Shame
on real estate educators who are perpetuating the obsolete and
inappropriate real estate brokerage practices! One of those old
practices is a market model known as sub-agency, in which real estate
brokerage firms cooperated to sell listings. In sub-agency, the listing
or principal broker engaged the services of other licensees (including
co-brokerage firms and their salespeople) as agents to represent the
principal broker in dealing with seller-clients. These cooperating
agents (often referred to as the selling brokers) became sub-agents of
the listing broker' Seller-clients.
When co-brokering under subagency, all licensees for the two Brokerage
companies represented the seller. Buyers could only be treated as
customers (the party the agent works with), not clients (the party the
agent works for), and thus buyers received no representation. This
model was viable until the mid -1990s.
The record clearly shows that brokers did a terrible job of serving
both real estate sellers and buyers under the sub-agency model. The
Justice Department' survey of the mid -1980s advised brokers that they
were telling the consumer less than the truth about representation.
Specifically, the Justice Department wanted real estate brokers to
correct this lack of disclosure by requiring that agents discuss with
buyers and sellers the different services available to them.
With the attention of the Justice Department focused on sub-agency, as
well as the $500 million class action lawsuit involving dual agency in
the 1990s and subsequent state agency disclosure laws, brokers found
other ways of doing business with each other without extending
subagency to cooperating brokers. By 1995, many brokers were
experimenting with buyer brokerage and facilitation. While co-brokers
can still practice sub-agency, virtually no one does. Sub-agency has
died! Yet state regulators, textbook publishers, and real estate
educators won't give it a respectful burial.
In my continuing education classes for brokers and sales associates, I
often begin class with a quiz concerning the way they practice serving
sellers and buyers in transactions. When reviewing the quiz results
with them, I always ask the question, " do you practice as you do?" The
broker and sales associates provide interesting and quite often sound
reasoning for their actions, but without fail, the vast majority will
come to admit, "reason is that' what I was taught when I came into the
business," or "do this or say that because that is what everybody else
does." Apparently educators and brokers-in-charge are still
perpetuating old
customs.
Let' take a look at a few situations that indicate that sub-agency is a
patient on life support:
1. Client vs. Customer: When the
truth, whole truth and nothing but the truth regarding representation
and agency relationships is known and understood by buyers and sellers,
they will always choose to be treated as clients. They will not accept
being served as a customer by either a subagent or facilitator (or
whatever term is used under state law.)
2. Exclusive Listing Agreement vs. Exclusive Buyer
Broker Agreements: Real estate teachers train their
students to obtain an exclusive listing agreement for sellers but often
don't train them to obtain a similar agreement from buyers. Why? Client
relationships should or must be written agreements whether the client
is a buyer or seller. This reluctance to obtain a contract from a buyer
is another example of an old habit dying hard— sub-agency,
the seller was always the client (get a written agreement) and the
buyer was a customer (no agreement).
3. Printed contract forms: Agents
today need agreements that favor neither the buyer nor the seller. They
should be fair and neutral for today' practice. If there is a state law
that requires the use of specific printed forms, and these forms favor
sellers because of old customs, real estate educators and licensees
should speak up and become involved in the creation of new forms.
4. Earnest Money: When agents
practiced under sub-agency, all of them had a legal duty to look out
for the best interest of sellers, including having buyers provide
earnest money, often a significant sum. Now that agents often represent
buyers, they need to be trained to review this old practice and
determine if it still benefits their clients. In some cases, a smaller
amount of earnest money or even no earnest money (but some other
valuable consideration) may benefit the buyer' interest.
5. Presentation of offer: Under
the practice of sub-agency, the listing belonged (contractually) to the
listing firm. The listing firm determined the terms under which it
would offer sub-agency to a firm with a buyer prospect. Often the
listing firm limited the contact that sub-agents could have with
seller-clients and frequently, listing brokers reserved the right to
present all offers received to the seller-client. Sub-agents were
directed to take all written offers received to the listing firm.
Listing firms in turn made an appointment and presented offers to the
seller client.
Many problems resulted from this outdated protocol: e.g., listing
agents did not always promptly present offers to their sellers.
Sometimes, listing agents were not able to accurately characterize the
details of the buyer' offer. Eventually, many states passed laws
requiring agents to promptly present all written offers received to
principals. Yet even today, buyer-agents are taught to deliver their
client' offers to the listing agent, again a custom born out of an
outdated practice. There' no justification for this practice today. In
my state, Alabama, the law states that regardless of the relationship
between licensee and buyer, on
receiving an offer from the buyer, the licensee is to promptly present
offers to the seller.
Real estate educators and regulators must bury the existing prevailing
"as usual attitude" among licensees. Never has the lesson been more
clear than in the past year when recognized corporate leaders were led
into court humiliated and under indictment, describing their business
practices in these terms: "'been doing this for years," or "someone
else does it." The practice of sub-agency is a good example of a real
estate industry practice that needs to be shelved. Let' make room in
our classroom discussions and in our textbooks and regulations for new
industry trends and let subagency rest in peace.
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