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Misconceptions of who represents who in a Real Estate Transaction

It has become ever clearer to me that many home sellers are not aware how representation in a real estate transaction has changed. They still believe both their agent and the agent showing their home to a prospective buyer work for them. Before 1999 that was often the case. Things have changed.

Before 1999 most agents showing homes to buyers were working for the seller as a sub-agent. Seller’s signed a listing contracts with the understanding that the commission they agreed to pay was for representation when selling their home. In other words the seller paid their agent and in the case the property was sold through the efforts of another agent that agent received compensation as well. In most cases, the commission was split equally between the cooperating real estate agencies.

Home buyers were unaware of the seller / agent relationship. Buyers felt as though they were led to believe the agent showing them a home was representing them only to find out they shared important or compromising information with the seller’s representative. Agents were supposed to disclose the sub-agency relationship to prospective buyers. Obviously it rarely happened causing the governing authorities to change how representation was handled in a real estate transaction.

In 1999 The Consumer Notice was formally put into effect. Now everyone, both the buyer and seller, have to be made aware of the types and terms of representation as it relates to a real estate transaction. It was the advent of buyer agency which is alive and well today. Now the agent showing the seller’s home is representing the buyer (unless otherwise stated) who is looking at it.

So what is the big deal? Nothing changed right? Not exactly. Today that commission the seller pays for representation only buys them half what it did prior to 1999. The other half goes to the buyer’s agent who obviously represents the buyer.

There are several things that tell me most home sellers do not understand the concept of buyer representation. One is their request, or demand, for feedback from a home showing. When the showing agent was a sub-agent of the seller it was necessary for that agent to provide feedback. It was their fiduciary commitment to the seller. They often communicated feedback and other pertinent information through the seller’s broker and/or agent. Under buyer agency the agent showing the home owes the seller nothing in the way of feedback. It is given out of courtesy if at all. Feedback from an agent representing a buyer could compromise their client’s position as it relates to the property.

The second sign is when the seller asks their agent to follow-up with the agent who showed their property and get additional information as to the interest or intent of the buyer. Seems harmless. The call can be made but the buyer’s agent owes the seller and sellers broker nothing more. Additional conversations can again compromise the buyer’s position relative to their desire to own the property, if any.

There is a form called a BUYER (TENANT) AGENCY CONTRACT. Part of the first paragraph of the contract reads “Broker may be paid a fee that is a percentage of the purchase price. Even though Broker’s Fee, or a portion of it, MAY be paid by seller or listing broker, Broker will continue to represent the interests of Buyer.” The inference is clear. This document is between the buyers and the broker / agent they choose to represent them just like the listing contract is between the sellers and their broker / agent.

What if the seller, who pays 6% commission, agreed, with their listing agent, to pay a seller sub-agent who brought them a ready, willing and able buyer 3% but only pay an agent representing a buyer 1.5%? Would more agents opt to be seller sub-agents again?

Representation has seen substantial changes but the compensation remains virtually unchanged. Do customers accept it just because that is how the real estate industry always did it?

You, the customers, may be the only ones who can answer these questions. Your opinion matters!

Knowledge is power!

Jeffrey C. Hogue