The essence of residential real estate has been the traditional system of multiple-listing services and listing brokers and cooperating brokers who match sellers and buyers. However, the issue of exactly whom a broker represents has been murky area that some contend is replete with potential conflict of interest.
Over the years buyers have assumed that the broker who assists them in a search for a home is working for them. Indeed, a survey by the Federal Trade Commission conducted in late 1979 and early 1980 revealed that nearly three quarters of a national sample of those who had recently purchased a home believed the cooperative broker was working for them.
Legally, however, that broker is operating under the so-called ”law of agency” that states that both the listing agent, who works directly with the seller, and the cooperating broker, who works with the buyer, are the agent and subagent, respectively, of the seller. As such, they are obliged to act in the best interests of the seller by securing the best possible price for the property.
The FTC survey spurred a host of state disclosure laws requiring that purchasers be informed of this subagency by their broker, a sign that the consumer movement has slowly begun to inch its way into the real estate industry.
Since Dec. 1, 1989, real estate brokers are required under the state licensing law in Illinois to notify prospective purchasers in writing that they are agents or subagents of the seller prior to the showing of real estate, prior to signing a contract or at the time when a salesperson starts to discuss the ability of the buyer to purchase the property.
”Even if the (broker working with the buyer) is the agent for the seller, he can still serve the buyer very, very adequately,” contends Marion J. Valle, president of the Chicago Board of Realtors and a former commissioner of real estate for the State of Illinois. ”Because he is also under the influence and leverage of the state real estate licensing law, which requires a person to be truthful, honest, not misrepresent, and a whole set of guidelines that have been in effect since 1922.”
Of the disclosure law, Rubloff`s Fran Prio says: ”Unfortunately, people think brokers are shady, and what (the law) attempts to do is get everything out in the open. It`s healthy. A lot of people have not understood (the concept of subagency). But it`s murky, and there still are some fine lines.” The use of buyer-brokers with loyalty only to the buyer is considered by many to be the wave of the future, as a result of California`s trend-setting disclosure law. California`s legislation requires that the cooperating broker must disclose his fiduciary relationship to the seller as soon as it is practicable. And, furthermore, clients must be informed that there are options to the traditional system.
”In effect, (the California legislation) says that you and your agent should come to an agreement as to what role that agent is going to be playing,” says Paul Roark, an attorney in the Federal Trade Commission`s Los Angeles office. ”The co-op broker can be a seller`s agent, a dual agent with a fiduciary duty to both the buyer and seller, or a buyer`s agent.
”What we have in California now is the vast majority of co-op brokers signing off as buyers` agents. In other states where, from the influence of the industry or whatever, the states said `disclose that you`re a subagent,`
you`re going to find everybody signing off as subagents (of the seller). I don`t think there`s any difference in the actual practice of brokers, really. The co-op broker usually has no written agreement with the buyer, and if the buyer does not believe that his or her interests are not being promoted by that co-op broker, they`re going to walk out the door.”
Real estate companies that no longer take listings and whose agents represent buyers exclusively by signing a contract with them and negotiating their commission, have sprung up in the last few years. ”It`s the ultimate service,” says Barry Miller, president of Buyer`s Resource in Denver, which sells franchises for such companies. ”A real estate company that no longer takes listings avoids the legal and economic conflict of interest that traditional agencies have.”
But wouldn`t a buyer-broker want to make a deal and get a commission too? ”Only if it meets the wants and needs of the buyer,” Miller says. ”But the buyer does not want to pay the highest price, and the buyer-broker does not want to get the highest commission, because it`s their job to help the buyer get the lowest price. But still make a deal, sure.
”It represents a major difference in negotiations. For example, let`s say a buyer indicates to a subagent, `Oh, we really like that house and we`d pay up to $140,000 but we`ll offer $130,000.` Well, the subagent is obligated to tell the seller that the buyer will pay up to $140,000. That`s just one thing. In contrast, a buyer-broker is a confidant of the buyer and is obligated to keep that information secret and use it to help the buyer get a better price.”
There are no buyer-broker firms in the Chicago area so far, but there are a few individuals who work as buyer-brokers, and the North Side Real Estate Board has buyer-broker contract forms available.
