Real estate groups draw clearer lines for who represents whom
The real estate brokerage industry is taking action on its own to correct a problem that has been festering for decades. The issue: ``Who represents whom'' in a real estate sales transaction. Finally, the lines of broker-agency responsibility are beginning to be clearly drawn. A real estate broker can be the exclusive agent of the property buyer or seller. And it didn't take legislative action to solve the problem.
That single-agency concept -- representing only the buyer or seller -- now is emerging as a strong trend in the real estate marketplace. Multiple Listing Services (MLS) are incorporating this concept into the printed portion of their official listing contract.
Consider the Sonoma County MLS, based in Santa Rosa, Calif. Its newly structured listing contract form, used by all member brokers and salepersons, contains the following statement in bold type:
``It is expressly agreed that any broker who cooperates with the listing broker shall be the sole and exclusive agent of the buyer he represents, and it is the express intention of the parties that the cooperating broker is not the agent or representative of either the seller or the listing agent.
``The cooperating broker and prospective purchaser shall acknowledge this fact before or concurrent with submitting an offer or deposit receipt.''
This legalese verbiage in the new listing contract text represents a major change in the role and responsibilities of real estate brokers. Until this point, a ``cooperating'' broker -- one who serves his buyer-client by selling him a house (or other property) listed by another broker -- actually functioned as a subagent under the listing broker. Legally, he had the obligation to primarily push for the best interests of the property seller.
That's the way listing contracts have been written for decades. While most prospective buyers thought the broker they contacted was representing their interests, the broker was, in fact, an extension of the seller's representative.
That arrangement can create problems. First, the buyer's specific interests and needs may not be adequately served. Second, the property seller may be liable for goofs made by cooperating brokers and salespersons (subagents) as well as the listing broker.
``Many buyers and sellers don't really want that [subagency] concept,'' says W. Jerome Thomas, chief legal officer for the California Department of Real Estate. ``But they have been stuck with it because of the listing and sales contract forms structured by the National Association of Realtors, state Realtor associations, and other groups.''
Thomas points out that the recent swing toward separating buyer-seller agency responsibilities is due largely to public awareness of representation problems and their potential dangers. Also, many attorneys have started using this agency situation as an argument in court to gain a rescission of a sales contract for a buyer-client.
In the wake of public and broker awareness of the problem, major real estate groups now are beginning to actively address the subject. In California, for example, the state Realtor association has set up a dual agency committee, while the Department of Real Estate has organized a special task force.
Efforts to solve the agency representation confusion problem by changing the wording in listing contracts is not endorsed by William North, general legal counsel for the National Association of Realtors.
``Far from alleviating either the consumer-protection problem or the rescission exposure, the [revised wordage] in listing agreements increases both the problem and the exposure,'' wrote Mr. North in a letter to Donald Wiedmann, executive vice-president of the California Association of Realtors.
``At the same time,'' he adds, ``it complicates enormously the entire listing and selling process. To undertake the restructuring of the entire brokerage process and a fundamental change in the relationships long recognized by the courts and upon which the basic marketing structures of the industry have been founded should be undertaken only if it solves and does not exacerbate the problem.''
However, there is an increasingly strong consensus by legal and industry leaders, as well as consumer groups, that such changes are indeed justified and desirable.
``We felt it was important to correct this situation now to enhance the professionalism of our members and protect their clients,'' says Sandy Banks, executive vice-president of the Sonoma County MLS. ``If we [organized real estate] don't act now, the legislature and perhaps the Federal Trade Commission will very likely take action next year.''