One of the first concepts that every real estate agent learns is the idea and practice of agency. Agency isn’t the company but rather the representation between the real estate firm and a potential buyer or seller. It’s something that doesn’t get discussed enough but it’s an awkward but absolutely necessary conversation (like what’s that thing on your lip…). So here’s my effort to try to make the dull and the boring a bit more understandable.
For most people involved in a real estate purchase today, they are expecting at least a real estate agent to represent the buyer and one to represent the seller. However, it wasn’t that long ago that buyer agency (where a buyer is represented exclusively by a real estate firm) didn’t even exist. That didn’t come about until the 1990’s and prior to that, every real estate firm (regardless if they were the ones with their sign on the ground or not) were representing the sellers only.
Here’s an example: let’s say a really intelligent couple hired Jonathan and Associates to list their home for sale. I mean these guys were just amazing in every way possible as expressed by their choice in a real estate broker, right? A buyer reached out to the local real estate firm with a national presence and a balloon logo, to inquire on the Jonathan and Associates listing. Technically, the national balloon company would be representing the seller in a concept called Seller Subagency.
Subagency is still permissable today in North and South Carolina, however not every firm will do business with a sub-agent for liability reasons.
Then the concept of Buyer Agency was introduced and it functions as follows:
The Seller lists their home for sale with Jonathan and Associates and the Buyer has a Buyer Agency Agreement with the two-letter national company. Both JANDA and the two letter firm have similar duties to their respective clients that include:
Without representation, the real estate agent of the Seller only owes an unrepresented buyer Honesty and Fair Dealings. That’s it! They can’t wantonly lie and have to treat you fairly.
From the concept of Buyer and Seller Agency came the concept of Dual Agency. Dual Agency occurs when both the Buyer and Seller are represented by the same firm. Technically, they can be represented by the same agent within the firm, which can be problematic and dissolves the benefits of agency. Here’s what I mean: if both parties are due confidentiality, the agent can’t negotiate one party to the other because they represent and owe confidentiality to that other party.
Dual Agency (1 firm, possibly 1 agent, sometimes 2 representing Buyer and Seller “Exclusively”) can be problematic for a host of fairly obvious reasons so that’s why the concept of Designated Agency was established. Designated Agency is a form of Dual Agency with the difference being that there must be separate agents for each Buyer and Seller. This is to restore the separate Buyer and Seller agency relationships and provided the two agents remain separate, there’s very little chance any of the other tenants of agency get violated.
So here’s my all-time favorite agency-related question: can I save money by foregoing representation? The answer is no and there is a long answer to this question that I’ll address in another post but for now, no.
Finally, let me address one upcoming form of agency that is coming to South Carolina on January 1. In Florida, real estate agents are allowed to represent neither buyer or seller but only the transaction. This is called transactional brokerage and it will be legal in South Carolina in 2017. We’re all learning how this will function so I’ll cover more in greater detail as we get closer to the implementation time.