divided agency is the action of an agent in representing both buyers and sellers in a transaction without the knowledge and consent of both.  Licensees must get permission from both the buyers and the sellers to be a dual agent.  Divided agency is representing either party without their permission or representing one party without the other party knowing.  Divided agency is illegal because of the tremendous potential for imagined or actual conflict of interest.

Currently, you can say that you want a broker to represent you.  He can tell you that he will represent you.  He can even confirm that he represents you.  However, unless he refutes the unilateral offer of subagency of the MLS, he creates divided agency.  The licensee actually works for the sellers, but he tells you that he works for you exclusively.  There are several remedies for divided agency - each has a very different effect.

Splitting.  One remedy for divided agency is splitting the deal apart after it has closed escrow.  Because this action is illegal the courts may then take the licensee's commission away -- they may make him disgorge the commission.  He may also have his real estate license revoked and/or spend time in jail.

Refuting Subagency 

If the licensee locates the home he sells you using a Multiple Listing Service, he is a subagent of the seller in almost all cases.  He remains a subagent of the seller until he notifies the seller's agent that he refutes the unilateral offer of subagency of the MLS.  The unilateral offer of subagency is a one-sided offer by the service. This offer makes all agents who represent buyers agents of the seller's broker -- unless the agents who represent the buyers refute this arrangement.

The CAR Model.  The progressive California Assn. of Realtors (CAR) has devised a method of representation called the California Assnn of Realtors Model Multiple Listing Service, also known as the CAR Model.  A traditional MLS provides a unilateral offer of subagency. 
 The CAR Model provides a unilateral offer of compensation (payment).  Subagency is optional in the CAR Model.  The National Assn. of Realtors approved this model.  In mid-1991, the first few boards of REALTORS began using optional subagency in their Multiple Listing Service.   

Listing Agreements

A listing agreement is a contract with a broker to act as your agent in the purchase or sale of a house.  Whether you are a buyer or a seller, a listing agreement

1. Creates a professional relationship between you and the real estate licensee.


2. Defines the client-broker relationship.  It establishes that you are employing the broker.  (Even if a sales associate takes a listing, that sales associate doesn't OWN the listing.  The listing actually belongs to the real estate broker who runs that company.)  The listing agreement creates an employer/employee relationship between you and the broker.

3. Creates an actual agency and the fiduciary duty which the broker and anyone who works for the broker owes to you.   That fiduciary duty is to do the best job they can for you with integrity, care, and loyalty.  Although licensees have a duty of honest and fair dealing and good faith with everyone, they must do the very best job for you.  Getting the very best price and the very best terms is their responsibility to you.

4. Makes you responsible for the acts of your broker.  You are responsible for the acts of your agent when those acts are within the scope of the agent's authority.  

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