Good News For Exclusive Agents and Consumers

The Consumer Federation of America (CFA) has finally addressed the confusion around representation issues in the real estate industry and their implications for consumers. The CFA is a nonprofit association of 240 pro-consumer groups founded in 1968 to advance the consumer interest through education and advocacy.This past October they released a report entitled "Changes in Real Estate Agent Representation: Implications For Consumers." The report was prepared by Stephen Brobeck, Executive Director of the Consumer Federation of America.

The report calls on state regulators to protect consumers from "imprecise and ambiguous" language by real estate practitioners.It calls for "aggressive distribution" of informational materials in addition to agency disclosure. These efforts should include "energetic dissemination" of information to the press.

"Truth in Labeling"
Truth in labeling is at the very heart of this report: "Brokers should be required to accurately and understandably label the practices that they advertise." For example regulators should not permit the use of the term 'dual agent,' described by CFA as 'self-contradictory.'A 'dual agent' is really nothing more than a facilitator and therefore not representing either the buyer or seller. Brokers should acknowledge that and not try to mislead consumers.

Nonagency Relationship Not Worthy of Full Commissions
By experimenting under terms such as "facilitatorship," "tranaction brokerage," and "dual agent," the broker seeks to hold on to both sides of the commission while limiting liability.Limiting the role of the broker ought to limit the compensation as well.If compensation is significantly reduced, then this could be an attractive option for a consumer. However, consumers may want a real estate agent, someone who represents their interests can can be held accountable.Also, the industry goal, by overwhelming agreement is the preservation of existing commission levels.

Advice to Sellers
The CFA advised sellers to ask for exclusive representation. The report did fall short of elaborating potential risks the seller may face in non-exclusive or non-agency relationships.Some of the headlines regarding the news at the release of their report highlighted the link CFA made between the type of agency relationship and the value of service.They suggested to sellers that unless the broker represents them exclusively the sellers should negotiate a "substantially reduced" fee.They further stipulated fee ranges based on combinations of non-exclusive representation and the presence of lack of co-operating agents in the sale.

Advice to Buyers Seeking Representation
The CFA advised the buyer who wants representaion that it is better to work with a buyer broker who represents only buyers.Buyer brokers are legally obligated to represent the buyer´s best interest and can be sued if they do not perform.They did not think under these circumstances that a buyer agent´s sharing of a split commission with the listing agent was a significant disadvantage to the buyer. They pointed out the buyer agent´s reputation, future referral and repeat buisness, and good reputation are "most important."

Buyer brokers who list property, or whose firm lists property may face comflicts of interest.If the buyer works with such a broker then the buyer ought to insist on full disclosure of these property listings and any financial interests the broker has in these listings. The CFA did not draw this out as to whether this would include the commission arrangements on these properties. They did not suggest that the buyer not reveal any confidential information until the buyer determins that none of these property listings would be of any interest.

Advice to Buyers Without Repersentation
The CFA defines a dual agent, facilitator and transactional broker as nonagents. The buyer is advised to negotiate for him or herself or hire an attorny to negotiate the purchase.The buyer is also advised to "thoroughly investigate" the property with a home inspector.

If the buyer is dealing directly with the listing agent then the buyer is advised to negotiate a lower price that reflects the fact that a second agent is not involved in splitting commission fees.

"Do not work with subagents unless there are no other alternatives." The report goes on to "it makes no sence for there to be two agents representing the seller."The buyers "will not recieve representation in the transaction and are likely to pay top dollar."

What would be most desirable according to the CFA would be the complete separation of listing and buyer brokerage. The listing agent would work only for the seller and the buyer agent would work only for the buyer, thus avoiding the dual agency dilemma altogether.

The Consumer Federation of America can be reached in Washington DC at (202) 387-6121.

Source: Banker & Tradesman, February 15, 1995, Barry L. Nystedt

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