“Which Buyer Agent Option is best for you?”

Not all Buyer Agents are created equal.  And their differences can make a difference in the level of service, conflicts of interest, experience and company loyalty you receive.

Effective July 1, 2005 Massachusetts real estate licensees will be disclosing the 7 real estate options available for buyers and  sellers in Massachusetts. Three of these choices are new. In short, we have a complicated product line of consumer alternatives and the mandatory agency disclosure does little to adequately inform the public about the implications of their choices. However, I am happy to report that a consumer information brochure is available to assist the public in better understanding the risks and benefits of these various service options. This helpful Consumer Brochure can be found on www.realagency.org. 

Relative to “Buyer Agents”, the marketplace provides several choices for consumers. The new alternative is called “Designated Buyer Agent” and this applies to Buyer Agents who work in firms that have decided to also represent property Sellers in the same transaction. This dual agency situation can be harmful to consumers because it can lead to conflicts of interest and breaches of fiduciary duties that could disadvantage or harm the buyer or the seller. When both the Seller and the Buyer are represented under the same roof, confidential client information may be compromised and company incentives may exist that can lead to insider trading or the loss of bargaining power for one of the clients. True fiduciaries, i.e. attorneys, would never attempt to represent adverse clients in the same company.

In order to avoid this problem, buyers are better off choosing to work with the type of real estate agents who are members of the Massachusetts Association of Buyer Agents (MABA). The standard of practice for these licensees requires that they work for a company that does not represent Sellers in the same real estate transaction.  They are either Exclusive Buyer Agents (EBA) who never represent Sellers or they are “single agents” who work for a firm that has a policy of not representing Sellers in the same transaction.

Home buyers need to know their choices for representation and they need to know if the entire firm will be on their side and what potential conflicts of interest might exist. The optimum consumer benefits are derived by having a dedicated agent who will offer greater selectivity of homes and will also avoid the conflicts of interest inherent by working with firms that attempt of represent both the Buyer and the Seller in the same transaction. Buyer Agents who are MABA members provide quality fiduciary service without conflicts of interest.

Leo Berard, Charter President

Massachusetts Association of Buyer Agents (MABA)

National Association of Exclusive Buyer Agents (NAEBA)

About Designated Agency

A new agency disclosure form, from the MA Board of Registration of Real Estate Brokers and Salespeople, goes into effect July 1st.  Under it, clients are allowed to give 'informed written consent' to 'designated agency', meaning the same real estate office may now legally represent both the seller and buyer of the same property. Whenever clients sign the form, the agency may soon legally perform the magic trick of designating different agents for different sides, so the agency can seek both a higher price and a lower price for the same home at the same time.

But there are three important Massachusetts common-law principles of agency which still remain in effect (and which agents ignore to their great peril, despite the deceptive simplicity of the new form):

1. Every client must actually understand all conflicts of interest. See Cleary v. Cleary, 1998. The standard an agent must meet is subjective (not objective, as in, "I told him I'm a designated agent, and he signed.")

2.  The burden of the client's understanding rests upon the fiduciary, the agent who benefits from the conflict of interest, not upon the client. See Webster v. Kelly, 1931.

3.  It doesn't matter whether or not an unsophisticated client doesn't care and is ready to sign the simple looking form a trusted agent places in front of him: the client must still understand all the implications of the conflicts of interest. See the Restatement of Agency:  "The agent's duty of fair dealing is satisfied only if he reasonably believes that the principal understands the implications of the transaction"

Here are some examples of understanding of implications still required. Say a designated real estate agent is representing a buyer: she must make sure her client understands:

(a) Other agents within the very same office may be representing the seller of that same property

(b) There are issues of leakage of confidential negotiating strategies, from overheard phone conversations, staff meetings, common fax machines and computers.  What steps will the office be taking to try to prevent that? 

(c) Office policy may pay this buyer agent more for promoting certain properties ('in house' listings) than others (other firm's listings) - is that favoritism acceptable to this client?

(d) The recommended in-house mortgage company or insurance company or mover may not offer the lowest rates or best service - is that acceptable to the buyer client?

(e) How will the office manager, as a practical matter, be able to remain 'neutral' while (under the license law) he/she is responsible for 'supervising' two salespeople representing opposing sides?  She needs to be explaining how that little difficulty will be handled.

The legal references here, and a booklet with standards for real estate agency, including designated dual agency, will soon be available on our website, agencyinformation.org. There's nothing theoretical about what common law requires.  Agents must explain not just what designated agency is, but what it means. For all conflicts of interest, there's only one safe type of disclosure: fully understood.

Fred Meyer is proprietor of University Real Estate, Harvard Square, and co-chair of Real Estate Agents for Real Agency.