RE02R24: Buyer Agency

A Description of Real Estate Buyer Agency

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Objective

This course is designed to review the fundamentals of buyer agency, including reviewing key definitions relative to agency, consumer disclosure obligations relative to relationships, the fiduciary obligations of a buyer agent, how buyer agency is established and terminated.

Background on buyer representation and written relationship disclosure
1. States response to Federal Trade Commission survey - license regulation requires disclosure of licensee representation.
2. Until the early 1990s, sellers only were represented, agent working with buyer was a subagent.
3. MA Board of Registration of Real Estate Brokers and Salespersons actions:
  1. 1990 created its first written agency form.
  2. 1993 revised agency disclosure form to recognize buyer agency.
  3. 2005 Formal licensee-consumer relationship disclosure
  4. Current MA regulation requires real estate licensees to disclose the form of relationship to prospective buyers and sellers of real estate at the first personal meeting to discuss a specific residential property with a potential buyer or seller.
  5. Review current Massachusetts Mandatory Licensee-Consumer Relationship Disclosure form. Note also that it is available in multiple languages.
  6. Discuss when it would be presented to a buyer.
General Definitions
1. "Real estate broker" - Any person who for another and for a fee, commission or other valuable consideration, or with the intention or with the expectation of upon the promise of receiving or collecting a fee, commission or other valuable consideration, does any of the following:- sell, exchange, purchases, rents or leases, or negotiates, or offers, attempts or agrees to negotiate the sale, exchange, purchase, rental or leasing of any real estate, or lists or offers, attempts or agrees to list any real estate, or buys or offers to buy, sells or offers to sell or otherwise deals in options on real estate, or advertises or holds himself out as engaged in the business of selling, exchanging, purchasing, renting or leasing real estate, or assists or directs in the procuring of prospects or the negotiation or completion of any agreement or transaction which results or is intended to result in the sale, exchange, purchase, leasing or renting of any real estate. (See M.G.L., Chapter 112, Section 87PP).
2. “Appointing Agent” - a real estate broker or salesman may appoint one or more licensees to act as a designated agent on behalf of a purchaser and may appoint one or more other licensees to act as a designated agent on behalf of a seller for a potential real estate transaction (See M.G.L. Chapter 112, Section 87AAA3/4)
3. "Real estate salesman" - an individual who performs any act or engages in any transaction included in the foregoing definition of a broker, except the completion of the negotiation of any agreement or transaction which results or is intended to result in the sale, exchange, purchase, renting or leasing of any real estate. (See M.G.L. Chapter 112, Section 87PP).
4. "Agent" -One who is authorized to represent and act on behalf of a principal (the principal i.e. client (buyer/seller) or real estate broker (broker of record).
5. "Principal" - commonly known as a person who engages an agent for representation.
6. "Client" - also known as a Principal - a person who empowers another to act as their representative/agent. Client relationship = fiduciary relationship.
7. "Customer" - generally refers to person without representation involved in a transaction. All agents have a duty to treat customers fairly.
8. Vicarious Liability-"liability created not because of a persons actions but because of the relationship between the libel person and other parties. For example, a real estate broker is vicariously libel for the act of their salespeople while acting on behalf of the broker even if the broker did nothing to cause the liability" (The Language of Real Estate)
9. Informed Consent - "Consent to a certain act that is given after a full and fair disclosure of all facts needed to make a conscientious choice." (The Language of Real Estate)
10. Subagent - An agent of a person or entity who is already acting as agent for a principal (agent of an agent).
11. Fiduciary - "A relationship that implies a position of trust or confidence wherein one person is usually entrusted to hold or manage property or money for another. The term fiduciary describes the faithful relationship owed by an attorney to a client or by a broker (and salesperson) to a principal. The fiduciary owes complete allegiance to the client." (The Language of Real Estate)
Types of Licensee/Consumer Relationships
1. Seller Agency - Real estate agent represents seller on client basis and treats buyer as customer. Seller agent's duties to seller include "OLD CAR".
2. Buyer Agency - Real estate agent represents buyer client in real estate transaction Buyer agent's duties to buyer include "OLD CAR".
3. Subagency - (Rare) Where client expressly or implicitly authorizes their broker to use other agents to assist in locating and buying property for buyer. The buyer must sign language that indicates the following: "Massachusetts law permits the broker to cooperate with other licensed brokers who will act as subagents of the buyer only with the written consent of the buyer and the disclosure for the buyer of the potential for vicarious liability. Vicarious liability is the potential for a buyer to be held liable for an act or omission of the subagent". Subagent's duties to seller or buyer include "OLD CAR".
4. Single Agency - "The practice of representing either the buyer or the seller but never both in the same transaction." (The Language of Real Estate)
5. Dual Agency - a real estate agent who represents both the seller and buyer in the same transaction is a dual agent and this must be disclosed. Undisclosed dual agency is illegal. MA requires written consent and written notice from both the buyer and the seller. A Dual Agent has a duty of confidentiality and accounting to both parties. Reasonable Care and Skill will apply in the real estate transaction. Dual agent's duties to seller and buyer include "OLD CAR" however the "OLD R" in "OLD CAR" is modified to adapt to the requirements Dual Agency. (more discussion in section 6, Reference: 254 CMR 3.00 (13)(b))
6. Facilitator- Also known as a Non-Agent or Transaction Broker/Salesperson. The Facilitator works to complete the transaction. Although bound by license law and M.G.L. Chapter 93A, they do not have a fiduciary relationship with the seller or the buyer. They do not represent either party in the transaction. The Facilitator must disclose all known material defects that exist. Failure to do so could result in a Chapter 93A violation. Their duties consist of accounting and any other Facilitator duties undertaken. Facilitators has no required duties to seller and/or buyer. A Facilitator is obligated to fulfill all the duties of "A" ("Accountability") pursuant to the Massachusetts Real Estate License Law.
7. Designated Agent- A real estate licensee who has been specifically appointed or designated by the broker with whom they are affiliated to individually represent a specific client (either a buyer or seller) when selling or buying real estate. The designated agent has full duties of agency ("OLD CAR") to the client while all other licensees of the firm the Designate Agent is associated with do not represent the buyer or seller and could very well represent the other party to the transaction.
Establishment of Agency
1. Reminder: MA Mandatory Real estate licensee-consumer Relationship Disclosure needs to be provided at first meeting, information only, does not bind buyer and agent, does not create a formal relationship
2. Written buyer contract (also referred to as Buyer Agreement in some forms)
  1. between the brokerage and the buyer
  2. Check with broker on the appropriate form to use, as per company policy.
  3. Compensation can be anything of value negotiated between broker and buyer, written in the contract (refer to section 8 for more discussion)
3. Verbal contract between parties
4. Implied relationship on the basis of actions and conversations
Duties owed by licensees to their clients, commonly referred to by the acronym OLD CAR.
1. Obedience - the duty to carry out all lawful instructions of the Client.
2. Loyalty - the duty to act in the best interest of the Client.
3. Disclosure - the duty to disclose all information relevant to the Client.
4. Confidentiality - the duty to keep the Client's confidential information, confidential - Duty survives termination of agency relationship. Duty does not apply to legally required disclosures such as known physical hazardous conditions of property.
5. Accountability - the duty to protect, isolate and account for all money, documents, or other personal property provided to the agent.
6. Reasonable Care and Due Diligence - the duty to act competently and being capable of performing the duties undertaken.
Dual Agency
1. Disclosed Dual Agent - representing both buyer and seller.
  1. "informed consent" of buyer and seller is required before it happens (educate- check understanding- obtain consent)
  2. Undisclosed dual agency is illegal in Massachusetts. Failure to disclose and receive buyer and seller's consent violates state licensing regulations and agency law. Buyer and seller may rescind the underlying real estate transaction and agent may be liable for all monetary damages.
  3. Notice of dual agency is also required when dual agency is actually occurring.
2. When does dual agency happen?
  1. Designated agency
    1. Same agent works with the buyer and the seller.
    2. Note that the broker will also remain dual agent when the designated agents for the buyer and seller are from the same office.
  2. Non-designated agency: All in-house transactions
  3. Team discussion – refer to MA Board of Registration of Brokers and Salesperson FAQs on real estate teams.
3. Duties of Dual Agent – discuss the limited representation of dual agency (Reference: 254 CMR 3.00 (13)(b))
Client Counseling, Company Policy & Record Keeping
1. Present Mandatory Licensee - Consumer Relationship Disclosure Form
2. Explain company business model, service provided, potential requirements for written agreements.
3. Explain company policies regarding cooperation and compensation and any potential for buyer agent to act as dual agent.
4. Discuss buyer’s overall objectives – do they match your competence area?
5. Explain to buyer their responsibilities as a client.
6. Agency relationship created between broker owner of company and buyer client. Agent of broker working with buyer client creates the agency relationship between the broker of record and client. Owner broker is the only party authorized to determine form of agency representation for company.
7. Record Keeping
  1. Mandatory Licensee - Consumer Relationship Disclosure Forms - state regulation requires retaining forms for 3 years.
  2. Contracts - contract law statute of limitations is 6 years; recommend keeping records of contracts for 7.
  3. 93A lawsuit – 4 years to bring a lawsuit after discovery.
  4. All business records - state regulations do not specify time frame.
  5. Escrow check copies - state regulation requires retaining copies for 3 years.
8. In event a dispute arises possible option includes Alternative Dispute Resolution (arbitration or mediation)
Buyer Agency Compensation
1. Compensation is always negotiable,
  1. no standard compensation,
  2. relates to value of services provided,
  3. impacted by the market.
2. Compensation alone does not create an agency relationship.
3. Examples of different compensation methods (remember to check company policies, broker’s compensation, terms to be agreed upon between buyer broker and buyer)
  1. Commission based on sales price.
  2. Flat Fee
  3. Fee for Service/Menu Options
  4. Retainer
Termination of Buyer Agency Relationship
1. Expiration of contract
2. Mutual agreement to terminate or rescission.
3. Completion of performance under contract
4. Death or Insanity of Buyer Agent or Client Principal
5. Impossibility of performance (ie. destruction of property)
6. Incapacity (ie. mentally incapable) or Bankruptcy of either party
7. Repudiation - either principal or agent withdraws consent, court may deem this a breach of fiduciary obligation and breaching party may be held liable for damages.
8. Payment of Buyer Brokerage
  1. Compensation may be offered by the seller or listing broker through MLS offer of compensation, and included in the transaction amount.
  2. Buyer may request that agreed upon amount be taken from proceed of sale as part of their offer.
  3. Buyer may ask for a seller’s concession to cover their obligation.
  4. May be paid by buyer directly via contract between broker and buyer.
  5. Compensation will need to be reflected in the Offer, P&S and Closing Statement
  6. How the payment is structured may have an impact on financing (limitation on closing costs for example)
Other Legal Issues Affecting Seller or Buyer Representation or Facilitation.
1. State and Federal Lead Paint Laws require that any property where a child under six years old resides must be deleaded and property owner is responsible for compliance. Real estate licensees are required to notify all prospective purchasers and lessors about the dangers of lead paint and must inform prospective buyers about buyer's 10 day right to a lead paint inspection. Federally approved state lead paint disclosure forms may be obtained from the Massachusetts Department of Public Health or local REALTOR® Boards. The three forms available are entitled the Property Transfer Lead Paint Notification Certification form, the Tenant Lead Law Notification form, and the Tenant Lead Law Certification form. Real Estate Licensees are also required to tell prospective purchasers that under the State Lead Law, a new owner of a home built before 1978 in which a child will live or continue to live must have it either deleaded or brought under interim control within 90 days of taking title to the property. For more information about the lead paint laws, consult M.G.L. Chapter 111.
2. Home Inspector Law - In effect as of May 1, 2001 - "At the time of the signing of the first written contract to purchase, real estate brokers and salesmen, or the seller if no broker or salesperson is involved in the sale, shall distribute a brochure, published by the Office of Consumer Affairs and Business Regulations, educating consumers about the home inspection process. Real estate brokers and salesmen shall not directly recommend a specific home inspection company or home inspector but may, upon request, provide a complete list of licensed home inspectors prepared by the board. "This prohibition shall not apply if there is a written contractual agreement or a written agency disclosure between the buyer and the real estate broker specifying that the real estate broker is acting exclusively for the buyer as a buyer's broker." (M.G.L. Chapter 112 Section 87YY1/2).
3. Psychologically Stigmatized Property - ie. felonies, murders, suicides
  1. Absent a specific inquiry by prospective purchaser or their agent to the licensed broker or salesperson, there is no duty for the licensee to either investigate or affirmatively disclose murders, suicides, allegations of ghosts or other potential stigmas. (M.G.L. Chapter 93, Section 114)
  2. HIV Status, State law - Questions regarding HIV status of any former or current occupant of residence should not be answered by a real estate licensee.
4. MA General Law - Chapter 93A - Consumer Protection Statute
  1. requires seller's agent to disclose known material defects on the property to potential buyers. ["actual knowledge" standard].
  2. Chapter 93A does not apply to persons who are "not in the business of selling". Residential sellers, not in the business of selling homes, have no affirmative disclosure requirement with the exception that they must inform potential buyers about lead paint on the property, and provide the Home Inspector Fact Sheet.
  3. Due Diligence: Buyer's agent has a duty to ask questions on behalf of their client.
  4. Affirmative Disclosure Under Attorney General's Regulations
    1. Anything that may influence a prospective purchaser.
    2. Physical defects in the property.
    3. Title defects and encumbrance.
5. Sex Offender Registry
  1. According to statute, persons over age of 18 may request information from the sex offender registry for their own protection or the protection of a child or person under their care or custody.
  2. The statute imposes criminal penalties for misuse of information provided to the individual making the inquiry. Customers and clients should be urged to contact the local police department to find out this information firsthand. (M.G.L. Chapter 6, Section 178D).

Suggested Handouts

Current Massachusetts Mandatory Licensee-Consumer Relationship Disclosure.
M.G.L. 93, Chapter 114 – Psychologically stigmatized properties.
M.G.L. Chapter 112, 87AAA3/4.
MA Board of Registration of Real Estate Brokers and Salespersons FAQs on real estate teams.

Court cases

Huang v REMAX
Sitzer
Moehrl
Nosalek v. MLS PIN
McCarthy v Tobin

Related CE courses

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