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 that is titled – 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, almost by default is 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.

Again, you may ask – 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 benefit 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 of 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.

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.