History of Real Estate Agency RelationshipsJacob
In the beginning, real estate brokers were known as intermediaries and optionists. Back then, it was standard practice for an intermediary to know about a property for sale, but to keep it secret from other intermediaries. These intermediaries found it difficult to charge a fee for their services, so they resorted to tactics that did not always benefit their vendors. Optionals, on the other hand, were generally more successful in collecting their fees because they would tie the seller’s property in a Purchase option, sell the property to a buyer at a price higher than the option amount, pay the option price to the seller, and then keep the rest.
The first real estate brokerage businesses were freely organized and used brokerage methods that were often dishonest, subject to fraud, and that leveraged sellers and buyers. Finally, a newer concept was developed in which the real estate broker was an agent and owed a fiduciary duty to the seller and received payment for their services. This new concept forced the seller and broker relationship to a higher level of service and service. It also allowed brokers to list properties for sale through contracts. These contracts are what we now call listings. The above forms of listings we call open listings. Open listing is a type of non-exclusive listing agreement that authorizes a real estate broker to offer a property for sale, find a buyer, and receive payments for services at the close of that transaction.
Other brokers may also have open listings for the same property, but only the broker who actually found the buyer would receive a commission. Also, no broker would be paid a fee if the seller sold the property. The open list discouraged cooperation between brokers, as each broker could obtain their own open list. To solve the open listing problem, the exclusive agency listing became popular.
Exclusive agency listing is a type of listing contract where the seller offers listing listing compensation only if the buyer is obtained through the efforts of the brokerage or the efforts of other real estate brokers. This means that in certain situations, such as For Sale by Owner, the listing brokerage may not receive compensation when the property is sold. In the list of exclusive agencies, the listing broker or other brokerage that works with the listing broker must procure the buyer to have a claim for compensation.
The exclusive agency listing encourages competing brokers to find buyers for the listing, as the listing broker pays the broker’s fee for sale. However, the seller still does not pay a fee when a seller finds the buyer. The list of exclusive agencies finally led to the exclusive right of sale list.
The exclusive right of sale agreement, the brokerage listing is offered compensation in the event of a sale, regardless of who acquired the buyer. The exclusive right to sell the listing guarantees that the listing broker will receive a fee, even if a competing broker or seller sells properties. It provides the most protection for the listing broker and is considered in the best interest of the seller because the listing broker will put effort and resources into marketing the property, as a commission is guaranteed during the term of the agreement.
Even after the exclusive right of sale became popular, there was little cooperation between brokerage firms, as a buyer who wanted to buy a specific property would have to deal with the broker who had exclusive listings of interest. It was also quite clear to all parties that the broker represented the seller and that the buyer had no representation.
In the 1950s there was pressure for greater cooperation between brokerage houses. As a result, a broker working with a buyer would contact competing brokers to find out their inventory and possible matches for their clients. Agreements often occurred when the selling agent did not know the seller or his agent, and the selling agent’s only transactions were with the buyer. Suddenly, the concept that the sales brokerage owed its fiduciary duty to only the seller was no longer an orderly and logical concept. However, it would be many years before unfeasible agency concepts were resolved and led to buyer representation.
As the 1950s and 1960s progressed, a more formalized cooperative brokerage system, known as the Multiple listing service (MLS), was developed. Through the MLS, the concept of subagency Evolved In a nutshell, this meant that the listing agent was the agent and represented only the seller. The stockbroker would hire sales associates who were considered subagents of the seller The MLS brokerage was required to be available to all cooperating brokerage within your MLS. These cooperating brokerage firms were also considered to be sub-agents of the brokerage firm, who were agents of the seller. If the cooperating brokerage had sales associates, they were subagents of the cooperating broker, which were subagents of the listing broker, who was the seller’s agent. During this period, an agency relationship with a buyer was not possible, since the agency relationship was always with the seller. The only duty a licensee owed a buyer was not to lie when asked about a property. The concept of “beware of the buyer” was really the reality of how the brokerage business worked and buyers were always not represented.
The rise in consumerism, as manifested in numerous court decisions, put pressure on the brokerage business to become more concerned with the buyer’s interests. Because of that, licensees working with buyers had an affirmative duty to disclose known issues affecting a property. For example, if the broker knew that a roof was leaking, they would have to disclose this fact. This disclosure concept was later expanded by the courts to include conditions on the property that brokers should or could have known.
In the 1980s, a government study found that nearly three-quarters of all buyers thought that the brokerage they were working with represented them as clients. The same study concluded that nearly three-quarters of all sellers also believed that the cooperative brokerage represented the interests of the buyer. It soon became apparent the concepts of agency law that industry and government regulators had tried to impose to simplify and clarify that relations with the agency had not worked. Continued pressure from consumer groups and the courts eventually led to the buyer representation movement of the 1990s.
In 1991, the National Association of REALTORS® formed an advisory group to study agency representation issues. Testimony was received from real estate professionals, industry experts, the public, and state regulatory authorities. The advisory group report made the following recommendations:
NAR’s multiple listing policy must be modified to make subagency bids optional. If a cooperating brokerage did not accept the subagency, then the listing broker must offer compensation to the broker representing the buyer.
The NAR would encourage state associations to promote changes in real estate laws and regulations to promote the disclosure of the agency’s options. These options would include the seller’s agency, the buyer’s agency, and the disclosed dual agency. The purpose of this recommendation was to help consumers make informed decisions regarding representation.
The NAR should encourage real estate brokers to adopt written company policies that address managing the agency’s relationships with its clients and clients.
The NAR would encourage the education of all members on the subject of agency representation. State regulatory agencies would also be encouraged to include agency as a required subject in continuing education requirements for all licensees.
Beginning in 1992, the National Association of REALTORS® adopted the following policy:
“The National Association of REALTORS® recognizes the agency of the seller, the agency of the buyer and the double agency disclosed with informed consent as appropriate forms of consumer representation in real estate transactions. The association respects the need for all REALTORS® to take individual business decisions about their business agency practices. In addition, NAR supports freedom of choice and informed consent for consumers or real estate services by creating agency relationships with the real estate licensee. “
These changes from NAR to representation policy changed the way the industry practices. Exclusive right of representation Purchase agreements now allow a buyer to hire a stockbroker to find and negotiate the purchase of real estate. In general, these agreements are for a specific period and require the buyer to pay a commission at the closing of the real estate transaction. As the buyer’s agent, the buyer’s brokerage owes all fiduciary duties (care, loyalty, disclosure, obedience, and accounting) to its principal, the buyer.