DAVID S. DRINKWATER
More options

After a more than year-long effort to clarify the roles of Bay State real estate agents as they help people buy and sell homes, a group of industry leaders has come up with a set of recommendations that they will be unveiling in upcoming months.

The recommendations, which were approved by the Massachusetts Association of Realtors Board of Directors late last month, came from a task force that was created in 2001 to examine how “agency” is practiced in the Bay State. The recommendations essentially offer more options to real estate agents in how they represent buyers and sellers, while at the same time offering buyers and sellers more options in how they choose to be represented.

Unlike some other states, Massachusetts has no specific or comprehensive laws about agency. Instead, agents engage in practices that are common within the real estate industry. For example, Bay State real estate agents either function as buyer’s or seller’s agents, meaning they represent – have a fiduciary responsibility to – either the buyer or the seller in a transaction. Some work as exclusive buyer’s agents, meaning that they never represent sellers.

But in the Bay State, the situation becomes tricky because most agents also act as subagents, which happens in cases when an agent cooperates with a seller’s agent to represent the seller even though he or she brings a buyer to the transaction. They can also function as disclosed dual agents, which occurs when agents within the same company are representing both the seller and the buyer. In those cases, agents have to disclose that they are not fully representing, and have no fiduciary responsibility to, either party involved in the transaction.

Because Bay State licensed agents often interpret their roles differently and because the state lacks any set standards or specific definitions there is some level of confusion in the industry and among consumers, according to some real estate experts.

Last year, MAR set up a task force to delve into the issue. The task force came up with these key recommendations that would offer guidelines for agents to act as:

The task force also recommended that sellers be required to offer express, or written permission, for subagency to occur. This would help sellers be “fully informed” about how subagency works, said David S. Drinkwater, MAR president. Some sellers don’t realize that when agents from other companies come to see their house with a buyer, the seller is responsible for whatever representation, or misrepresentation, that agent makes about the home, unless the agent is a buyer’s agent.

“What we’re trying to do is to step back and see what we can do to make sure that we’re moving forward in a direction that is more in line with needs of the consumer,” said Drinkwater. “The changing times and the changing needs of consumers require us as an industry to review our practice models and standards so that we can serve the public in the best way possible. Our efforts here are to look at options to improve the homebuying and selling process for consumers.”

Drinkwater said that the recommendations are based on feedback that MAR has received from members and from the general public about what they want to see happen. In addition, the task force spent a lot of time looking at how other states are handling the issue.

In the next few months, MAR leaders will be testing the waters to see whether these recommendations will be embraced or rejected by lawmakers, regulators, Realtors and the general public.

Drinkwater said MAR leaders will meet with owners of real estate companies and with state officials to get their reactions to the proposals. The association has not decided yet whether it will seek legislative or regulatory changes.

State of Agency

The issue of how agency is practiced has generated controversy and debate for years. Other states have very specific laws that are aimed at preventing inconsistent interpretations of what an agent’s and broker’s responsibilities and roles are during a home sale and purchase transaction.

There are 35 states, including New Hampshire and Maine, along with Washington, D.C., that have specific and comprehensive legislation regarding agency, according to information provided by the Association of Real Estate License Law Officials. Fourteen states, including Massachusetts, Arkansas and Mississippi, have no comprehensive rules.

Twenty-one states, including Alabama, Colorado and Florida, employ non-agency practices. Non-agency means that real estate agents do not represent the seller or the buyer in the transaction, but are merely facilitating the sale and purchase of a home.

Some states, like Alabama, even have a “default” position for the agent. That means that if nothing is expressly stated or written about whom the agent or company represents, the agent takes that “default” role – as either a transaction broker or with some fiduciary relationship.

In other parts of the country, the facilitator-type role has become attractive to consumers, said MAR’s Drinkwater. MAR leaders want to explore whether this business model would work in Massachusetts and if so, provide guidelines for agents on how to implement and practice it, he said.

“We don’t have anything that expressly permits or denies the opportunity to work as a facilitator in this state,” said Drinkwater.

Drinkwater said the task force did not want to restrict practices in this state but instead wanted to “add some forms of practice to the repertoire” without taking any way.

“We want to broaden the offering of the type of representation services that are available [from real estate] practitioners in a way that will enhance the experience for the consumer,” he said.

Leaders of some real estate groups, however, said they feel that states that don’t have specific agency laws or regulations should leave it that way. The National Association of Exclusive Buyer Agents has been particularly vocal in its opposition to legislative efforts that the group feels are harmful to consumers because they’ve weakened or eliminated disclosure requirements and exclusive representation.

NAEBA and the Massachusetts Association of Buyer Agents oppose the practice of designated agency, arguing that it’s just a different label for dual agency. They contend that a single company can’t fully represent different sides in the same transaction.

“It’s [designated agency] kind of a farce in a sense,” said Tom Wemett, president of NAEBA and a board member of MABA. “It’s not true representation. It’s a way for real estate companies to continue what we call the double-dip.”

The MAR task force recommendations were discussed at a MABA board meeting last week.

Designated agency benefits large real estate companies and harms the consumers and smaller brokers, according to Wemett, and it shifts more liability from the broker owner of a company to individual agents.

“This is not [a matter of] us vs. them – NAEBA and MABA vs. traditional real estate groups,” he said. “This is a consumer issue … We are merely part of a coalition that are consumer advocates and that’s why we’re opposing what this is.”

As for the facilitator role, often referred to as a transaction broker in other states, in some states that have that business model, agents are still engaging in agent-like practices instead of acting as facilitators, said Wemett. NAEBA doesn’t oppose the facilitator concept, as long as agents do in fact function as facilitators, he said.