Real Estate 101

Agency — Who Represents Whom?

That is a focal and pivotal question for today’s consumer.  Since the agency question began to occur in 1984 (when the National Association of REALTORS (NAR) introduced the topic for the beginning of serious discussion on the issue) the shift began to change from “sub-agency” to “buyer-agency.”  The topic gained momentum within the real estate industry for the next two years and debates grew more and more heated and occasionally hostile between agents and brokers.  By 1986 Buyer-Only-Franchises began to appear across the country and the pendulum began to shift slowly, but steadily toward buyer-brokerage and away from sub-agency.

In 1991 in Arizona the Arizona Association of REALTORS (AAR) drafted a contract (2 pages in legal length; front and back) that stated, “Agency Confirmation” for the first time.  Ironically enough, the AAR committee followed the 80-20 rule of what is happening in the real estate industry as a guide.  At that time sub-agency was still holding approximately 80% of the contracts as sub-agency.  By 1993 the pendulum was at a ration of approximately 50-50.  Thus a major revision was made to the AAR residential purchase contract with a clear view toward “equating the terms of the contract” to remove the seller bias that was the direction of sub-agency.  (”Caveat Emptor” — Latin:  “Let the buyer beware.”)  The re-addressing of this issue focused on the fact that the contract should no longer favor the seller.  Rather, the contract should protect both the seller and the buyer.  Equally of concern was the fact that the contract should not show bias toward the listing agent; but, also level the playing field for both the listing agent and the selling agent.  If the seller has a right to an agent, shouldn’t the buyer have the same right?  Therefore, the seller has a listing agent representing them and the buyer has a selling (buyer-agent) representing them.  Equality for all.

From this time forth the overwhelming percentage of agents began representing the buyer and almost completely abandoned the sub-agent position.  Companies started drafting office policies and establishing their way of doing business — some elected to “force” buyer brokerage on all transactions when their agent wrote an offer for a buyer.  Other companies allowed sub-agency to remain.  There were two other alternatives that I experienced:  Sub-agency was allowed on properties where the company already had a listing and the “old guard” refused to shift from sub-agency and did NOT allow any buyer-brokerage.  (This latter group faded away very quickly in almost all cases.)  Why did they disappear?  Because most consumers who were slowly behind the curve, when asked by an agent if they preferred to have the agent represent them in a transaction almost always said yes.

 Today, I would tend to believe there are two general policies among companies:  1) you must be a buyer-agent if you represent the buyer in all cases;  even those where the company already has the listing.  (This creates what is generally termed a “Dual Agency.”)  Across time the language has become more sophisticated and is called now (at least on the AAR form) “Consent to Limited Agency” with the terms spelled out to clarify what is “limited” in this agency relationship, and 2) the agency is given the option by the company to elect to remain a representative for the existing listing (representing the seller) and when the buyer appears to clarify that the agent will represent the seller only and serve the buyer as a sub-agent only.?

Documentation is signed to clarify either position.  This form is widely used in Arizona and is called the “Agency Election” form.  Most companies require this form be used so the consumer is informed how agency works in the state.  Most companies require the agent to submit this signed form into the Designated Broker.  The agency relationship is further clarified on the contract with a statement of “Agency Confirmation” so each party will see and sign acknowledgment of knowing the real estate agent representation in the transaction.

Various attempts were made across the years to regulate and later to legislate a mandatory agency disclosure in Arizona.  Each of these various attempts was thwarted — first, by the Attorney General, and later by the legislature itself.  The real estate community has done a superb job of disclosure from the onset of the discussion and today has a nearly perfect record of satisfying the respective consumers about the agency representation issue.

To my knowledge there has been no lawsuits ruled on by the courts on this full disclosure of agency.  That is not to say that threats of lawsuit and various mediations and/or arbitrations have not addressed the respective concerns of “was I represented” or “was I represented fairly” (an Arizona term in the commissioner’s rules — A.A.C. — R4-28-1101(A).)  (NOTE:  The REALTOR Code of Ethics calls this “honest dealings.”)

So, in conclusion, having served on many of the early AAR committees and task force groups, President of the AAR in 1991, and through the changing of several real estate commissioners, including one temporary commissioner (who prompted the AAR to draft an “emergency measure” of change on agency), we came through the growth process with a very workable solution — namely, full disclosure with well prepared documentation for the mutual benefit of consumers and agents alike.

– C Dale Hillard