Understanding Real Estate Representation

Understanding Real Estate Representation

Choosing the right representation for your buying or selling needs is crucial. You have many choices of representation for your real estate transaction. Here are five tips to better understand which type of legal relationship with a real estate professional, otherwise known as an agency relationship, will best protect you during the buying or selling process.

1. Buyer’s Agency

When you’re looking to purchase a new home, you can hire an agent who only represents you. This person is called an “Exclusive Buyer’s Representative” or “Agent.” As a buyer, your agent will work in your best interest and owes you a fiduciary duty. Typically, the listing brokerage offers a commission to a buyer’s agent which is paid for by the seller.

2. Subagency

When you purchase a home, the agent you can choose to work with might not actually be your agent at all, but instead they may be a subagent of the seller. Generally, subagents represent and act in the best interest of the sellers and the sellers’ agent. If your agent is acting as a subagent, you can expect to be treated honestly. However, keep in mind that the subagent owes loyalty to the sellers and their agent, they can’t put your interests above those of the sellers. A “best practice” when working with subagents is to never tell them anything you don’t want the sellers to know. Say, for instance, you offered $150,000 for a home but are willing to go up to $160,000. Keep this information to yourself as that’s the type of information subagents would be required to pass on to their clients, the sellers.

3. Disclosed Dual Agency

Agents and companies in Michigan can represent both parties in a home sale as long as that relationship is fully disclosed. This is called a “Disclosed Dual Agency.” Due to the fact that dual agents represent both parties, they are not allowed to be protective of, and loyal to, only you. Unlike other real estate agents, dual agents don’t owe their clients all of the traditional fiduciary duties; rather, they owe limited fiduciary duties to each party.

At this point you’re probably wondering, “Why would I agree to dual agency?” Let’s suppose you want to buy a house that’s listed for sale by Preview Properties, the same real estate brokerage you are selling your house through. In that case, the Preview Properties would be representing both you and the seller of the house you are interested in. Both parties would have to give their informed consent to that relationship as there’s a potential for conflicts of interest. In many states, that consent must be in writing.

4. Designated Agency

A “Designated Agency” is a form of disclosed dual agency which allows two different agents within a single firm to represent both the buyer and the seller in the same transaction. In an effort to avoid any conflicts that can arise within dual agencies, some managing brokers will designate or appoint agents in their company to represent only sellers, or only buyers. However, that is not required for designated agencies. A designated, or appointed, agent will give you full representation and represent your best interests.

5. Non-agency Relationship

In Michigan, you can choose not to be represented by an agent. This is called a “Non-agency,” or working with a transaction broker or facilitator. In non-agency representation, the real estate professional you work with does not generally owe you as many duties as a traditional agency relationship. Always remember to ask the person you’re working with to explain what he or she will and won’t do for you.