The Housing Scene by Lew Sichelman

Is Your Agent Really Your Agent?

Do you know who your real estate agent represents?

If you are a seller, you can be certain the agent who listed your house works for you. But if you are a buyer, are you sure the agent who drives you from house to house is on your side?

Unless he or she is what’s known as a buyer broker, “your” agent may actually be working on behalf of the seller, or may not speak for either side in the transaction. And unless he or she practices the art of working only for buyers, never sellers, even a self-identified buyer broker may not be doing you justice.

True buyer brokers maintain that agents cannot work both sides of the fence. They say the practice of representing buyers can’t be turned on and off at will.

But according to a new report from the Consumer Federation of America, an association of nearly 300 nonprofit consumer organizations, many buyers and sellers have no clue who their agents truly work for. And given the amount of money involved in the typical real estate deal, that’s important to know, says CFA’s former executive director, Stephen Brobeck.

Why? Because when you think the agent is working on your behalf, you’re likely to disclose information that would hurt your bargaining position -- say, how much you can afford as a buyer, or your bottom line as a seller -- if the other side knew it. Or the agent might take you only to houses he listed, where he stands to rake in the entire commission rather than sharing it with a buyer’s agent.

This isn’t the first time the CFA has taken on the issue of agency: It issued its first report in the mid-1990s. And with the help of the National Association of Realtors, the principal trade group of agents and brokers, important changes in disclosure laws were put in place.

Back then, subagency was dominant. With this form of representation, an agent works with the buyer, but owes their fiduciary responsibility to the seller. That means they can’t bargain on the buyer’s behalf, point out flaws in the property or even suggest hiring an independent inspector to examine the place.

Subagency is still practiced in some places. In Wisconsin, for example, all agents work for the seller unless a buyer-agency agreement permits them to work for the buyer. But in most places, multiple-role agency has become most prominent.

That takes several forms. One is a designated agent who is recruited by the seller’s agent to work with, and for, the buyer. Another is a dual agent, who supposedly represents the interest of both sides in the same transaction. And a third is a transactional agent, who works with both parties to facilitate the sale, but has no fiduciary responsibility to either side.

Unfortunately, according to the results of a CFA poll of 1,000 people, the majority of consumers (55 percent) don’t understand these terms and their implications.

In most states, agents have a legal and ethical obligation to divulge their relationship to buyers and sellers. But this information is often revealed with little, if any, explanation on a piece of paper the consumer is asked to sign, but rarely reads or questions.

In some places, disclosure is only required orally, not in writing, or not at all until the buyer reaches the closing table. Indeed, a CFA mystery shopper survey found that 75 percent of agents they spoke to made no effort to mention the issues involved with dual agency.

Complicating the problem further is the fact that state real estate commissions have been ineffective in enforcing disclosure laws. “Violations usually only come to light when agent practices are so egregious that they lead to litigation,” the CFA report says.

In a response to my question during a press briefing, Brobeck said that “agency has become very complicated. There’s still a lot of room for improvement. I would call it a mess right now.”

Still, Brobeck believes agency disclosure is “better than it was” in the ‘90s.

The CFA is calling for new reforms, including the prohibition of dual agency, which is already illegal in eight states, and full disclosure of agency at the first substantive contact with the client.

In a survey of 1,000 people who said they would be selling within a year, Clever Real Estate, which connects buyers and sellers with agents, found that nearly 4 out of 5 respondents would consider using a dual agent, or were unsure whether they would or not.

“This arrangement is inherently problematic, in that a dual agent is under no legal obligation to represent the interests of either party as a fiduciary,” said Thomas O’Shaughnessy, an analyst with Clever.

Until these CFA recommendations and other improvements are enacted -- if they ever are -- it’s up to consumers to protect themselves. Here’s how:

At the outset, ask agents to disclose their relationships throughout the entire sales process. If they won’t work solely as your fiduciary, ask them to slice their commission: by 1 percentage point if another agent is involved, the CFA suggests, or 2 points if they’re a dual agent working for both parties.

Also, consider hiring an attorney who will look out for your interests.

And again: Don’t give any information that can be used against you when the time comes for haggling to someone who is not completely on your side.