Carlson GMAC Real Estate is one of three local real estate firms that are eliminating the practice of subagency and introducing buyer agency. This Carlson GMAC office is located at 75 Charles St. in Boston.

In a move that will drastically change the way thousands of real estate transactions throughout the state are conducted, three local GMAC Real Estate firms are eliminating subagency and introducing exclusive buyer representation at their offices.

The new company-wide policy, which took effect last Monday, means that all of the 57 offices of Carlson GMAC, Hammond GMAC and Kinlin Grover GMAC Real Estate, which operate in Massachusetts and southern New Hampshire, will no longer allow agents who work for other real estate companies to represent sellers who have listed their properties with GMAC agents. In addition, the company will no longer allow its agents to work as subagents of sellers who have listed their property with another company. Instead, agents will be able to provide exclusive representation to buyers.

The move comes as the practice of subagency, still commonplace in the Bay State, has come under intense scrutiny in the last several years. Several states have either dropped the practice or sought to do so. Locally, the board of directors of the Massachusetts Association of Realtors voted in December on a proposal to change and clarify agency practices. Some real estate experts predict the changes proposed by MAR eventually will lead to the elimination of subagency as a viable practice in the commonwealth.

Some industry observers say they expect many companies will be altering their business practices and models – just as GMAC has – in response to MARs efforts to revamp agency practices.

Last week, GMAC Real Estate company officials maintained they were making the changes to better serve their clients and to eliminate the liability issues surrounding subagency. Subagency can be risky for home sellers, as well as listing agents, because they are held liable for any misrepresentation a subagent from another firm may make about the properties they are marketing for sale, according to some industry watchers.

“We’ve been working on this for the last 12 months. We feel that buyers need representation,” said Patricia Bell, president and chief executive officer of Carlson GMAC, Hammond GMAC and Kinlin Grover GMAC Real Estate. “We need to eliminate the vicarious liability that sellers have operating under the subagency rule.”

“This is not being driven by us,” said David Peretti, the company’s executive vice president and chief operating officer. “It’s being driven by the consumer,” he said, noting that other states have adopting similar policies.

Hammond GMAC has offices in Boston, Cambridge, Belmont, Brookline, Newton, Wellesley and Weston. Carlson GMAC has offices in metropolitan Boston, New Hampshire, suburbs west and north of Boston and western Massachusetts. Kinlin Grover GMAC operates primarily on Cape Cod.

One component of the MAR proposal that has sparked the most controversy among Realtors calls for allowing designated agency, a practice that would enable the broker-owner of a real estate company to designate one or more agents to represent the buyer and one or more agents to represent the seller in the same transaction. In a similar situation today, the agents would work as so-called disclosed dual agents, meaning they would have to get permission from both buyer and seller to shift into more neutral roles not offering full fiduciary representation to either party.

“They’re [GMAC] doing this as a prelude to designated agency,” said Steve Perry, a Realtor on Cape Cod who has been critical of MAR’s proposal for designated agency. “[The policy change] has to have an effect on the other real estate companies.”

Perry said the policy change caught him and many others by surprise. GMAC sent a letter to Realtors and Realtor boards explaining the change on Feb. 27.

Many real estate companies are not prepared to have their agents – who have been accustomed to working as subagents for so many years – work on behalf of consumers as buyer agents or to remain neutral as facilitators or non-agents, another practice outlined in the MAR agency plan, said Perry.

“How do brokers who have been doing subagency for 35 years know how to act in the capacity of a buyer agent or facilitator?” asked Perry.

Perry also said he feels that home sellers will be at a disadvantage because now, instead of having many other agents working on their behalf as their subagents, those agents will be coming to the transaction representing buyers. “I don’t see how that’s advantageous to them [sellers],” he said.

“The ultimate question is why did they take it upon themselves to make this drastic change when for 50 years subagency has been the order of the day and what gives them the authority to make that change?” asked Perry.

Fred Meyer, a Cambridge Realtor, said the letter GMAC sent to Realtors explaining the new policy shows “how little is understood about agency even by big real estate companies.”

“Agency should be determined by the client, not by the agent,” said Meyer, who helped start a group last year called Real Estate Agents for Real Agency to fight MAR’s agency proposal.

Instead of GMAC recommending to clients not to use subagents, it is prohibiting the practice as company policy, explained Meyer. “That’s an inherent misunderstanding of agency,” he said.

“Intentionally or unintentionally this has created chaos in many areas because, with virtually no notice their competitors, with which they used to cooperate [as subagents], [agencies working with GMAC] are faced with two choices, neither of which most of them understand – namely buyer agency or non-agency,” said Meyer.

A ‘Dirty Little Secret’

Yet others praised GMAC’s policy change.

Given the vicarious liability associated with subagency and consumers’ desire to be represented, the policy change is logical, said Christopher Coy, broker-owner of Realty Executives, a six-office firm based in Hyannis.

The change is even more appropriate, said Coy, because in the past many subagents have offered client-level services to buyers even when they’re supposed to be representing the seller.

“We feel it’s a good move,” said Coy, who said he believes that other companies will start to follow or adopt similar policies or forms of designated agency.

“I really do think this is the tip of the iceberg,” he said. “Liability issues are becoming the driving force behind creating company policy.”

Unlike Perry, Coy said he had been aware of the pending policy change for several months and started training the 105 agents in his offices in buyer agency. There is so much information and training available about buyer agency that real estate brokers shouldn’t have a problem with the change, he said.

“The education and the materials are so available that it’s not an acceptable excuse to say ‘I’m a small firm and I don’t have the resources to stay competitive,'” he said.

GMAC’s Bell said that all company agents have undergone 40 hours of “intensive training” to adjust to the change.

Agents have been instructed to explain the changes to consumers and to update listing agreements with home sellers who listed their property for sale with GMAC offices prior to the policy shift.

Sellers who are reluctant to change their agreements are counseled by GMAC, according to Bell, and are sent a letter by the company’s attorney explaining that they ultimately are responsible – and liable – for the actions of a subagent from a firm other than GMAC.

“We believe that buyer representation has advantages to both buyers and sellers,” said Bell. “There has been a liability chain that has traditionally existed under subagency and we wanted to eliminate that.”

Asked if there were any specific cases where subagency harmed a GMAC client, Peretti said there have been a “number of cases over the years where damage has been alleged” by buyers. Peretti did not elaborate further.

Company officials said that even though GMAC will not allow subagency, the company will continue to cooperate with other firms and offer compensation to buyer agents.

Bell said GMAC has already received numerous calls from agents seeking clarification about the policy and “a number of brokers have applauded us.”

Sam Schneiderman, president of the Massachusetts Association of Buyer Agents, said GMAC’s new policy has “a lot of merit.”

Calling subagency the “dirty little secret” in real estate, Schneiderman said that many sellers are unaware of the risks they face when a subagent is involved in selling their home.

“They’re [GMAC] really forcing some change in the industry,” he said.

But at least one large real estate company contacted by Banker & Tradesman last week indicated that it will continue to offer subagency.

“We do support subagency and we’re going to continue to do so,” said Roni L. Boyles, director of corporate communications for Coldwell Banker Residential Brokerage.

Michael L. Durkin, an agent with Carlson GMAC in Marlborough, said he believes the elimination of subagency and the introduction of exclusive buyer representation is long overdue.

“I very rarely practiced subagency because of its liability,” said Durkin, who met with a client last week to explain the new policy.

“I don’t think agents are going to have a hard time with this because [they’ve known] this has been coming for a long time,” he said.

Durkin, who predicts that all the big companies will adopt similar policies locally, said he believes consumers will embrace this new policy because “it takes the mystery out of who does what.”

“I’m hoping that the transition is smooth for everyone in the industry,” he said.