Agency in the real estate industry is widely misunderstood. Even real estate agents can fail to grasp the complicated legal relationship between themselves and their clients.
At its root, the legal concept of agency is far too narrow to define agent-consumer relationships in real estate. The relationship between a real estate agent and the client is dynamic and ever-changing, which further clouds the concept of agency.
Additionally, real estate agency is different from other agency-based professions. Real estate agents, for example, create situations and conflict as a part of business. Most other agency-representation type professions respond to situations.
- The concept of agency is an old-school thought process with roots in medieval times
- Agency in real estate is clouded because the agent-consumer relationship is dynamic and complicated
- Real estate agents have more than one conflicting agency agreement to worry about
1. It’s based on old-school thought processes.
The concept of agency has been around since medieval times. It evolved from the servant-master relationship in the old world, predicated on the idea that damages caused to another person by a servant were best recovered from the master. Although damages are still a fundamental concept of agency, discussions about it with regards to the real estate profession center more around advocacy and representation questions than monetary ones. Agency simply was not designed with the challenges faced by modern real estate agents in mind.
Modern real estate agency-representation laws and regulations developed primarily as a response to a 1984 Federal Trade Commission study revealing that consumers often did not understand the representation relationship that agents had with the buyer or seller in a transaction. The premise of the FTC study follows traditional thinking that real estate agents always represent one party or the other in a transaction. In reality, agents have requirements benefiting both parties to a transaction, notwithstanding an agency agreement with one of them.
2. The focus has traditionally been on agency as a whole, not duties.
Often those trying to define and understand agency focus on the vehicles or types of agency, but it makes more sense to examine the duties contained within the environment of agency. Agency without a duty is like a horse without a saddle!
A duty is a promise or legal obligation to someone. Some duties in real estate are of a very specific nature, such as how earnest money is handled. Other duties may be circumstantial, such as balancing caveat emptor (buyer beware) laws with seller disclosure statements.
The agent-consumer interaction is best defined and understood by looking at a moment-to-moment balance between duties and any agency already in existence.
3. Real estate is different from many other agency-representation type professions because of its catalytic nature.
Another issue that comes up quite a bit is the fact that some try to define real estate agency using examples from outside industries. Real estate agents create situations and bring conflicts together. By contrast, most other professionals dealing with agency issues (with a few exceptions) respond to situations. Attorneys, plumbers, real estate appraisers, morticians, and pharmacists are examples of professions that do not create situations but rather respond to them.
For the real estate professional, creating situations and potential conflict is a necessary part of business. Agents often have contact with both opposing consumers to a transaction, even when the agent represents only one of them.
4. Confidentiality in real estate is not the sacred cow we often treat it as.
How many times have you heard this advice? “You should enter into an agency relationship before the consumer divulges confidential information.” In real life, this precept is a difficult one for agents to practice because they cannot predict when a consumer will divulge confidential information.
And, given the categorical and repetitive nature of confidential information in real estate, it can’t be seen simply as a trigger for an agency relationship. Often, the very nature of confidential information makes it difficult to isolate to just one consumer. Plus, confidential information often ripens later in the agent-consumer journey.
5. Timing is problematic in the real estate profession.
In real life, it’s often hard to determine when agency begins. The agent-consumer relationship may develop as a casual conversation held impromptu at a neighborhood restaurant, for example. Because real estate discussions are ubiquitous in everyday life, agents may struggle with dilemma of when to enter into formal agency.
6. Agents have much more than just one transaction or task to worry about.
It’s not uncommon for an agent to later list a property that they had previously shown to a prospective buyer client and vice versa. And sellers often benefit from working with an agent who has a successful sales history in their neighborhood. This means the agent may rely on the loyalty of past clients as potential buyers of the seller client’s property.
So, while this churning of consumers from client to nonclient and back has economic advantage for society, it also creates stress for the agent attempting to appropriately apply old-world agency concepts to the modern world of real estate. And overall, the most important task isn’t necessarily price-related; it’s to successfully consummate a deal for the client.
View the original article at Realtor Magazine