Fred F. Otterbein began his real estate career in 1981. Today, he’s an associate broker at Liberty Realty Corp. MI in Grand Rapids, Mich. His general focus today is in commercial, industrial, and development areas. Otterbein is not an attorney or regularly practicing real estate educator or trainer. He has a long history of involvement in the analysis of and writing about real estate agency and advocacy matters.
Helping Agents Understand Agency
These questions and exercises can help your team sort through the underlying meaning and implications of this concept.
March 1, 2017
In the real estate profession, nothing has historically been more controversial than that of “agency.” No one person, association, or governmental agency is to blame for this—and neither are you. All of the vehicles or choices of agency have their pros and cons. But as a broker or team leader, it’s your job to help agents understand this fraught term and be able to apply their understanding to real-life transactions.
This article is not intended to be a replacement for basic agency instruction, but rather as an adjunct with it for possible inclusion in a weekly sales meeting. Hopefully it will inspire deeper thought and understanding of the topic in an interesting way.
Before your meeting, you’ll want to gather the following reference materials:
- Your association’s purchase agreement
- Your state’s applicable licensing and agency laws
- Any buyer agency or listing agreements your company uses, along with other agency contracts or disclosures and the National Association of REALTORS®’ Code of Ethics (particularly Article 1, Standard of Practice 1-9, and Article 15, Standard of Practice 15-2)
It’s important to emphasize to your sales associates that agency is more of a journey than a simple episode. Help them understand how consumer-agent interactions can often begin under a casual nonprofessional “relationship” and then transition into one of a “formal relationship” or engagement often marked by an exclusive agreement of some sort.
Give Agents a Framework for Analyzing Agency
One common source of conflict within an agent and consumer relationship is through something I like to call “competing consumers,” which can occur under several different scenarios. One of those scenarios, called “direct nonconflict,” is actually a good thing. This is where an agent or cooperating agents act as a catalyst to bring consumers and a property together. When you get right down to it, this is the primal function of the real estate profession. Conflict develops when we add advocacy to this primal function.
Key Terms and Concepts for Agents to Understand
- Prior client relationship
- Confidential information
- The primal function of real estate
- Ministerial acts
- Direct nonconflict
- Competing consumers
- Nonexclusive property provision
- The difference between agency as a vehicle and agency as an environment
The best way I have found to separate the ideas of agency and advocacy in real estate is to use the analogy of cars traveling down a road. The “vehicles of agency” include the many types of relationships that the consumer and agent may choose to operate under: customer, seller’s agent, buyer’s agent, transaction coordinator, facilitator, dual agent, designated agent, and so on. While these roles include legal definitions as part of agency law, the vehicles themselves are self-contained and absolute in nature. That makes them very different from the “roadway or environment of agency,” which represents all of the applicable agency statutory and common law, licensing law, the NAR Code of Ethics, regional customs, and a wide range of intermingling facts and circumstances. This roadway or environment is far more comprehensive and dynamic than the vehicle concept.
Here are three components of the agency roadway that you can use to help agents see how environmental differences can change the way agency vehicles operate.
- Ministerial acts. These tend to be tasks that are exempt from agency, such as responding to phone calls or hosting an open house. Some states use this term as a legal mechanism to define acts of nonagency. Ministerial acts are sometimes described as ones that don’t involve discretion or judgment on the part of the licensee.
- Property condition disclosure statements. Agents often don’t think of these documents as having anything to do with agency, because their primary function is to disclose facts about a property and not to assign agency. But they do work to define the agency roadway because they help establish a basic understanding of the product to be sold between the buyer and the seller while at the same time minimizing the agent’s disclosure responsibility.
- Association-inspired purchase agreements. These are included under the “customs” area of the agency roadway, and help define the environment in which your agents operate.
Check with legal counsel in your state to make sure you understand any variations in the actual legal treatment of these three concepts as opposed to relying explicitly on them as a waiver of agent duties.
Sales Meeting Exercises
Hand out copies of your association purchase agreement. Tell agents to take a few moments to examine the document, paying attention to how provisions contained within it act in favor of the buyer, seller, or both. Make sure your agents participate actively. Ask them questions such as:
- How does the agreement remove or underscore the agent’s role in making judgment calls or advocating for clients?
- Can you identify any provisions that favor one party over the other?
Next, turn your focus to two major agency provisions.
1. How can you show more than one buyer client the same property? Look for the nonexclusive property provision, often found in buyer agency agreements. This tenet allows the agent or brokerage to show multiple prospects the same properties without violating the agency or fiduciary relationships. You may also find a reverse-like provision (with respect to other properties) in your listing agreements.
2. The concept of confidential information governs information that is kept exclusively between agents and their clients. Specifically highlight for your agents how provisions contained in the reference material may or may not address confidential information with respect to the following questions:
- How should you treat confidential information that was learned before the formal engagement period began?
- How must you treat information learned in a prior client relationship?
- In your state’s agency and licensing laws, is confidential information defined in a general way or are specific categories defined? And is this consistent with the provisions in your brokerage’s buyer agency and listing agreements?
- How do your state licensing and agency laws treat dual agency, designated agency, and sharing of client information between agents within the brokerage?
- If you are licensed in multiple states, are you using contracts and disclosures that work in all places?
Empowering Agents to Understand the Double-Dip
Whenever you talk to associates about this topic, dual and designated agency are sure to come up. If you and your agents are making an honest effort to follow the agency laws of your state and your brokerage protocol, then you all deserve to feel professional and proficient in your understanding of agency and advocacy.
With the exception of agents who hoard a prize listing—which is likely a violation of both the marketing spirit of your listing agreement to expose your seller’s property and your agreement under the rules of the MLS to share listings with your fellow REALTORS®—the occurrence of “double-ending the deal” or “double dipping” is quite appropriate. As long as an agent’s actions are in accordance with agency laws and the client agreement, there’s no reason agency can’t be carefully preserved with honesty, professionalism, and appropriate disclosure. In fact, those who denigrate agents who double-dip and do not violate said laws and agreements might want to consider the NAR Code of Ethics, Article 15, Standard of Practice 15-2 pursuant to “… false or misleading statements about other real estate professionals.”
If nothing else, I hope I’ve encouraged you as a broker to talk to your team about this important topic. Increasing your agents’ understanding of provisions contained in their agency laws and contracts—along with an appreciation for the difference between the vehicles of agency and the roadway or environment of agency—will help them be more successful making America’s real estate dreams come true.