In Maryland all real estate agents are required to have their clients sign a one page form titled “Understanding Whom Real Estate Agents Represent“.Â This form needs to be signed before or after the first meeting with the clients.
Since a lot of people are taken aback by this form – especially since it happens on the first meeting before anything has even been done, I thought I’d try to explain it in layman’s terms.
Who Represents the Seller?Â Who Represents the Buyer?
The first thing we have to understand, is that in Maryland (and most other states) the real estate broker actually “owns” the listing of the property in question. It isn’t the agent who has their name in the yard – but the broker they work for. So, if any agent in a broker’s office is trying to sell a property that is listed by the broker, and they are not a buyer’s agent – then they are representing the seller.
So it isn’t just the listing agent representing the seller, but all of the agents in the broker’s office.
We also have to understand that when we discuss these issues and we use the term “agency” – we are referring to the agency relationship that is set-up when a broker agrees to work on behalf of a buyer or seller.Â They usually do this through one of their own agents – and this causes a lot of confusion in the terminology.
Agents Who Represent the Seller
Seller’s Agent: A seller’s agent works for the broker that has the listing on the property.Â The seller’s agent markets the property for the sellers and exclusively represents the sellers in any transactions.Â That doesn’t mean he or she can’t help the buyers purchase a property – but the agent’s duty and loyalty remains with the seller.Â The seller pays the seller’s agent’s fee as specified in a written listing agreement.
Cooperating Agent: A cooperating agent works for a real estate company different from the broker that has listed the property.Â The cooperating agent can assist a buyer or tenant in purchasing or renting a property, but just like with a seller’s agent – their duty is to the sellers – even though those sellers are listed with another broker.Â The cooperating agent’s fee is paid by the sellers or landlords through the seller’s agent’s company as specified by the written listing agreement.
Agents Who Represent the Buyer
Presumed Buyer’s Agent (no written agreement): If you were to walk into a real estate office and ask to look at a home, that agent is presumed to be representing you as the buyer.Â They can show you any properties – not just the ones listed by the broker.Â A presumed buyer’s agent can not make an offer or negotiate on your behalf, and you have no obligation to buy anything or pay anything to them.Â If you want to terminate a relationship with a presumed agent – you can do so at any time simply by saying so.
Buyer’s Agent (by written agreement): This is the most typical form of buyer’s agency and it happens when a buyer signs a written contract with a real estate agent who says they will represent the buyer in locating a property to buy.Â That agent will help a buyer by evaluating properties, doing Comparative Market Analysis, researching market info and preparing offers.Â The buyer’s agent negotiates in the best interests of the buyer.Â The agent’s fee is paid according to a written agreement between the agent and buyer.Â If you want one agent to represent you exclusiveley – you need to have a written buyer’s agency agreement.
Dual Agents Represent Both the Buyer and the Seller
This is what happens when a buyer’s agent and a seller’s agent both work for the same broker.
Since the broker now represents both sides of the transaction – it is called a “dual agency” (the agency relationship set-up between the broker and the parties).
In this case the broker and his employees owe loyalty to both the buyer and the seller and this obviously creates a conflict of interest. Because of this conflict of interest – dual agency always has to be disclosed and agreed to by everyone involved.
In the event of dual agency a broker will assign one agent to represent the seller and one agent to represent the buyer.Â These are typically the same agents you started the transaction with – unless a buyer’s agent happens to show you a property they have listed – or vice versa.
If either party does not agree to dual agency, the real estate company may withdraw the agency agreement for that particular property with either the buyer or seller, or both.
Plus, the buyer can always choose not to be represented by an agent of his or her own but simply to receive assistance from the seller’s agent, from another agent in that company, or from a cooperating agent from another company.Â There isn’t any law that says you have to have a buyer’s agent.
So Who Pays Who?
When a seller enters into a listing agreement with their agent they can specify how they would like the agent to split the commission and with who.Â They can specify whether they want the agent to cooperate (share the commission) withÂ buyer’s agents.Â Most sellers do agree and this is typically how most buyer’s agents get paid.
But, in some cases a buyer’s agency agreement can call for additional compensation.Â Sometimes this is just in the form of an admin fee, and in other cases it can be spelled out as a regular percentage of the transaction.
For instance last fall I went to a settlement on a house I had listed.Â The total listing commission on the house was 5% and the seller’s agreed to split the commission 50/50 with any buyer’s agent.Â This meant that my broker was to earn 2.5% commission once the house sold and the buyer’s agent’s broker was to earn 2.5% commission once the house sold.
When we got to settlement there was the usual line item charge to the buyer’s for real estate commission, but there was also an additional line item charge to the buyer’s for real estate commission.Â I wasn’t a party to their agreement so I thought it was curious on why it was there.Â I also noticed that the amount (equal to .5% of the sales price) was added to the commission check being paid to the buyer’s broker.
When the buyer noticed this they questioned the agent who agreed to be their buyer’s agent.Â Their agent explained that in the buyer’s agency agreement they agreed he would be compensated to the amount of 3% of the sales price, and that if the seller’s paid less than 3% – that the buyers would make up the difference.
So – Does This Mean I Can’t Trust My Realtor?
No, it doesn’t mean that at all.Â It just means that during the negotiations a buyers agent and a seller’s agent are going to have a common outcome (a successful settlement built on a fair transaction at a reasonable price), but that they represent different objectives to reaching that goal.
The seller’s agent obviously is trying to get as much money as possible for their client.Â And the buyer’s agent is trying to help their clients buy a house for the least amount of money possible.
This means that at the heart of the negotiation they will withhold certain information.Â For instance if the seller’s agent knows his clients need to move next month and will probably take an offer way below the asking price – he’s not going to disclose this to the buyers.Â Conversely if the buyer’s agent knows his clients are anxious to move next month in order to get their kids into school – and they’re willing to pay way above the asking price – he can not disclose this to the sellers.
So What Must the Agents Disclose?
The law states that no matter what type of agent you choose to work with, you have the following rights and responsibilities in selling or buying or renting property:
- Real estate agents are obligated by law to treat all parties to a real estate transaction honestly and fairly. They must exercise reasonable care and diligence and maintain the confidentiality of clients. They must not discriminate in the offering of properties; they must promptly present each written offer or counteroffer to the other party; and they must answer questions truthfully
- Real estate agents must disclose all material facts that they know or should know relating to a property. An agent’s duty to maintain confidentiality does not apply to the disclosure of material facts about a property.
- All agreements with real estate agents should be in writing and should explain the duties and obligations of the agent. The agreement should explain how the agent will be paid and any fee-sharing agreements with other agents.
You have the responsibility to protect your own interests. You should carefully read all agreements to make sure they accurately reflect your understanding. A real estate agent is qualified to advise you on real estate matters only. If you need legal or tax advice, it is your responsibility to consult a licensed attorney or accountant.
Alright, hopefully this cleared some thing up.Â If not, you can contact me (link above) and let me know if you have any questions.Â I’ll do my best to answer them.
If you ever have any complaints regarding how you were represented – you should first contact the broker in question.Â If you’re still unhappy please feel free to call the Real Estate Commission at 500 North Calvert Street, Baltimore, MD 21202. (410) 230-6200.