If you're trying to buy or sell a home, you will likely seek help from a professional real estate agent or broker. It's not uncommon, however, for buyers (and less commonly, sellers) to work with an agent without asking a critical question: Who does the agent or broker really represent?
Sometimes the agent works solely for the seller, sometimes solely for the buyer, and sometimes for both. The buyer may think the agent is working for him or her (given that the agent may be drawing up the purchase contract and arranging the sale) when in fact the agent is primarily representing the interests of the seller.
To protect your interests and to make sure you get the best possible deal, it's important that you know exactly for whom a broker or agent is working, both at the outset of the transaction and when you enter into the sales contract.
Who Real Estate Agents and Brokers Are
In most states, anyone who charges a fee or commission to help buy or sell real property for another person must be licensed as a real estate broker, agent, or salesperson.
Even though the terms "agent" and "broker" are often used interchangeably (with other variations across the U.S.), real estate brokers aren't the same as real estate agents. Generally, real estate agents must work with or work for brokers (who have more education and experience), essentially acting as salespersons.
The person who's actually paid the commission on the sale is typically the person who's required to be licensed. And it's about this person that you need to ask: Who is he or she representing?
To avoid confusion, we'll use "agent" to describe the real estate licensee who's entitled to the commission for selling a home or finding a home for a buyer.
Types of Real Estate Agents
The question as to who an agent represents depends largely on who hired the agent and who has a representation agreement with the agent. There are four main types of potential real-estate-agent roles or relationships to be aware of:
- listing or seller's agents
- buyer's agents
- cooperating agents, and
- dual agents.
What a Listing or Seller's Agent Does
When a seller hires an agent to assist in the sale and signs a listing agreement, the agent is ordinarily known as the listing agent or seller's agent. The seller and agent sign a listing agreement, which in most cases gives the agent an exclusive right to list the property for sale for a specific period of time, usually three to six months. The seller pays the agent's commission when the sale is made, and the agent splits it with the buyer's agent, if one is involved in the transaction.
This type of agent represents the seller only. The agent has a "duty of loyalty" to the seller, meaning that he or she has to keep the seller's best interests in mind when trying to sell the property. This agent's top priority is in most cases to sell the property at the highest possible price.
The agent can't do anything to jeopardize that. For example, if the house is listed for $425,000, the agent can't whisper to the buyer that the seller would actually be willing to take $415,000 (unless, of course, the seller has given permission to do so).
What a Buyer's Agent Does
If you were to walk into a real estate agent's office and say, "I'm looking to buy a house," you shouldn't assume that the agent will act as your agent. The agent may show you houses that he or has under listing agreements (so that the agent can collect the commission). In such a situation, the agent is actually working for the seller.
In some states, however, an agent in this situation can't show you properties that are listed with his or her real estate company or brokerage; at least, not without disclosing his or her interest and existing client relationship with respect to the property. This is, for example, the case in Massachusetts. If you want to buy one of the properties among that agent's listings, and don't wish to bring in your own agent, then many states' laws (California's and New York's, for example) mandate that the agent obtain your advance consent to this "dual agency" (further described below).
The one sure way for you have an agent who has your best interests in mind is to sign an agreement or contract that states that the agent is your agent, as the buyer. Your agent has the duty to help find the house that's right for you, negotiate the best price for you, and discover anything negative about any properties you visit. This agent has no duty to the seller; his or her main objective is to get you a good deal on the right property.
You do not need to pay for this agent's services. The seller's agent will, traditionally, split the commission. However, some buyers do sign a contract with a buyer's agent saying they will pay for the services (as a way to be absolutely positively sure who this agent is working for).
Don't hesitate to ask the real estate agent if you have further questions or doubts.
These are agents who, by agreement with the listing agent's company, take on a "subagency" relationship, in which they show the property to buyers on behalf of the seller or the seller's listing agent. This is allowed, for example, in California, Maryland, New Jersey, and New York.
The cooperating agent may or may not work for the same real estate brokerage house as is listing the property. A cooperating agent who brings about a sale gets paid by the listing agent.
Most buyers are unaware that a cooperating agent actually works for the seller. To deal with that situation, many states have passed laws stating that if a cooperating agent shows property to a buyer, he or she becomes the buyer's agent. Some states, however, stick with the old rule that the cooperating agent works for seller throughout the transaction.
What a Dual Agent Does
If an agent works for both the buyer and the seller simultaneously, he or she is a dual agent.
Although it may seem convenient to have only one agent working on a deal, there's a potential danger. Because the dual agent works for both parties, he or she has no clear-cut duty of loyalty to either. But the dual agent has every incentive to see this deal go through, as a way to claim the full commission (instead of having to split it with a buyer's agent).
What happens if the parties' interests are different, which is almost always the case? For example, a dual agent may try to talk the seller into taking less money for the home, knowing that the potential buyer can't afford the full asking price, and not wanting to continue marketing the home until a better offer comes along.
In the vast majority of states, an agent can represent both a buyer and seller only with the parties' full knowledge and consent. In fact, most states have standard real estate forms where an agent must explain if he or she is acting as a dual agent in the transaction. Also, in most states, an agent's real estate license may be suspended or revoked if he acts as dual agent without both parties' knowledge and consent. Most states also have laws or rules stating what a dual agent's duties are to both parties.
Questions for Your Attorney
- Is there a way to check whether an agent's license has ever been suspended or whether it's still valid?
- Can you review this contract that I'm about to sign retaining the services of a real estate agent to see whether it contains anything to which I should object?
- What are the laws in this state regarding dual agency and cooperating agents?