Your Representation Alternatives
Which Do You Prefer To Be. . . A Customer or Client?
The distinction between client and customer has been blurred by misuse in everyday real estate practice. Agents typically refer to their buyer as "client". In law, however, the client is the principal who employs the broker to be his agent.
DEFINITIONS:
Customer:
(1) A person who purchases goods or services (Webster's Dictionary).
(2) One without proper representation in real estate under the Law of Agency (WHO'S WHO IN CREATIVE REAL ESTATE'S definition).
Client:
(1) A person under the protection of another (Webster's Dictionary).
(2) A person who engages the professional advice or services of another
(Webster's).
In a typical real estate transaction, all agents involved split a commission paid by the seller (client) and are either agents of the seller or agents of the seller's broker (subagents). A buyer usually has "customer status" in real estate transactions and is entitled to honesty by the agent but does not receive the same representation that he would receive if he were a client. The agent CAN be an advocate for a client but not for a customer.
By law the listing agent represents the seller (client). A buyer (customer) should avoid discussing any confidential information with a seller's agent or subagent, unless he would be willing to disclose that information directly to the seller. At the beginning of their first meeting, a buyer, for his own protection, should determine from the agent whether they might work together on a customer or a client basis.
The Primary Purpose Of The Following Description Of Agency Is To Inform You of Your Representation Alternatives
IN THE EVENT WE DECIDE TO WORK TOGETHER to attain your objective, we must determine which method of representation should be employed toward that end.
Four alternatives are currently available.
SELLER
AGENCY ALTERNATIVE
Seller agency is the customary method of representation in use throughout the nation today. A Listing Agent represents the Seller. A Seller Agent works with the Buyer but is paid by and represents the Seller. Because agency lines are not clearly drawn, a tangle of conflicts emerges which has been and is even now being wrestled with by organized real estate associations, the courts, and the Federal Government.
Under the Law of Agency, no agent may work against the best interests of his principal. Since the listing contract is signed by the Seller, the Listing Agent legally is the Agent of the Seller.
Normally, this listing contract appoints any Selling Agent as a subagent, i.e., an agent of the Seller's Agent. A fiduciary relationship (involving a confidence or trust relationship), established between Seller and Subagents, does not permit any of the subagents to work against the Seller's best interests. In real estate, this fiduciary responsibility means that neither the Agent nor Subagents can legally negotiate for the interests of the Buyer in areas of conflicts of interest such as: price, terms, carry-back financing, special conditions, dates of possession and personal property to be included.
Under seller agency conditions, buyers are usually shown only listed properties.
Unless the Buyer employs his own Agent to protect and represent him, the Buyer is without adequate representation.
In the event the Buyer wants representation when making an offer to purchase a listed property, he should employ his own Agent to review the transaction and represent him. The Buyer should pay his agent's fee. This fee may be on a percentage basis, flat fee basis, or an hourly basis. Payment of an hourly fee is not contingent on whether the transaction closes.
THE BUYER MAY ELECT TO PROCEED WITHOUT REPRESENTATION (customer status). If the Buyer chooses customer status, he must realize that the Seller's Agent or Subagents owe the Buyer honesty and full disclosure of any detrimental aspects of the property, but cannot negotiate in his behalf. The Seller's Agent or Subagents legally cannot disclose to the Buyer any information confidentially disclosed to them by their Principal, the Seller. Confidential information may include, but is not limited to, the Seller's possible willingness to accept a different price, terms, financing, conditions, and personal property included in the transaction.
DUAL
AGENCY ALTERNATIVE
Some Listing Agents try to represent the Buyer as well as the Seller. Such dual representation is legal provided both Buyer and Seller give their informed consent after full disclosure. Practically speaking, it is extremely difficult to protect and promote the interests of both buyer and seller, whose objectives may be in conflict with each other. Very few situations justify the risks inherent in a dual agency.
SINGLE
AGENCY ALTERNATIVE
"Single Agency" means that an employed Agent represents only one Principal in any transaction, whether a sale, purchase, lease, exchange of real properties, or a Business opportunity.
Under the Single Agency method, the Principal employs the Agent (in writing) to represent him and him only. The Principal pays a mutually agreeable fee to the Agent either noncontingent for time spent or contingent upon completion of a transaction. The "Single Agency Broker" does not normally collect his fee from another Principal or Agent unless directed to do so by the Single Agency Broker's Principal in their Employment Agreement.
The biggest benefit to a buyer in employing his own agent and agreeing to pay that agent's fee is that the agent's search for the right property for the buyer is no longer limited to "listed" properties. As his fee is protected, a buyer's agent can negotiate on properties that are "for sale by owner" or seek out properties that are not on the market, or are in foreclosure or probate.
As he represents only one party, the "Single Agency Broker" is in a prime position to negotiate the best possible price, terms, and conditions for his client. He owes only honesty and full disclosure of detrimental facts to the other Principal. This alternative may result in a much better transaction for the Principal of the Single Agency Broker even when the Single Agency Broker's fee is considered.
If the Principal is a Seller, the Agent must notify his client that he, the Single Agency Broker, will probably not sell the property himself. Rather, he will market it in such a manner that other licensees working with buyers will most likely procure a sale of the property.
The Single Agency method of representation is not commonly practiced as yet by real estate agents nationally. A Buyer may be located by another Agent, who may not practice "Single Agency" and who may expect to receive his share of the commission paid by the Seller. In this event, the "Single Agency Broker" and his Principal will consider the other Agent as being the Buyer's Agent who represents the Buyer. The Buyer's Agent may collect his fee from the Seller or the Seller's Agent with the Seller's permission.
CONSULTING
ALTERNATIVE
The unrepresented individual is at the mercy of an adversary who may be inept, clever, or greedy. A Buyer may employ an Agent as a Consultant on an flat or hourly fee basis to represent him in the event he has located a property he wishes to buy. An unrepresented Seller who has received an offer to purchase from an Agent representing a Buyer may employ another Agent as a Consultant to review the transaction and represent the Seller on an hourly basis. The fee of each agent is payable by his Principal whether or not the transaction is consummated.
Real estate consultants are often employed to provide counseling and guidance in various real estate situations when no transfer of title is anticipated.
A "Single Agency Broker" representing his Client can usually suggest to an unrepresented customer the names of several local consulting agents from whom the unrepresented customer may wish to select someone to represent him.
DEDICATED
TO RAISING PUBLIC AWARENESS OF THE
REAL ESTATE PROFESSIONAL
© 1986, Who's Who In Creative Real Estate, Inc.