FRED MEYER
Realtor ‘civil war’
A group of industry leaders will consider a proposal next week that could dramatically change the way real estate agents conduct business in the state.
Although details of the legislative proposal have not been discussed publicly, the prospective legislation has already drawn criticism from some Realtors who are unsatisfied with recommendations that a separate task force of industry leaders made in the spring. The legislation will likely mirror those recommendations, with some fine-tuning, according to sources.
Some in the industry fear components of the proposal would hurt consumers and smaller real estate companies while benefiting large firms. According to several Realtors, the biggest sticking point appears to be a recommendation to allow the broker-owner, or some other representative within a real estate company, to designate an agent within the company to represent the buyer and another to represent a seller. The practice, known as designated agency, would basically allow companies to keep both sides of the transaction in-house and opens up the door to a host of conflict-of-interest issues, according to critics.
In addition to designated agency, the legislative proposal is likely to include a measure that allows agents to act as facilitators in a purchase and sale transaction and not represent either party, and a requirement for informed sub-agency – meaning sellers would have to provide consent to allow any agent other than the listing agent to represent them during the sale of their home.
Currently in the Bay State, many real estate agents who bring buyers to see homes actually represent the seller in the transaction, not the buyer, but the seller doesn’t have to explicitly sign a consent form to allow this to happen.
The Massachusetts Association of Realtors Board of Directors, which consists of more than 100 Realtors from throughout the state, is scheduled to vote on the proposal on Sept. 16. MAR leaders declined to discuss the proposal with Banker & Tradesman because it has not been finalized yet.
“The committee working on a new agency proposal has nothing definitive for MAR’s board, as yet. While a proposal is close, we will not discuss it until our board has seen it and decided it is ready for release,” wrote MAR President Peter P. Casey in an e-mail to Banker & Tradesman. “As you can imagine, after three years of waiting for the results of a very thoughtful committee effort, the board is anxious to put their own final touches on whatever is approved.”
Casey, however, acknowledged that the proposal “is likely to be consistent with the general outline” of the task force recommendations that were explained to Banker & Tradesman and reported in a story last year. “This is a complex issue and the devil, as always, is in the details, especially when drafting proposed legislation,” said Casey.
“I fervently hope that the board will not vote to pursue this because I think it will cause civil war in the industry, and I think it will hurt consumers – particularly sellers,” said Fred Meyer, a Cambridge agent who represents sellers only.
‘Double-Dealing’
Meyer, who was on the task force that made the initial recommendations, said he and several other task force members have been openly critical of designated agency. They question how one company could represent the seller, who is trying to get the highest purchase price, and also represent the buyer, who is negotiating to purchase a home at the lowest price. They also argue that it would be difficult to ensure that sensitive information wouldn’t slip to the opposing side of a transaction, particularly in smaller companies with few agents and offices.
“Many consumers and many real estate agents do not understand agency. The essence of agency is undivided loyalty,” said Meyer, who noted that designated agency goes against that concept.
Today, a broker can work with both a buyer and seller but both parties must sign off on the arrangement, acknowledging that they’re not getting full representation. That type of relationship is known as disclosed dual agency. But Meyer sees the designated agency as just another form of dual agency – without the proper disclosure.
“I think it’s a fundamentally flawed proposal. It’s trying to say that dual agency isn’t dual agency,” said Meyer. “The thing I don’t like about this so-called designated agency is it’s diluted, divided and double-dealing agency.”
Suffolk University Law School Professor Charles Rounds Jr., an expert on agency issues, is also skeptical that designated agency can work. Rounds said he believes it could be very difficult to keep sensitive information confidential in companies where agents are purportedly representing both sides of the transaction.
“If I’m an agent and I represent the buyer, I am privy to all kinds of confidential information,” said Rounds. If that information mistakenly falls into the hands of the seller’s agent, who could be working in the same office, the seller’s agent has a duty to inform the seller, said Rounds.
Designated agency “could be harmful to a consumer who thinks that somebody is working solely in his interest and actually isn’t,” said Rounds.
“It’s very difficult to see how this will work practically, where you can create such Chinese Wall where information won’t flow back and forth,” he said. “I think it’s fair to say this could very likely cause people [agents] to think that they have more protections than they do. If they are going to act under designated agency arrangement than they darn better have a Chinese Wall that works.”
According to Rounds, “no matter what kind of legislation you have, you still have common law. The fundamental principals still apply.”
“If there’s any abuse, if in fact information flows, you’ll still have a cause of action against the firm and against the principals in firm.” said Rounds.
In a conversation with Banker & Tradesman in May, David Drinkwater, MAR’s immediate past president and the head of the task force, said designated agency was still on the table.
“Designated agency is a model that has been practiced in many states across the country. We’re not the first state and probably won’t be the last state to look at it,” he said. “It is a model that seems to have been met with quite a bit of support across the country.”
Drinkwater has said that the goal of any MAR proposal on agency was to offer more options for consumers and for real estate agents and brokers in this state. More than 20 states in the country, including Connecticut, offer designated agency.
MAR organized about 10 information seminars throughout the state in March and April to explain the recommendations to Realtors. At those seminars, many Realtors expressed concerns and questioned aspects of the task force recommendations, particularly designated agency. MAR leaders collected that input and a committee of more than a dozen real estate professionals, including legal experts, have been tweaking the task force recommendations and drafting legislation since then.
Steve Perry, an attorney and exclusive buyer’s broker from Osterville who also served on the task force, questions how real estate companies can have procedures in place to avoid possible conflicts of interest in cases of designated agency. A vocal critic of designated agency, Perry is troubled that MAR appears to be heading in a direction that has gotten other brokerage companies in trouble recently.
He believes that without true informed consent from the clients designated agency can be construed as an unfair or deceptive trade practice under Chapter 93A, the Massachusetts Consumer and Business Protection Act.
“The burden is on the agent to show that there isn’t a conflict of interest. That’s a lot to ask of a real estate agent who is trying to keep their legal duties in perspective,” said Perry, of The Buyer Brokerage of Osterville.
‘Dangerous Proposal’
The licensing law in this state “requires brokers to oversee the actions of his or her salespeople or licensees,” said Perry. “How are they [brokers] going to oversee both people on the same transaction and suggest that there is undivided loyalty?”
Some believe the proposed legislation could be harmful to sellers who choose a real estate company, expecting that a team of agents working for that company are also trying to sell their property. If designated agency is allowed, it’s conceivable that seller would only be represented by one listing agent and that all the other agents would be working for buyers who are looking at the house, critics say.
Perry said the proposal, which was intended to clarify agency relationships and simplify the home buying and selling process in the state, doesn’t succeed at doing so.
“I see how these offices function and I see the weakness of trying to pigeon-hole this complicated process to people who are looking to simply their life, not complicate it,” said Perry.
Perry and others also fear that designated agency and requiring sellers to sign a consent form to allow subagents to sell their homes would eventually be the death of subagency. Today, many agents who work with buyers and show them homes are in actuality working as subagents of the sellers. But some in the industry fear that sellers don’t fully understand that they are liable for anything those subagents say about the for-sale properties, and therefore believe that informed consent needs to be gained from sellers.
In Connecticut, after limited sub-agency was approved by law, requiring sellers to provide written consent for subagents to represent them, some companies stopped offering compensation to subagents, encouraging agents to serve as buyer’s agents instead, according to some sources.
Denise Robillard, president of the Connecticut Association of Realtors, said most real estate companies in Connecticut don’t practice sub-agency even though it’s an option because it requires getting consent and because there’s too much “vicarious liability” for sellers. “We don’t use it,” she said.
As for designated agency, which became an option by law in October 1999, Robillard said that mostly “large companies are using it more than some of the smaller offices.”
Meanwhile in Massachusetts, Meyer doesn’t have faith in this latest attempt to write an agency law, saying it is “undermining what has worked well in my 40 years in the real estate business.”
Meyer believes that the designated agency concept “is fundamentally deceptive” to consumers. “It’s double-dealing, which is exactly what common law forbids,” he said.
“I think this is a very dangerous proposal,” he said. “I do not think the Legislature is going to adopt something like this unless the real estate industry is united in this, and it’s certainly not.”
