f/k/a archives . . . real opinions & real haiku

An incident around Mama G’s kitchen table, when I was visiting her in Rochester two weeks ago, has convinced me that I need to help inform the public about the various kinds of real estate agents and their duties to sellers and buyers.  Here’s what happened:

My mother, an aunt, my sister, and two longtime family friends (Sam and Rose) were sitting in Mama’s kitchen after a filling and tasty Friday night dinner out, when Sam was asked how his two daughters were doing.  Sam then said something like, “You won’t believe what happened when my daughter and son-in-law were looking for a house.”   They had pre-qualified for an unexpectedly large mortgage, given their modest income.  When they gave “their agent” a bid to bring to the seller of a house they liked, the offer was summarily rejected as far too low and rather insulting. Sam’s son-in-law then called the seller directly to say “that’s really all I think we can afford.”  The seller replied, “Well, your agent told us not to accept the offer, because you were qualified for a much larger mortgage and can pay more.”

The prospective buyers felt betrayed and called “their agent,” who basically said “before you fire me, I’m going to fire myself and stop working with you.”  Sam’s entire family was outraged (but the kids did get the house for a nice price after contacting the seller and love it). Sam was even more perturbed and disbelieving, when I said, “Unless that agent was specifically a ‘buyer’s agent’ or ‘dual agent,’ she had a duty to the seller to try to get as high a price as possible, and to use whatever information she had about the buyers.”

Despite my law degree, and having worked on real estate industry matters at the Federal Trade Commission a few decades ago (and written about them here), the entire table of folks — all of whom had participated in numerous home sales and purchases over the years — initially disputed what I told them about real estate agents, and then voiced shock and dismay.  When I said the FTC has been trying to get this message out since the early 1980’s, my sister Linda replied, “Well they haven’t done a very good job.”  I guess she has a point.

The North Carolina Real Estate Commission’s brochure “Working with Real Estate Agents” says it well: “It is important for you to know whether an agent is working for you as your agent or simply working with you while acting as an agent of the other party.”

“. . . until you are sure that an agent is not a seller’s agent, you should avoid saying anything you do not want a seller to know.”

moving day
the other men
in her life

… by John Stevenson – Quiet Enough (Red Moon Press, 2004)

In 1983, the Federal Trade Commission discovered through a survey that most home buyers had no idea “their” real estate agent was actually the exclusive agent of the seller, and had a contractual obligation to get the best price possible for the seller.   The agent taking them around to all those houses was actually the “sub-agent” of the seller of each of the houses,  with the duty to pass along to the seller any information the prospective buyer reveals that might help achieve that maximum price — e.g., about how much they could spend or would be willing to offer, or how urgently they needed to move or really loved a particular house.

The FTC survey helped spawn a national movement to educate home buyers and sellers about the kinds of agents and the duties of those agents to sellers and buyers. See “Your Home: Making the Buyer Beware” (New York Times, July 2, 1995) In addition, the movement has spurred the growth of a separate group of real estate agents known as “Buyer’s Agents.”  At least forty-four states now have adopted “agency disclosure” laws for real estate brokers/agents, to inform the buyer early in the relationship what kind of agent he or she is dealing with, and to allow the buyer to decide to seek a different agent or relationship.   The laws require forms such as these from New York, and North Carolina; click for links to Real Estate licensing laws, including disclosure requirements in each state.

Note: I do not know whether Sam’s daughter and her husband had received the disclosure information required in New York (I presume they did), nor whether their agent was designated to be working for the seller or the buyer.  If they got the proper notification, we have an additional message to preach to consumers: Read mandated disclosures, makes sure you understand them and behave accordingly, and don’t assume that someone acting “nice” is looking out for your best interests.

Going to the FTC website this week, I was surprised to find only one item that dealt with this important issue: “FTC Consumer Alert: “Buying a Home: It’s a Big Deal” (May 2007).  The relevant part of the brochure merely says (emphasis added):

Real estate agents are licensed professionals who work under the supervision of a licensed real estate broker. In return, the broker pays the agent a portion of the commission earned from the sale or purchase of the property.

In a typical home sale, there are two real estate pros: one who works with the seller — called the listing agent — and one who works with the buyer — called the selling agent. The listing agent generally shares the sales commission with the selling agent who finds the buyer for the home. But the seller pays both agents, usually from the proceeds of the sale. Depending on where you live, your agent may not have any obligation to keep the information you have shared confidential until you enter into a formal relationship. In fact, sometimes, your agent actually may be bound to represent the seller’s interests unless you establish a relationship where the agent represents your interests.

In most states, agents are required to disclose the type of relationship they have with you, and then, it’s up to you to decide whether you want them to represent you. Whether you meet an agent at an open house or get in touch with one on your own, be aware that they need to disclose important information about their business relationship with you. You can feel free to ask them about that.

..  ..  Therefore, before you starting schmoozing with a real estate agent (even if she is your best friend’s cousin or he is your brother-in-law) you need to make sure you know the nature of their agency relationship with you — are they a seller’s agent (or sub-agent), a buyer’s agent, a so-called Dual Agent or Designated Agent? — and the rights and obligations it creates. [See “Is Your Agent Working for You?: Don’t Take if for Granted that any Realtor you Meet is on Your Side” from 123Movers.com]

One Buyer’s Agent in Nebraska had this advice (biased but worth considering) for prospective home buyers:

Don’t call Prudential!
Don’t call Century 21!
Don’t call Coldwell Banker!

In fact, you shouldn’t call anyone who advertises homes for sale! If you are thinking about buying a home, think about this. The real estate agent whose name is on the “For Sale” sign represents the seller. Their job is to sell you the home.

It is the listing agent’s job to obtain the best price, not for you the buyer, but for her client, the seller.

With a Buyer Agency relationship, the broker is the agent for a buyer, with fiduciary responsibilities to the buyer. What does that mean? As the New York disclosure form states, “A buyer’s agent has, without limitation, the following fiduciary duties to the buyer: reasonable care, undivided loyalty, confidentiality, full disclosure, obedience and duty to account. A buyer’s agent does not represent the interest of the seller.”  On the other hand,

Seller’s Agent

A seller’s agent is an agent who is engaged by a seller to represent the seller’s interest. The seller’s agent does this by securing a buyer for the seller’s home at a price and on terms acceptable to the seller. A seller’s agent has, without limitation, the following fiduciary duties to the seller: reasonable care, undivided loyalty, confidentiality, full disclosure, obedience and duty to account.

A seller’s agent does not represent the interests of the buyer.

A Seller’s Sub-Agent is an agent from another realtor’s office who is not working as a Buyer’s Agent.  The sub-agent may spend a lot of time working with you, but he or she has the same obligations to the seller as the listing agent.

The brochure from the North Carolina Real Estate Commission spells it out: 

Seller’s Agent Working With a Buyer

If the real estate agent or firm that you contact does not offer buyer agency or you do not want them to act as your buyer agent, you can still work with the firm and its agents. However, they will be acting as the seller’s agent (or “subagent”). The agent can still help you find and purchase property and provide many of the same services as a buyer’s agent. The agent must be fair with you and provide you with any “material facts” (such as a leaky roof) about properties.

But remember, the agent represents the seller—not you— and therefore must try to obtain for the seller the best possible price and terms for the seller’s property. Furthermore, a seller’s agent is required to give the seller any information about you (even personal, financial or confidential information) that would help the seller in the sale of his or her property. Agents must tell you in writing if they are sellers’ agents before you say anything that can help the seller. But until you are sure that an agent is not a seller’s agent, you should avoid saying anything you do not want a seller to know.

Use this link to find real estate agent disclosure requirements in your state.  If you are trying to buy a home in a state with no mandated disclosure, you should nonetheless ask any agents you are dealing with — before divulging any information you wouldn’t want the seller to know —  what kind of relationship they have with you and with any sellers, and what duties they have to you and the seller.  As we said above, don’t assume that someone acting “nice” is looking out for your best interests.

one last look
through the old apartment
a dry sponge

since you moved
just a road
I don’t go down

her eyes narrow,
seeing for the first time
my little home

… by John Stevenson – Quiet Enough (Red Moon Press, 2004)