Real estate transactions are no longer simple. Most buyers and sellers need advice and the key is to find a competent broker. Many real estate agents are knowledgeable, well trained and honest, and they are to be commended for their services. However, there are others who are just the opposite and they are the ones who could cost you thousands.

The best way to protect yourself, is to interview brokers before working with them. Find out (1) if they have the expertise you need, and (2) if their policies and procedures are in your best interest.

The following discussion addresses issues which you should be aware of whether you are buying or selling.

Games Brokers Play With Sellers
When you list property for sale, you usually form an agency relationship with a real estate firm. This means that the broker (including his associated agents) is your agent and you have authorized him to represent you in the sale of your property.

The courts view real estate brokers as agents in the legal sense, meaning they are fiduciaries. Fiduciaries are individuals in positions of trust who act on behalf of others. Examples of other agents/fiduciaries are attorneys, accountants and trust officers in banks.

If you form an agency relationship with a real estate broker, the current law mandates that as your agent he owes you,

the client, very specific duties. For example, an agent must put your interest first even before his own, be obedient to your wishes (within the law), protect your confidentiality, disclose facts which might affect your decisions and negotiate on your behalf. As you can see by these specific duties, the courts view an agent as an advocate of one party, not as a middleman or facilitator for both buyer and seller.

Until recently, real estate brokers were liable in all states as fiduciaries under the common law of agency. However, there are brokers who do not want to be accountable to the public in this way. As a result, legislation has passed or is pending in a few states which creates a new category of broker called transactional broker (also called limited agent, neutral agent).

A transactional broker walks and talks like an agent/fiduciary, but he is not accountable to the consumer as such. Hiring a transactional broker would be like hiring an attorney who says that he will provide legal services but that he isn't liable to you for his advice.

It appears that in the future, the real estate industry will consist of a confusing array of true agents and counterfeit agents. Consumers might well question why they should pay the same fee for a counterfeit agent as for a true agent.

If you decide that you want only the services of a true agent, find one who will commit in writing to an agency/fiduciary relationship. As a seller, your listing agreement should include a disclosure explaining the agency status of the broker.

In addition to agency issues, there are a few other games you should know about when selling property.

Game One - There are brokers who will ask your permission to withhold your listing for a few days from the local data base of properties (usually the MLS) in hopes that their firm will sell it first and thus avoid splitting the fee with a cooperating firm. By not putting your listing in the MLS or other common database, an entire group of buyers would be unaware of your property.

Game Two - Another game you will encounter is a broker who gives you the impression that fees are not up for discussion. Fees are not set by any regulatory body or group of brokers. You will find brokers who are inflexible on fees, but there are others who will structure varied fees for different circumstances.

Game Three - A broker should explain cooperative brokerage relationships to you in detail. In most areas, about half of all sales are "co-brokes" involving two firms. Sometimes the cooperating agent will be a subagent (who works for the seller and the listing agent). In other cases, the cooperating agent will be a buyer's agent. What should the seller know? Sellers (as well as listing brokers) are liable for the acts, errors and omissions of authorized subagents. They do not, however, have this liability for buyers' agents. Throughout the country, more and more brokers are discontinuing the use of subagency. In fact, experts predict that subagency will disappear entirely in the near future. Until then, sellers need to be aware that they have the option of authorizing cooperative sales with subagents, buyer agents, or both.

Game Four - There are a small minority of listing brokers who discriminate against buyers' agents by playing games with fee structures. They do so by creating fee policies whereby they attempt to charge a full fee to their seller if a buyer's agent procures the buyer. This is a "lose-lose" situation for both buyer and seller, because the buyer will either substantially reduce his offer to offset this abuse or he may avoid the property altogether. Fortunately, most listing brokers treat fee structures for all cooperative sales the same, regardless of whether the selling broker is a subagent or a buyer's agent. Why? Because it is in the best interest of their sellers to do so. The buyer's agent brings a pre-qualified, serious buyer, does half the work and relieves the seller of subagency liability.

Game Five - Another common game is when the broker agrees to list the property at a price much higher than market value. This will only hurt the seller in thelong run. Unprofessional brokers do this because they are more interested in getting a sign on the property than telling the seller the truth.

Games Brokers Play With Buyers
When interviewing agents, make sure that they all provide you with agency disclosure. Agency disclosure defines what role the broker will play should you decide to work together. This disclosure is now required by law in nearly every state, and it should be discussed prior to your revealing any confidential information to a broker.

As a buyer, you have the option of working with sellers' agents or buyers' agents. (In some states, there is another category of broker who acts more like a facilitator and does not represent either side; see discussion earlier in this article.)

A seller's agent can provide many services to a buyer such as show you the existing inventory, inform you about the community, inspections and financing, help you prepare and submit an offer and coordinate closing details. However, a seller's agent cannot be your advocate or advise you about property values because he works for sellers. In addition, if you work with a seller's agent he must tell the seller anything he knows about you which would affect the seller's decision making.

There are two categories of sellers' agents - listing agents and their cooperating subagents. This is the traditional real estate system whereby the seller is represented by all the agents in the transaction, and the buyer essentially represents himself.

As a buyer, the advantage of being represented by your own agent is that he not, only provides all the same services as a seller's agent, but he can also advise you about property values, negotiate in your favor and be your advocate throughout the transaction. You cannot expect these representational services from a seller's agent. His job by law is to represent the person he works for, the seller.

If you want to be represented by your own agent, you must make a specific agreement (preferably in writing) with an agent who represents buyers. You then become a represented client as opposed to an unrepresented customer.

Below are some of the brokerage games you as a buyer should be aware of in today's market. Ask yourself if these are in your best interest:

Game One - There are agents who avoid making agency disclosure until just before the buyer is ready to make an offer. The buyer then realizes that the agent who so cheerfully assisted him is a seller's agent; and this agent must by law negotiate in the seller's favor and disclose information about the buyer to the seller which would enhance the seller's negotiating position.

Game Two - There is another more subtle game. In this case, a broker will reassure you that a buyer doesn't need his own agent because all agents are obligated to treat the buyer and seller "fairly." This type of broker gives the impression that he is a middleman who is protecting both parties. During the search process, this type of agent will act as though he is sharing inside information with the buyer and may actually disclose information he shouldn't. This behavior is undisclosed dual agency and is illegal in, every state.

Game Three - You may encounter an agent who points out that buyer representation will "cost extra." If buyers think about this argument, it doesn't hold up. In terms of time, expertise and negotiating power, a buyer will almost certainly save money by using an experienced and professional buyer's agent, a fact which is supported by recent studies.

Game Four - Another common game is for agents to give you the impression that a buyer cannot talk directly to a seller. There is absolutely no reason why a buyer or seller cannot talk or negotiate directly. Obviously, they cannot eliminate the brokerage fees by doing this, but they certainly are entitled to communicate with each other if mutually agreeable.

Game Five - Although not common, there are agents who will tell a buyer they will not submit the buyer's offer. This is illegal. All offers and counter offers must be presented.

Game Six - There are agents attempting to represent buyers and they are not qualified do so. If you hire an agent to represent you, determine if he has the expertise and knowledge about the area and category of property you want to buy. He should be willing to provide you with references and demonstrate why he is qualified to represent buyers.

Bait and Switch - A Losing Game for Buyers and Sellers
One of the most anti-consumer games in the real estate industry today is a practice called disclosed dual agency. This game is clearly a self-serving practice which benefits the industry at the public's expense. Disclosed dual agency is a practice whereby a broker, or one firm, seeks authorization to represent both the buyer and seller on the same transaction.

Think about this scenario. You as a seller hire Bruce Broker to represent you. You hire him because he pledges to be your agent and represent your best interest, be your advocate and negotiate on your behalf. What happens if one of Bruce Broker's buyer-clients wants to buy your home? Bruce Broker now has a conflict of interest - he represents a buyer-client and a seller-client in the same transaction and they naturally have opposing interests. How can he be an advocate for one without working against the other?

Bruce Broker could refer one of client out to another firm, but he doesn't want to do that because that means he would have to share the real estate fee. Instead, he offers another solution - disclosed dual agency.

Disclosed dual agency is confusing because it is a misnomer. When Bruce Broker seeks permission of his buyer-client and seller-client to become a dual agent, he is really asking to be a "non-agent." He is asking both parties to waive their rights to his exclusive representation. He cannot negotiate or be an advocate for either party and must shift into a neutral position, leaving the clients without the protection they contracted for initially.

Disclosed dual agency generates more money for the broker but does not resolve the conflict of interest between the public and the brokerage firm. Disclosed dual agency is not in the best interest of the buyer or the seller.

Proponents of disclosed dual agency argue that current law has a provision for dual agency. There is a provision in the law but it was intended to be used for those occasional and accidental situations whereby an agent discovers he represents two parties who want to do business together, and therefore, he must disclose this conflict of interest. The real estate industry has taken this "legal loophole" and is attempting to use it as the solution for conflicting client relationships, i.e., when one firm represents both a buyer and seller on the same transaction.

Where does this leave the consumer? Regardless of confusing labels and double talk, buyers and sellers can sort out the situation by asking brokers critical questions:

• Will you pledge to exclusively represent me by putting my interest first throughout the transaction?
• What is your policy when you discover that your firm represents a buyer and a seller who want to do business together?

More and more real estate brokers are coming to the realization that from a consumer's viewpoint, one firm should not represent both parties on the same transaction. In a dual agency situation, both the buyer and the seller lose the protection of their advocate (the agent) and suddenly find themselves on their own. Therefore, the buyer and the seller have given up their rights while the broker has managed to keep the sale "in-house" and avoid a cooperative sale with another firm; and this of course generates a higher fee. Consumer protection advocates have criticized the real estate industry for this but such practices will continue until buyers and sellers refuse to give their consent. A dual agency transaction cannot happen without the consent of both buyer and seller.

Should Consumers Use the Services of Real Estate Brokers?
The real estate industry is currently in transition attempting to reform some of its outdated customs, many of which are inherently deceptive and anti-consumer. This reform has generated requirements for agency disclosure by real estate brokers nationwide; and it has also generated other changes such as the practice of buyer brokerage.

Most buyers and sellers need to engage the services of a real estate broker because they do not have the time nor the expertise to solve their real estate problems. The important point is for buyers and sellers to locate brokers who will take a stand and represent only one side of the transaction.

Purchasing or selling real estate can be an emotional experience which has major implications on your life. You can best protect yourself by making sure that the experts you are depending on (such as real estate brokers, attorneys, accountants, home inspectors, etc.) are obligated to work in your best interest and that they will commit to this in writing.

Source: The Messenger, Summer, 1994, Iva Liebert

Find a dedicated buyer agent who will be your advocate,