If it ain’t broke, don’t fix it. While on tenuous ground grammatically, that colloquial phrase nevertheless resonates strongly with practical-minded New Englanders. It also is the chief argument of those who oppose a proposal overwhelmingly approved by directors of the Massachusetts Association of Realtors last week that would redefine and clarify the types of agency relationships real estate practitioners form with buyers and sellers.
The truth is, however, that under Bay State common law that currently governs those relationships, the practice of agency is poorly defined, confusing and being implemented in ways that are clearly not in the best interest of consumers and the industry itself. Banker & Tradesman has some concerns about MAR’s agency plan, but change is needed and the proposal unquestionably is a step in the right direction.
The proposal contains three main elements. First and foremost, it would legitimize designated agency, which is not currently practiced in the state. This would allow a firm’s principal broker to designate different agents in the company to represent the fiduciary interests of the buyer and seller in the same transaction. Presently, such a situation typically results in the seller becoming a client of the firm with full fiduciary representation but the buyer being treated as a customer, with the loyalties of the agent working with them ultimately placed with the client seller. Alternately, though less frequently used, buyer and seller may agree to allow disclosed dual agency, wherein the agents shift into more neutral roles and do not represent either party with full fiduciary duties. Given that many Massachusetts homebuyers currently make what is often the most important investment of their lives sans the fiduciary benefits of having a professional advocate, the practice of designated agency would bring untold benefits to countless consumers.
Some argue that designated agency brings with it an inherent conflict of interest. How can one firm fully represent parties on opposite sides of a transaction, they ask. As an example, they point out that law firms are not allowed to represent both plaintiff and defendant in a court case. However, as MAR’s leaders have pointed out, buyers and sellers are not adversaries. Ultimately, they want to reach agreement on a purchase price and successfully conclude a deal. Because compromise and cooperation are essential parts of the process, designated agency in no way creates a conflict of interest.
Widespread use of designated agency would pose a problem with smaller firms where the principal broker is often directly involved with the transaction and therefore unable to offer this form of representation. However, the MAR proposal does not mandate designated agency, nor does it eliminate existing options such as dual agency. In fact, a second major component of the plan sets the ground rules for facilitation, an option that would allow agents to assist with transactions while not taking on fiduciary duties, which also could be employed at small firms when designed agency is not possible.
Our primary concern lies with the third critical aspect of the MAR proposal, which would require sellers to expressly approve the use of subagency. According to association leaders, sellers currently are often unaware that misrepresentations made by a subagent marketing their home may cause liability problems. Even though the seller may never have met the subagent, they technically have a fiduciary relationship. In practice, this disclosure requirement is likely to kill subagency as a viable option in the marketplace. Despite this probable eventuality, MAR has opted to retain subagency in its plan, perhaps fearing that its outright elimination would erode support for the proposal among its membership. But MAR is incorrect in its assertion that consumers always benefit from having more choices. Agency is a complex issue and, should MAR’s plan go forward, consumers will have a plethora of choices and plenty to digest without retaining an outmoded and unnecessary option. MAR should take the bull by the horns and strip subagency from its plan altogether.
Ultimately, however, this is a minor objection. The MAR proposal will give consumers and agents new options while bringing much-needed definitions for agency practices. We hope that the measure is streamlined somewhat as it winds through the legislative or regulatory process, but we also are convinced it should be adopted and implemented.
