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Agency Mess Report: Are You Doing Enough?

Written By: PJ Wade
Sunday, February 17, 2019

When intent on delivering real estate services rated “excellent,” it’s not only what goes right that counts.

How you explain what you do and what clients can expect from you is an essential and valuable part of excellence.

What term do you use to describe and define your level of expertise and service delivery? If you don’t continually raise the service bar, what will stop yours from sliding down to “ordinary” or lower?

Customers and clients expect consistent, committed professionalism from those who are licensed to trade real estate and who want to be well-paid for this service. On the other hand, real estate professionals expect to be paid to put buyers’ and sellers’ money and financial security at risk on their professional “say-so.” That is what licensed real estate professionals do, right?

“The Agency Mess,” a recent report by the Consumer Federation of America CFA, calls for state officials to improve and enforce agency law and to undertake a prohibition of dual agency, which is a situation where buyer and seller are represented by the same agent.

Do yourself a favor and read the 14-page “The Agency Mess: Home Buyer and Seller Confusion and Costs >

Three key misconceptions contribute to the Agency Mess and revolve around three vital questions that consumers must have clear answers to before launching into buying or selling:

1. Who is each real estate professional involved working for?

According to the report’s author Stephen Brobeck, a CFA senior fellow researcher: “Today, many home buyers and sellers do not know whether their agent is representing their interests, those of the other party, or those of neither. Given the huge expenditure of a home purchase and the conflict of financial interests between seller and buyer, it is important that consumers know who their real estate agent is actually representing.”

Report Results: “Two-thirds of consumers believe that real estate agents are always or almost always required to represent the interests of the home buyer or seller with whom they are working.”

Report Solutions: “The report also includes advice to home buyers and sellers about dealing with a real estate agent. At the outset, both should ask the agent whether that agent will be representing their fiduciary interests, those of the other party in the transaction, or those of neither party as a transactional agent/facilitator. If their agent is not representing their financial interests, buyers and sellers should consider employing the services of an attorney.”

Business Building Insight: The problem is that “believe,” which really means “assume” not “know” or “are positive,” is where the problem starts and, subsequently, the long-term referral process is undermined. Clear communication of who’s interests are being served is an important legal responsibility and an essential part of trust-earning sales.

2. Is state law understood and complied with by real estate professionals?

“Every state has a law that requires real estate interests to disclose their >

Report Results: “The laws define agent roles - agent, subagent, transactional agent, designated agent, dual agent - that most consumers, according to the national survey, say they don’t understand”hellip;”The disclosures have not always been made conscientiously by agents according to past research and CFA’s recent mystery shopper survey of listing agents in many states. These calls revealed that, when the caller asked if they could work with the agent, three-quarters of agents called failed to mention dual agency issues.”

Report Solutions: “These roles often do not serve the interests of home buyers or sellers. For example, a subagent working with a buyer owes fiduciary allegiance to the seller. And the term dual agent is an oxymoron. No one agent can represent the fiduciary interests of both buyer and seller. The effectiveness of the laws is diminished by the fact that these disclosures may be only required orally, may not require the use of a standard form, and may not be required at an early stage in the home purchase.”

Business Building Insight: Compliance is a legal requirement that also opens the door for >

3. How will laws and legal responsibilities be enforced to protect consumers?

“State officials have made little effort to enforce the disclosure laws. Violations usually only come to light when agent practices are so egregious that they lead to litigation. The ineffectiveness of the disclosure laws has harmed many consumers.”

Report Results: “The CFA report urges reforms that would greatly improve the content and timing of disclosures to home buyers and sellers. For example, it recommends that: 1 Dual agency be prohibited, as it is in eight states; 2 There be a clear written and verbal communication from agent to consumer at the first substantive contact about whether the agent will function as a fiduciary agent, a subagent, or transaction agent/facilitator; 3 State real estate commissions work both with consumer and industry representatives to develop an effective disclosure document then enforce its use. If they refuse, state attorneys general should take on this responsibility.”

Report Solutions: “These reforms would benefit both consumers and real estate agents,” noted CFA’s Brobeck. “More informed home buyers and sellers will make better decisions. They will have a higher regard for, and complain less about, real estate agents. And agents will not face the risks and ethical dilemmas of dual agency and undisclosed subagency.” Further CFA research, advocacy, and development is planned at the state level.

Business Building Insight: Proactive activity at all levels of the real estate profession and industry will ensure improvements that are practical and beneficial for all parties concerned.

Self-Test: Do you see yourself in any of these CFA examples? What actions by you ensured no “agency mess” resulted?

1. Home buyers and sellers who think their subagents or transactional agents are fiduciaries have mistakenly believed that their agent is seeking, respectively, the lowest or highest house price.

2. Home buyers who think subagents are working for them often have disclosed information about their finances and house price ceilings that the subagents are legally required to share with sellers.

3. Home sellers working with fiduciary agents may face pressure to allow dual agency when buyers are interested in working directly with those agents. They may not understand that, under dual agency, their fiduciary interests are no longer being represented. They also may not understand that a [full] 5-6 percent commission captured by one agent usually represents very generous compensation for services rendered.

In real estate, the more you, the real estate professional, understand about the process and the profession, the more you will gain and the less you will lose.


Additional resource: Visit PJ Wade’s blog “What’s Your Point?”

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