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Hearing Before The House Financial Services
Subcommittee on Housing and Community Opportunity
Entitled
“The Changing Real Estate Market”
Testimony of Pat Vredevoogd-Combs, ABR®, CRS®, GRI, PMN
2006 President-Elect
National Association of REALTORS®,
July 25, 2006
Types of Agency Brokerage Relationships with Consumers
In order to understand who has what responsibility within the context of agency relationships, you must look to the type of representation the seller or buyer has agreed to with the agent. Laws and relationships vary by state, but generally fall into these categories:
- Seller’s representative (also known as a listing agent or seller’s agent). A seller’s representative is hired by and represents the best interests of the seller. The relationship usually is created by a listing contract.
- Buyer’s representative (also known as a buyer’s agent). This type of licensee is hired by a prospective buyer to represent the buyer in a real estate transaction. The buyer’s representative works in the buyer’s best interest throughout the transaction. The buyer can pay the licensee directly through a negotiated fee, or the buyers’ representative may be paid by the seller or by a commission split with the listing broker.
- Disclosed dual agent. Dual agency is a relationship in which the agent represents both the buyer and the seller in the same real estate transaction. Dual agents typically owe limited duties to each of the parties. Because of the potential for conflicts of interest in a dual-agency relationship, all parties must give their informed consent. In many states, this consent must be in writing. Disclosed dual agency is legal in most states.
- Designated agency. This is a brokerage practice that allows the managing broker in a single brokerage firm to designate different licensees in the firm to act as representatives of the seller and the buyer, respectively. Designated agency avoids the problem of dual agency. The designated agents give their respective clients full representation and loyalty. The broker has the responsibility of supervising both licensees.
- Nonagency relationship. These relationships vary considerably from state to state, both as to the duties owed to the consumer and the name used to describe those practicing it (i.e., transaction broker or facilitator).
The majority of brokerage firms are not giant national companies. The majority of firms are small independently owned businesses that are not affiliated with a franchise (like RE/MAX, Century 21 or Help-U-Sell) and serve an essentially local market. Brokers know that in order to compete and thrive in the local market, they have to demonstrate to consumers that they offer a level of service and expertise different from others. Thus, some brokers will choose to specialize in a particular type of consumer representation, e.g. seller’s representative or buyer’s representative. Some academics have noted that as brokers began to unbundle their services (individually price services) the concept of an agent specialization, particularly buyer’s agents, has become more important in local markets.8 The different types of specializations are an important fact that some observers overlook when criticizing the “entrenched players” for attempting to impede the activities of alterative business models.9 Specializations were once described as “alternative” long before even the first Internet-only broker launched its website. The so-called “entrenched” recognized the value of specialized agents to consumers and today are highly sought after in local markets.10
8 Steve Sawyer, Rolf T. Wigand and Kevin Crowston, Redefining Access: Uses and roles of information and communication technologies in the US residential real estate industry from 1995 to 2005, 20 Journal of Information Technology 218 (2005).
9 Maureen K Ohlhausen, Competition Issues in Real Estate Brokerage, 2 The Antitrust Source (November 2005) http://www.abanet.org/antitrust/at-source/05/11/11-05.html.
10There are professional associations whose membership is focused on a particular type of specialized agents. The Real Estate Buyers Agent Council, REBAC, for example, promotes superior buyer representation skills and services. REBAC offers professional designations for buyers representatives who meet certain specialized real estate course and professional experiential requirements. REBAC also promotes the advantages of professional buyer representation to consumers.
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