By Mike Bodeen · 28 April 2024
Who Represents Whom?
Last week we left our discussion by saying that 50 years ago, the biggest thing to affect residential real estate was the inauguration of the Multiple Listing Service (MLS). It was a win-win for buyers and sellers as the spirit of co-operation between real estate companies was a breakthrough. With the MLS, a buyer’s agent would know in advance that if his or her client bought the home of a fellow Realtor through the MLS, that a commission would be paid to the buyer’s agent.
Today, we’re taking a miniscule rabbit trail, but a very important one to help us understand the future of how our industry will change in the months and years ahead. Spoiler alert: God knows. We guess. He laughs.
The term “buyer’s agent” was not often used until the mid 80’s when there began a concerted push for “Agency Disclosure.” This is where agents were required to disclose in writing to their client, who they were representing, be it buyer or seller, or both.
The dirty little secret before “Agency” disclosure was that legally, all agents represented the seller. If you were an agent with a company other than the company who had the listing of a home, you were (are) considered a sub-agent of the seller and not the agent of the buyer.
Huh??? You read me right. Here’s a before Agency Disclosure example:
One sunny Arizona afternoon, Agent Al is showing 6 homes to Buyer Francisco looking to flee California. The (wise) buyer Francisco and agent Al hit it off nicely. As they tour these homes, Agent Al is giving Buyer Francisco all sorts of great information about Phoenix, Scottsdale, Arizona, how Arizona real estate works, etc. The Californian loves what he sees and makes a successful offer on a home. Buyer Francisco has nothing but good to say about agent Al.
One problem: Agent Al was not his agent. He was Agent Al’s customer. Legally, Agent Al was representing the seller as a “sub-agent,” not the buyer as a buyer’s agent.
And what does being a sub-agent legally mean? Minnesota law, which is similar to most states, including Arizona says:
“…If a broker or salesperson working with a Buyer as a customer is representing the Seller, (sub-agent) he or she must act in the Seller’s best interest and must tell the Seller any information that is disclosed to him or her.”
Whoa, what? You mean when we were discussing offering strategies, what price to offer the seller, income, you, who were my great agent, WAS REQUIRED to let that seller know what all we discussed? We were not talking confidentially?
That’s exactly right.
Now, before you get too flustered, most agents, especially career agents, did not disclose confidential information, and were not “in bed” with the seller’s agent. We took (and still take) pride in our professional representation of our buyers, including confidentiality.
You noticed I used the term “career agent.” There is a huge difference between being a part-time licensee doing one or two deals a year, and Realtor professionals who have made real estate their career.
One of my first Donner lakefront listings is still standing strong today.
Is Sub-Agency still practiced today? Seldom, except when you’re buying a new home. When you sit down with a new home builder and “complete the purchase contract” you are unrepresented, unless accompanied by your own agent – which most builders do allow and will pay a fee to. The builder’s agent represents the builder only!
With Agency Disclosure, a buyer and seller would know who an agent is representing, and must agree to that. An agent could represent a buyer, or a seller, or both buyer and seller. This last selection is known as a “Dual Agency.” In all honesty, Dual Agency is very difficult to represent both parties well. It can be done, and there are many honest agents that have done a very good job walking that tightrope. But that’s the key – honest! That’s a future Snapshot – that is not this day!
Having said that, each of our offices would have our own “pocket” listings that would not get put into the MLS, hoping to “double end” it, thereby “double ending” a deal and getting the entire commission without splitting it with a buyer’s agent.
To this day, some of our sellers would ask us at the listing appointment if we might have a buyer in hand? Sometimes we did, but honestly, it’s seldom in the best financial interests of a seller to bypass MLS exposure. When our listings, complete with professional photography, and well composed verbiage, are placed before the eyes of the online buying world, activity begins immediately, aggressively.
Next week, we’ll be looking at how real estate will change for buyers. The following week, we’ll look at what this all means for sellers. Another spoiler alert: Good news for sellers. The shaft (again) for most buyers.