The Agent Mess – Does Your Agent Represent Your Best Interests?

“Consumers are harmed by the current agency system both because it is rife with conflicts of interest and because these conflicts are not clearly disclosed to or well-understood by consumers”. “The Agent Mess” is a perfectly titled study that details how consumers have little to no understanding of an agent’s role and loyalties. Two-thirds of consumers mistakenly believe the real estate agent they hire is “always” or “almost always” required to represent their interests. That’s not true according to this study by the Consumer Federation of America (CFA). In early January, CFA members posing as “buyers” randomly contacted thirty listing agents in eight markets. Of the thirty, only seven agents informed the “buyers” that they could not represent them.

The agent mess is exponentially growing as consumers cruise sites like Zillow, Trulia, which pushes them into first contact with the listing agent. As noted in the survey, 75% of those listing agents fail to fully disclose their role and contractual obligation – which is to the seller, not buyers. Blame however, lies mainly with the consumer; studies repeatedly show that most buyers and sellers fail to properly research agents and understand their role in a transaction. The real estate agent problem isn’t new; while expected to follow established protocol and act ethically, many appear to have problems with that.

Research Every Agent, Ask Questions

For the most part, buyers and sellers appear largely disinterested in understanding what an agent does and what a real estate contract entails. Relatively few take the time to understand the process, agent roles, roles of others and the potential issues common along the way; it’s dull, it’s boring and there is a certain expectation that “the agent will handle that”. Most buyers and sellers, especially first-time buyers, lack experience with real estate transactions, don’t understand agency and/or fail properly qualify their agent. This is due to a variety of reasons:

  • The perception that a real estate transaction is much the same as any other consumer purchase
  • Lack of awareness or poor understanding of agency and how it directly impacts them
  • The expectation that the agent(s) will simply “handle things” in their “best interest”
  • Either a nonchalant approach to or simply not caring to vet and qualify their agent

The perfect example of confusion is allowing dual agency with existing homes. Here one agent – often the listing agent – manages the interests of both parties and the contract. How is it possible to manage the best interests of competing sides; seller wants highest net price, buyer wants lowest net price. Whose interests are foremost during negotiation, with stipulations, during inspections, during appraisal? Georgia is one of just 8 states that still allows this; why is as mind-boggling as any buyer or seller that allows it. The mantra of “win-win” is idiotic in a real estate transaction; both sides cannot “win”. Why would either buyer or seller agree to this?

Another consistent issue is confusion with new construction purchases. Most buyers fail to understand that with a new home, the site agent represents only the builder. The buyer is unrepresented in the transaction if the site agent writes the contract. The site agent has a fiduciary – legal – obligation to represent the seller’s best interests at all times during the transaction. Buyers doing this are not represented and save nothing, yet so many regularly do this. Buyers should ALWAYS use a buyer’s agent when buying a new home.

Key Findings & Recommendations From the CFA Report

The ineffectiveness of state disclosure laws has harmed many consumers in the following ways, according to CFA:

  • Home buyers and sellers who think their subagents or transactional agents are fiduciaries have mistakenly believed that their agent is seeking, respectively, the lowest or highest house price.
  • Home buyers who think subagents are working for them often have disclosed information about their finances and house price ceilings that the subagents are legally required to share with sellers.
  • Home sellers working with fiduciary agents may face pressure to allow dual agency when buyers are interested in working directly with those agents. They may not understand that, under dual agency, their fiduciary interests are no longer being represented. They also may not understand that a 5 percent to 6 percent commission captured by just one agent usually represents very generous compensation for limited services rendered.

Dual agency is banned in 42 of 50 states, NOT in GA. The study dives deep on this, trying to understand why either side would permit such a blatant conflict of interest. It also is clear on the agent motivation – specifically collecting both sides of the commission. One agent CANNOT represent the best interests of both parties – 42 states recognize that.

These are some of the reforms that the report said would greatly improve the content and timing of disclosures to home buyers and sellers:

  • Dual agency should be prohibited; it is allowed in eight states (incl GA).
  • There should be a clear written and verbal communication from agent to consumer at the first substantive contact about whether the agent will function as a fiduciary agent, a subagent or transaction agent/facilitator.
  • State real estate commissions should work with consumer and industry representatives to develop an effective disclosure document then enforce its use. If they refuse, state attorneys general should take on this responsibility.
  • These commissions should also develop rules to minimize conflicts of interest when the same real estate firm represents both a seller and a buyer.

Stephen Brobeck at CFA, observed: “These reforms would benefit both consumers and real estate agents. More informed home buyers and sellers will make better decisions. They will have a higher regard for, and complain less about, real estate agents. And agents will not face the risks and ethical dilemmas of dual agency and undisclosed sub agency.”

Change in real estate will only come about when consumers force it. So force it; spend a little time researching the aspects of a real estate transaction. Spend a few minutes and google an agent; ask and learn about agency and understand that when things go wrong with real estate, they tend to do so in expensive and complicated ways. Buying or selling a home is a monumental financial and emotional event; spend the time required to ensure that you can trust your agent without reservation. Read the disturbing detailed findings of the CFA report here.

Questions? Maybe we should talk.

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