With less than a month to go until new agency laws take effect in Massachusetts, many area real estate companies are being forced to re-evaluate their existing business models and make adjustments to fit the new regulations. Although the legislation will affect the entire industry, individual agencies across the state are taking very different approaches when adapting to the legislative changes.

With the regulations set to be implemented on July 1, many Bay State real estate professionals have already begun hypothesizing about the potential effects the changes will have on their businesses and business relationships, both with customers and other agencies. A few have already restructured their operations.

“It’s very hard to tell how the law is going to change the way companies practice. Some are ahead of others and have done a great deal of advanced planning in anticipation and others are taking more of a wait-and-see approach,” said David Drinkwater, a past president of the Massachusetts Association of Realtors and co-chairman of the association’s Agency Implementation Taskforce, which was charged with helping to create educational and training programs after the regulations had been passed.

“Some [real estate firms] are announcing changes; some are announcing that they’re staying the same way. It’s whatever they think is in their best interest. That’s the beauty of this legislation – there’s no right answer, no right way,” Drinkwater said.

The new law’s primary purposes are threefold. First, the legislation defines and provides guidelines for the practice of designated agency, a process in which a broker-owner designates one or more agents to represent the homebuyer and a separate agent or agents to represent the seller in the same transaction. The law also mandates that written consent and disclosure be provided from the consumer before subagency – when an agent works with a buyer but represents the seller – is allowed to occur. Subagency traditionally has been the most common method used by local real estate firms in brokering transactions in Massachusetts. The third legislative point provides guidelines for the practice of facilitation, which involves a real estate company working with buyers and sellers to assist with a home purchase and sale but, unlike designated agency, having no fiduciary responsibility to either party.

The regulations were modeled on concepts endorsed by the National Association of Realtors that already have been implemented in states like Connecticut, where designated agency has been allowed since 1999. MAR initially floated a designated agency proposal in Massachusetts in 1997, though lawmakers declined to pass it. Perhaps because of the earlier attempt and established history of designated agency in other states, many in the industry seemed prepared for the change in Massachusetts.

“This is something we’ve seen coming for 10 years. It wasn’t ever a matter of if it was going to happen; it was always a matter of when it was going to happen,” said Richard F. Cahill, president of Norwell-based Jack Conway & Co., the state’s largest independent real estate firm. “The bill was passed. We got it, we own it and we have to live with it. Nobody up there is going to tell us [real estate companies] what policy to use, what model to use, how to execute or proceed with it, so you just have to do your homework and be prepared.”

For companies that are attempting to proactively anticipate and plan for the upcoming changes, a large part of the preparation is agent education. Many agents in Massachusetts practiced only seller representation under the old industry model, usually through subagency. With the advent of designated agency, which many industry watchers predict will lead to a sharp decline in subagency where both agents involved essentially represent the seller, real estate professionals need to be trained on exactly how to represent buyers in a transaction.

“We are offering a great deal of accredited buyer representation classes. [Enrollment] numbers have increased drastically recently, so we know people are giving a lot of thought to what to do next,” said Laurie Cadigan, president of the Greater Boston Association of Realtors and an agent in the Concord office of Barrett & Co.

“We have not taken this lightly. We’ve been preparing for months. We do have the luxury of being a large company – we have a legal department and a training department with several trainers,” said Richard Loughlin, president and chief operating officer of Coldwell Banker Residential Brokerage, Central New England. “We put together a mini task force to see how we’d roll this out because we’re dealing with 3,600 sales associates and 89 offices. We’ve structured a month of mandatory training for everyone throughout June. We’re going to teach them as much as we can and train as much as we can train.”

According to Loughlin, Coldwell Banker already practiced a great deal of in-house buyer agency using dual agency, a process in which a brokerage firm or agent can represent both seller and buyer in a transaction, but must disclose the arrangement and maintain neutrality in situations where conflicts of interest may occur. The newly codified designated agency options are designed to smooth out the inherent conflicts in the dual agency process. Because of its already established practices, the changes to the way Coldwell Banker Residential conducts business will likely be on a smaller scale, Loughlin said.

However, other companies like Jack Conway & Co., which shied away from representing buyers prior to the new agency law, will likely see more major modifications to their existing business models.

“In the past we practiced seller agency [and subagency] only because we thought that was the proper and safe thing to do, and now I feel that the new law will encourage us to branch out,” said Cahill. “It legitimizes the whole arena. It allows for mandates and disclosures on all fronts, in every type of situation. Every change brings opportunity, and [the new law] opens up a great deal of opportunity for a company like ours.”

No ‘Immediate Reaction’

Jack Conway & Co. recently announced plans to expand its services and offer buyer agency beginning July 1, which marks the end of 49 years of operating under a traditional agency model based on sellers agency and subagency.

“We studied this issue in great detail over the last few years and we are confident that the time is right to embrace buyer agency,” said Chairman Jack Conway in a prepared statement. “The customers want it, the state has clarified the regulations to allow it and we are moving full speed ahead to practice it.”

Other front-runners in shifting business plans were three local GMAC brokerages that elected to eliminate subagency and add buyer representation in March last year. Carlson GMAC, Hammond GMAC and Kinlin Grover GMAC, which cover areas in Massachusetts as well as southern New Hampshire, made the changes in an attempt to provide better service to their clients and in order to eliminate liability issues surrounding subagency, according to company officials.

Smaller firms, however, may have a harder time deciding to switch over to designated agency, simply because there aren’t enough agents in house to designate one to represent both the buyer and seller. There has been some speculation within the industry that the new regulations are particularly beneficial to larger real estate companies, although as the time nears when theory becomes reality, some are rethinking that notion.

“I think designated agency helps different companies differentiate their niche in the marketplace. Some look at it as a positive opportunity, but in that model the client only has representation from a certain number of designees, not the entire company. When you’re not able to practice designated agency – perhaps in a smaller firm – it’s possible to promote that entire firm as representing the interest of the client. In some ways I think it helps some of these companies on the smaller side position themselves to be more attractive,” said Drinkwater.

One of the anticipated results of the new law that will impact companies big and small is a reduced use of subagency. The new legislation will require sellers to be informed of the potential of vicarious liability – the possibility that a seller might be held liable for a misrepresentation or act of omission by the subagent, who may be from a different firm and completely unknown to the seller they ostensibly represent. When buyers are given the option of personalized fiduciary representation that designated agency presents, subagency may soon become a thing of the past even though its practice would still be allowed. Subagency has nearly disappeared in Connecticut since similar agency regulations were enacted.

“I think you’ll see that subagency goes the way of the horse and wagon” once the new regulations are in place, said Cahill.

Although some agencies are bracing themselves for shifts in the industry and others are embracing change, more traditional companies may just not be ready to alter their established agency representation systems. But after July 1, some may not have a choice.

“I think things are going to change a lot for companies that have just gone on doing what they’ve been doing for a very long time, companies that operate like it’s the good old days, as they say,” said Gary Rogers, regional vice president of the Greater Boston Association of Realtors, regional vice president representing the Boston region in MAR and a broker with RE/MAX First Realty in Waltham. “This day and age you shouldn’t be doing things like they did in the good old days. Changes are happening and whether it all goes peacefully or it comes with some kicking and biting remains to be seen.”

Although the regulations’ implementation date is fast approaching, real estate firm broker-owners, buyers and sellers may have more time to establish which business model is right for them.

“I think the transition will happen over the next six to 12 months,” said Cadigan. “On July 1 there won’t be an immediate reaction. For the next year if not more there will still be a lot of managers and broker-owners trying to figure out what to do and how to do it.”