Thursday, December 08, 2005

Understanding Agency Relationships Between Real Estate Clients and Customers

You'd probably wonder what agency relationships might have to do with you, regarding buying or selling real estate. Most people are unaware of the importance of these types of relationships, unless they do a lot of buying and selling of real estate and have become educated in the importance of knowing what side your agent is on. Yours or theirs?

In a traditional real estate setting here in Michigan (especially up here in the more northern areas), most agents are representing the seller and NOT the buyer. That's right! When you walk into a traditional real estate office, in most cases that agent is working for the seller, even if the house is listed by another real estate company.

There have been many changes over the course of the last several years which have often made agency relationships even more confusing, but in most respects it has been an improvement, causing a change for the better. Of course, in my opinion, there is still room for improvement and clarification on this subject. Even many real estate agents are confused about this issue. I see it time and time again when talking with other agents in classes that I've attended. It's amazing how often this subject comes up in real estate classes.

Let me take a moment to explain of differences in agency relationships and how they may affect you in a real estate transaction.

In a traditional setting, an agent represents the seller or is a sub agent for the seller. In this setting, when a home is listed by a real estate company, that company automatically represents that seller, because they have a signed exclusive right to sell contract with that party. That company and it's agents have the fiduciary responsibility to represent the best interests of that seller. However, a sub agent to a seller is an agent who is representing a seller that has their real estate listed by another real estate company. These agents have the same fiduciary responsibility to a seller, that the listing company does.

When a buyer is working with a sellers agent, it is important to keep personal information that they'd like to keep confidential to themselves. For instance, maybe a buyer wouldn't want to share the total amount they are approved for at the bank, or what their top line price is for a home they are interested in purchasing. If they disclose this information to a "Sellers Agent" that agent has the fiduciary responsibility to share that type of information with that seller. A sellers agent is limited to what services they can provide to a buyer.

So, how does a buyer protect themselves? Hire a Buyers Agent of course!

This is still a fairly new practice in the Northern Mid-Michigan areas and to some "Old School" real estate companies, not fully understood because of lack of education or the need to stick with "the old way of doing things".

A buyers agent has the fiduciary responsibility to represent the buyer in a real estate transaction. A buyer will then enter into a contract with that Buyers Agent. To make is better understood, it almost like listing a person, instead of a house. The buyer agrees that they will work with that buyers agent only, as outlined in their contract agreement. This agreement can last from a few days to several months or years, depending on what the buyer and agent agree on. The agent and client will also agree on the geographic areas that this agreement covers. For instance, an agent in Gladwin many not want to represent the buyer in a transaction in Detroit. So it is wise to outline these areas in the contract. (For example: the buyer and agent agree that the contract only pertains to Gladwin and Clare Counties). That way, a buyer could do other real estate transactions through other agencies in parts of the state that are not mentioned in the contract. This MUST be clear in the contract unless a buyer wants their agent to represent them for the entire state of Michigan.

The advantages of using a buyers agent are great.

Services that are provided to a Buyer-Client are as follows:

Pays full attention to the Buyer's Needs.
Tell the buyer all that is learned about the seller.
Focuses on expanding the range of choices to satisfy the buyer's needs.
Find the best property for the client.
Promote the buyer's search.
First opportunity to view new listings.
All properties are available and viewable, and the sales price is negotiable.
Give advice with FACTS. Educate the buyer.
Compare competing properties.
Negotiate on behalf of the buyer.
Strengthen the buyer-client's negotiating position.
Share all known information about the seller.
Provide price counseling for the buyer-client.
Negotiate approved purchase agreement to safeguard buyer-clients.
Suggest financing alternatives that may be to the buyer's best interest.
Continue services to the buyer-client during negotiations.
Attempt to solve problems to the buyer-client's satisfaction.

Confused yet? There's more!

Now, just when you thought you were understanding things a little better, we throw Designated Agency into the mix! This is also fairly new for the entire state of Michigan. A few offices in this area currently practice this type of agency, but most stick with the more traditional Sellers and Buyers agency relationships.

A Designated Agent is the party selected to represent a principle/client in a designated agency office. Designated agency has been legislatively created in many states, allowing the management of a brokerage to establish a office policy, whereby the managing broker appoints or designates a licencee associated with that brokerage to act as an exclusive agent of a principle/client, buyer or seller. No other licencee in the brokerage has an agency relationship to represent that principle/client.

Ok... so what the heck does that mean? Basically, an office will choose to be a designated agency or traditional agency office. They can't do both, (meaning that they can't use traditional agency mixed with designated within a brokerage). When a agent is assigned to a buyer or a seller client, that party's information remains confidential between that agent, the broker and that client only. Other agents within that brokerage will not have access to the clients information, nor will they be representing that client in any way.

Another way to clarify that is, in a traditional office, the client is represented by the entire brokerage, weather they are a buyer or a seller. In a designated office, the client is only represented by the assigned agent and the broker.

I know! This even leaves some real estate agent's heads spinning! It can be confusing. The best way to find out how you will be represented, is to ask the agent you are going to be working with and have them define their office policies regarding agency relationships.

Written by - Ivie Baker (Kehoe Realty Inc.)