One of the things that you should hear about fairly early from any real estate agent in Michigan is some explanation of the concept of agency. In fact, you should see a document with a title like this one – Disclosure Regarding Real Estate Agency Relationships. There are slightly different looking forms in use, but they all say basically the same thing.
You should be presented with one of these forms, with the agent’s name filled in under the Licensee Disclosure paragraph and one of the agency status lines checked. The agent should explain the form to you and what the various types of agency mean and he/she should clearly indicate to you what his/her agency is at the time and ask you to sign at the bottom, acknowledging that you understand the disclosure. Note that this is not a contract in any way between you and the agent, just a disclosure by the agent about his/her current agency status with you. The agent may ask you to sign some form of representation contract with him/her and that then could impact the agency relationship.
So, why is this important to you?
Buying and selling real estate is different from most other purchase/sale deals that you may be involved with in life. When you go to buy a car at the dealership, you know exactly for whom the car salesman is working. The same is true of most other sales situations in life. In real estate, the concept of agency changes things.
The simplest way to state why understanding agency is important to you is to just say that you should always know for whom the Realtor standing/sitting in front of you is working. You cannot assume that just because you jumped into the car with a Realtor and went to see a house, that Realtor is working for you. In fact, it is safer to assume that any Realtor whom you meet is working for someone else (normally a seller), if you have not signed a contract to have them represent your interests.
A real estate professional with whom you have no contract, is, by default, assumed to be working for the seller of whatever house you may be in at the time. This is fairly easy to see, if you happen to be in an open house. The agent who is holding the house open is representing the seller by the very act of holding the house open, whether that agent is the listing agent or not.
But, what if the agent tells you that he/she will take you to see another house (even one that he/she does not represent) that might be a fit for you as soon as the open house is over? If you follow the agent to the second house and go in with him/her, now he/she is working for you, right? Wrong! Unless the agent whipped out an exclusive (or non-exclusive) representation contract and had you sign up with them at the open house, you are still with an agent who represents the sellers of the second house. The agent that you are with is now considered to be a “sub-agent” of the listing agent for the house.
In another scenario, you might walk in or call in to a local real estate sales office and talk to an agent who is on “floor duty” about seeing a house or houses. If you agree to meet somewhere to look at a house, that agent is acting on your behalf and is now your agent, right? Wrong, again! Unless you sign a contract for representation by that agent before going into the first house, that agent is representing the sellers again, again as a sub-agent to the listing agent.
You may ask again– why is this important?
The main reason to understand who the agent is working for is so that you do not put yourself at a disadvantage. The real estate agency relationship is a fiduciary relationship. That means that the agent owes their loyalty to the person for whom they are working. You may unknowingly be telling agent things that put you at a disadvantage for negotiating the best deal for yourself.
For instance, on the way to see the house(s) you may engage in what seems like small talk and disclose to the agent exactly what is motivating your buy and how much you are willing to spend. You won’t walk into a car dealership and blurt out – “My old car was just towed to the junk yard and I have $3,000 that I could put down on a new one. I need a car today.” That is no different than telling an agent who represents the sellers that – “I have to find a place by the end of the month and I can afford to spend up to $200,000.” If the house that you are looking at could have sold for anywhere between $180-200K, Guess where you’ll be told it’s priced?
So the bottom line is that you should not share any information about your motivation to buy or sell or your financial situation, until and unless you have a clear agency relationship on your behalf with the real estate agent. It’s not that real estate agents are out to do you any harm, most are honorable, fair and honest people; but, they are also business people who have to be working for one side or the other in any transaction – you just need to know which side they are on at the time.
What kinds of agency are there?
Basically, a realtor can be either a buyer’s agent or a seller’s agent. On rare occasions the agent may become a dual agent. I’ll explain.
The Seller’s Agent – A seller’s agent, under a listing agreement with the seller, acts solely on behalf of the seller. A seller can authorize a seller’s agent to work with subagents, buyer’s agents and/or transaction coordinators. A subagent of the seller is one who has agreed to work with the listing agent, and who, like the listing agent, acts solely on behalf of the seller. Seller’s agents and their subagents will disclose to the seller known information about the buyer, which may be used to eh benefit of the seller.
The Buyer’s Agent – A buyer’s agent, under a buyer’s agency agreement with the buyer, acts solely on behalf of the buyer. Buyer’s agents will disclose to the buyer known information about the seller, which may by used to bebfit the buyer.
In both cases the agent has the following duties:
- Promoting the best interests of the client (seller or buyer).
- Fully disclosing to the client all facts that might influence the client’s decision to tender (or accept) and offer to purchase
- Keep confidential the clients motivations for selling (buying)
- Present all offers to the seller (of on behalf od the buyer)
Dual Agent – Sometimes an agent who has listings may also have buyer clients who want to see those listings. In those cases the agent might become a dual agent. A real estate licensee can be an agent of both the seller and the buyer in a transaction, but only with the knowledge and informed consent in writing, of both the buyer and the seller.
In such situations, the agent will not be able to disclose all known information to either party. As a dual agent, the licensee will not be able to provide the full range of fiduciary duties to the seller or the buyer.
The obligations of a dual agent are subject to any specific provisions set forth in any agreement between the dual agent and the seller and the buyer. Dual agents are required to inform both sides and to have the permission of both side, in writing, to act as dual agents..
Transaction Coordinator - This is really just a special case of a dual agent. A Transaction coordinator works for neither side, but is in the process solely to coordinate the paperwork, to make sure that the transaction goes through. Though not working specifically for the seller, the Transaction Coordinator is normally paid out of the seller’s proceeds. This may be a role played by a licensed agent in a for Sale By Owner sale. A Transaction Coordinator may not render any real estate services other than doing the paperwork, otherwise he/she becomes and agent for the side for which the services are rendered.
Designated Agency – Real Estate One is a Designated Agency company. What that means is that we have chosen to be very specific and clear about who your agency relationship is with and what type of agency relationship you have with them. On our agency disclosure forms there will be specific names – the name of your agent and the name of that agents supervisor. Those two people and those two people only within real Estate One are the people who owe you the fiduciary agency relationship. That means if another Real Estate One agent in the same office or a different REO office, who represents a different client wants to show your house or show you their house, they are acting without a specific agency relationship to you. You should not share confidential information that with any other REO agent than your designated agent. They will likely be working on behalf of their client and would use that information to that client’s benefit.
So, before you get in that car with an agent or walk into a house with an agent ask yourself, “Do I understand who this agent is working for?” If the answer is that he/she is likely working for the other side, then watch what you say to that agent. If you want him/her to represent your interests, ask about signing and an agency agreement or listing agreement with them.
What does Michigan real estate law say that you should expect from your agent?
The Michigan real estate law concerning agency spells out quite clearly the expected duties and services that a seller or buyer may expect from his/her agent. It starts by defining the duties and the services a full-service broker/agent is expected to deliver and then specifies which services can be dropped off, if the arrangement between the buyer or seller and the broker/agent is less than full service.
Here are the minimum duties that it defines for a broker/agent:
1. The exercise of reasonable care and skill in representing the client and carrying out the responsibilities of the agency relationship.
2. The performance of the terms of the service provision agreement. This is the agency contract between the buyer and the broker/agent and it will normally define in some detail the responsibilities for both sides.
3. Loyalty to the interest of the client.
4. Compliance with the laws, rules, and regulations of the state and any applicable federal statues or regulations. The primary federal statue concerns disclosure about the presence of lead-based paint in the property.
5. Referral of the client to other licensed professionals for expert advice related to material matters that are not within the expertise of the licensed agent. This would include lawyers, accountants, and licensed technicians and inspectors.
6. An accounting in a timely manner of all money and property received by the agent in which the client has or may have an interest.. This includes accounting for the clients earnest money deposit.
7. Confidentiality of all information obtained within the course of the agency relationship, unless disclosed with the client’s permission or as provided by law, including the duty not to disclose confidential information to any licensee who is not an agent of the client.
The law goes on to explicitly define the services that a broker or agent shall provide to a client under a service agreement, unless some of the services are specifically waived under a”limited service” agreement. Those services are:
1. When the real estate broker or real estate salesperson is representing a seller or lessor, the marketing of the client’s property in the manner agreed upon in the service provision agreement.
2. Acceptance of, delivery, and presentation of offers and counteroffers to buy, sell or lease the client’s property or the property the client seeks to purchase or lease.
3. Assistance in developing, communicating, negotiating and presenting offers, counteroffers, and related documents or notices until a purchase or lease agreement is executed by all parties and all contingencies are satisfied or waived.
4. After execution of a purchase agreement by all parties, assistance as necessary to complete the transaction under the terms specified in the purchase agreement.
5. For a broker or associate broker who is involved at the closing of a real estate or business opportunity transaction, furnishing, or causing to be furnished, to the buyer and seller, a complete and detailed closing statement signed by the broker or associate broker showing each party all receipts and disbursements affecting that party.
So, what might you not get, if you sign a limited services agreement? Here’s what the law provides:
Individual services may be waived by a seller or a buyer through execution of a limited services agreement. Only those services set forth above in paragraphs 2, 3 and 4 may be waived by the execution of a limited services agreement.
Full service brokers like Real Estate One provide all of the services. If you hire some limited service broker that advertises that he/she can get you on the Multi-list Service for $500, they still owe you at a minimum that service, since it is what they advertise as their “marketing” service, plus they would have to provide, or cause to be provided, a set of closing statements to you and the buyer at closing. You’ll notice also that the law does not provide for waiving or dropping off any of the duties that are defined, just some of the services.