Greetings! We continue to be teased with signs of spring in West Central Minnesota. Yesterday I noticed a scruff of bright green moss defying winter's hold - clinging to the base of a 150-year old oak tree - in our back yard. What a glorious sight - and reminder of hope!
My last post made reference to a couple of related concepts that Minnesota real estate agents are required to present to customers early in the customer-agent relationship. Both terms fall under the umbrella of agency law and disclosure. Basically it is establishing the framework of any relationship between the agent (of the Broker*) and the customer. The following is only a generic illustration - for further clarification I recommend speaking directly to a real estate agent and ask any specific questions you may have.
Let's say a seller has listed their home with a real estate agent. The agent, acting on behalf of their Broker, is representing the seller. Let's continue on with this scenario and bring in a buyer. The buyer has contacted the agent with this listing and is interested in purchasing the property. Before the agent proceeds with discussing the purchase of this property there are several points that need to be clarified by the agent. First, according to law, the agent needs to discuss agency relationship. Putting it another way, the agent needs to present the various relationship-types available to the buyer. The agent also needs to inform the buyer that the agent is representing the seller regarding this property in question. Also, the agent needs to know if the buyer has been working with another agent prior to this contact - regarding the purchase of this - or any other - property.
If the buyer (up to this point also referred to as a 'customer') desires to be formally represented by the agent, the buyer and agent would sign a Buyer-Broker Agreement and the buyer would become a 'client'. This agreement assures the buyer of certain specific fiduciary responsibilities and, in exchange, the buyer agrees the agent will receive compensation in the event the buyer purchases a property of a specific type within a specific time period. The disclosure also indicates what amount of that compensation will come from the commission charged to the seller. As I indicated in an earlier post, it is most typical for the buyer to contribute zero commission to the agent as the commission charged the seller is generally designed to compensate the agent for securing the buyer.
OK, now we have the agent representing both a buyer and a seller. Both buyer and seller are clients. Is this possible!?! Yes it is - and it is called 'dual agency'. Under dual agency, an agent represents the interests of both buyer and seller. In fairness to both parties, the agent cannot discuss matters related to a party's price, terms, or motivation with the other party.
At first this might sound like the makings for a messy stalemate but it actually works very well. The reason it works so well is the agent - even though he cannot discuss 'price, terms, or motivation' with the other party - understands the positions of both parties and is optimally positioned to effectively negotiate on behalf of both parties. As in any relationship, open communication and trust are foundational. This is why violations in agency law are treated very seriously - an agent can lose their license in a heart beat if they fail to properly disclose and represent agency law.
Dual agency is a very positive arrangement and serves to benefit both buyers and sellers because having only one agent involved in the relationship creates the opportunity to establish solid matches between buyers and sellers. A good agent will be paying attention to both clients - and is committed to representing both in their best interests. Dual agency helps reduce the potential for conflict that can result from having yet another party thrown into the mix. Instead of having two separate agents - one representing buyer and one representing seller - there is only one agent representing both.
Now, must a buyer or seller agree to dual agency in order to be served by an agent? No, they do not. But that understanding needs to be made upfront and the agent is responsible to explain the benefits and consequences of any relationship to buyers and sellers at the onset of any potential relationship with the agent.
Just one more illustration: A buyer meets with an agent and states their desire to be represented by the agent but will not agree to dual-agency. This is a workable arrangement but it has potential downside for the buyer in that the buyer would not be able to have that agent provide representation with the agent's own listings because the agent is also representing the seller (the listing). A similar downside could be realized by a seller that does not agree to dual agency if a qualified buyer happens to insist on representation by the same agent (broker).
Agency relationship is one of the most critical parts of the relationship with a real estate agent. I wanted to attempt to explain it and hopefully I have not left anyone more confused after reading the post than they were before. As always, if there are questions - or a need for further clarification - please drop a line. I am here to serve you and always welcome that opportunity. Cheers!
*Minnesota real estate agents are licensed through the MN Department of Commerce. A real estate agent has to be formally associated with a real estate broker before being permitted to serve the public in the capacity of a real estate agent. In a nutshell, all services provided by the agent are on behalf of the broker. In that context, to be represented by an agent is to be represented by the agent's broker (or simply 'broker').
Jon
Web: www.SearchFergusFalls.com
Web: www.FergusFallsProperties.com
Blog: www.FergusFalls-RealEstate.com
P.S. - Would you like to be notified of future postings? It is as simple as subscribing to my blog. A link is at the very bottom of this thread and it is FREE!
My last post made reference to a couple of related concepts that Minnesota real estate agents are required to present to customers early in the customer-agent relationship. Both terms fall under the umbrella of agency law and disclosure. Basically it is establishing the framework of any relationship between the agent (of the Broker*) and the customer. The following is only a generic illustration - for further clarification I recommend speaking directly to a real estate agent and ask any specific questions you may have.
Let's say a seller has listed their home with a real estate agent. The agent, acting on behalf of their Broker, is representing the seller. Let's continue on with this scenario and bring in a buyer. The buyer has contacted the agent with this listing and is interested in purchasing the property. Before the agent proceeds with discussing the purchase of this property there are several points that need to be clarified by the agent. First, according to law, the agent needs to discuss agency relationship. Putting it another way, the agent needs to present the various relationship-types available to the buyer. The agent also needs to inform the buyer that the agent is representing the seller regarding this property in question. Also, the agent needs to know if the buyer has been working with another agent prior to this contact - regarding the purchase of this - or any other - property.
If the buyer (up to this point also referred to as a 'customer') desires to be formally represented by the agent, the buyer and agent would sign a Buyer-Broker Agreement and the buyer would become a 'client'. This agreement assures the buyer of certain specific fiduciary responsibilities and, in exchange, the buyer agrees the agent will receive compensation in the event the buyer purchases a property of a specific type within a specific time period. The disclosure also indicates what amount of that compensation will come from the commission charged to the seller. As I indicated in an earlier post, it is most typical for the buyer to contribute zero commission to the agent as the commission charged the seller is generally designed to compensate the agent for securing the buyer.
OK, now we have the agent representing both a buyer and a seller. Both buyer and seller are clients. Is this possible!?! Yes it is - and it is called 'dual agency'. Under dual agency, an agent represents the interests of both buyer and seller. In fairness to both parties, the agent cannot discuss matters related to a party's price, terms, or motivation with the other party.
At first this might sound like the makings for a messy stalemate but it actually works very well. The reason it works so well is the agent - even though he cannot discuss 'price, terms, or motivation' with the other party - understands the positions of both parties and is optimally positioned to effectively negotiate on behalf of both parties. As in any relationship, open communication and trust are foundational. This is why violations in agency law are treated very seriously - an agent can lose their license in a heart beat if they fail to properly disclose and represent agency law.
Dual agency is a very positive arrangement and serves to benefit both buyers and sellers because having only one agent involved in the relationship creates the opportunity to establish solid matches between buyers and sellers. A good agent will be paying attention to both clients - and is committed to representing both in their best interests. Dual agency helps reduce the potential for conflict that can result from having yet another party thrown into the mix. Instead of having two separate agents - one representing buyer and one representing seller - there is only one agent representing both.
Now, must a buyer or seller agree to dual agency in order to be served by an agent? No, they do not. But that understanding needs to be made upfront and the agent is responsible to explain the benefits and consequences of any relationship to buyers and sellers at the onset of any potential relationship with the agent.
Just one more illustration: A buyer meets with an agent and states their desire to be represented by the agent but will not agree to dual-agency. This is a workable arrangement but it has potential downside for the buyer in that the buyer would not be able to have that agent provide representation with the agent's own listings because the agent is also representing the seller (the listing). A similar downside could be realized by a seller that does not agree to dual agency if a qualified buyer happens to insist on representation by the same agent (broker).
Agency relationship is one of the most critical parts of the relationship with a real estate agent. I wanted to attempt to explain it and hopefully I have not left anyone more confused after reading the post than they were before. As always, if there are questions - or a need for further clarification - please drop a line. I am here to serve you and always welcome that opportunity. Cheers!
*Minnesota real estate agents are licensed through the MN Department of Commerce. A real estate agent has to be formally associated with a real estate broker before being permitted to serve the public in the capacity of a real estate agent. In a nutshell, all services provided by the agent are on behalf of the broker. In that context, to be represented by an agent is to be represented by the agent's broker (or simply 'broker').
Jon
Web: www.SearchFergusFalls.com
Web: www.FergusFallsProperties.com
Blog: www.FergusFalls-RealEstate.com
P.S. - Would you like to be notified of future postings? It is as simple as subscribing to my blog. A link is at the very bottom of this thread and it is FREE!
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