The Evolution of Home Seller and Buyer Representation

By: Alex Morel

In the early days of real estate sales, agency relationships between sellers, buyers and Real Estate Brokers did not exist like it does today. It was more of a free for all as a seller could hire multiple real estate brokers to sell their house if they so desired, and whoever brought the buyer would earn the commission. The seller was also free to deal directly with a buyer without a Broker and sell their property on their own without paying a commission. Because of that arrangement there was a hesitancy among brokers to market the home to other brokers and the public at large.

The creation of the Multiple Listing Service (MLS) in the early 20^th century established a more cooperative environment between brokers as The National Association of Real Estate Exchange (NAREE) endorsed exclusive agency and mandatory cooperation between brokers, which would be required of any broker who wanted to take part in the MLS. This also worked to the benefit of sellers as more buyers would be exposed to their home listing.

One of the other main reasons of forming the MLS was to help legitimize the real estate profession as it created a fiduciary relationship between brokers and their clients and strengthened its membership among brokers.

With mandatory cooperation and offers of compensation between brokers, the MLS required that the offers of compensation be contingent on the cooperating broker to act as subagents of the listing broker. So, the listing brokerage and their agents, as well as other cooperating brokers and their agents, who brought a buyer in, all had their allegiance to the seller. This certainly left the home buyer out in the lurch.

At that point in time the seller’s brokerage, their subagents, other brokers, and their agents only had an obligation to treat buyers fairly and honestly. But, if a buyer didn’t ask the right questions they would often find themselves on the wrong end of a property issue that was now their problem to deal with without much if any legal recourse.

In the 1980’s the U.S. government performed an in-depth study of the Real Estate Brokerage industry and found that around three-quarters of all buyers thought they were being represented by the broker they worked with. The same amount of sellers also believed the buyers were being represented by a broker.

Because of that revelation, and litigation revolving around buyer representation in the 1980’s, a National Association of Realtors advisory board in the early 1990’s recommended Realtor® Associations lobby for state laws defining real estate broker agency relationships for buyers and sellers. NAR subsequently dropped the rule that made offers of compensation contingent on the cooperating broker acting as a subagent of the listing agent. This basically paved the way for buyer agency representation moving forward. From there the individual states and their state Realtor® Associations would discuss and legislate how brokers would be required to treat buyer and sellers.

Because states are independent of one another and each have differing views regarding representation, each state set their own regulations on how a buyer and seller can be represented.

In Florida the state automatically views agency relationship between a brokerage and their customers as a Transaction Broker relationship.

As a Transaction Broker, “ABC Realty” and its associates, provides to you a limited form of representation that includes the following duties:

1. Dealing honestly and fairly;
2. Accounting for all funds;
3. Using skill, care, and diligence in the transaction;
4. Disclosing all known facts that materially affect the value of residential real property and are not readily observable to the buyer;
5. Presenting all offers and counteroffers in a timely manner, unless a party has previously directed the licensee otherwise in writing;
6. Limited confidentiality, unless waived in writing by a party. This limited confidentiality will prevent disclosure that the seller will accept a price less than the asking or listed price, that the buyer will pay a price greater than the price submitted in a written offer, of the motivation of any party for selling or buying property, that a seller or buyer will agree to financing terms other than those offered, or of any other information requested by a party to remain confidential; and
7. Any additional duties that are entered into by this or by separate written agreement.

Limited representation means that a buyer or seller is not responsible for the acts of the licensee. Additionally, parties are giving up their rights to the undivided loyalty of the licensee. This aspect of limited representation allows a licensee to facilitate a real estate transaction by assisting both the buyer and the seller, but a licensee will not work to represent one party to the detriment of the other party when acting as a Transaction Broker to both parties.

The two other types of buyer representation are:

No Brokerage Relationship, where a brokerage and their agents owe duties of:

1. Dealing honestly and fairly;
2. Disclosing all known facts that materially affect the value of residential real property which are not readily observable to the buyer; and
3. Accounting for all funds entrusted to the licensee, and

a Single Agent Relationship, where a brokerage and their agents owe the duties of:

1. Dealing honestly and fairly;
2. Loyalty;
3. Confidentiality;
4. Obedience;
5. Full disclosure;
6. Accounting for all funds;
7. Skill, care, and diligence in the transaction;
8. Presenting all offers and counteroffers in a timely manner, unless a party has previously directed the licensee otherwise in writing; and
9. Disclosing all known facts that materially affect the value of residential real property and are not readily observable.

Buying or selling a home is typically the largest transaction a person will make in their lifetime. Knowing your rights and responsibilities as both a buyer and a seller is critical to avoid major financial and legal repercussions, and you will be best served by establishing a relationship with an experienced Realtor® who will guide you through the complexities of each transaction.

Regardless of the type of representation you choose with me, our relationship will not end when the sale is complete. My past customers have come to rely on me for anything they believe I may be able to help them with, which I am more than happy to do. After all, Realtors are some of the best problem solvers. Our livelihood depends on it!

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