Representation – an explanation of terms
In Australia, real estate agents have blurred the distinction between a “client” and a “customer.” Many real estate people use these terms interchangeably, when in fact they have quite different meanings.
Legally, a real estate “client” is a principal who employs someone else to act on his or her behalf in a real estate transaction. A “customer” is not represented in a transaction, except by himself or herself.
All the real estate people involved in a typical real estate transaction represent the seller, who pays the professional fee to them upon completion of the transaction. Normally, the buyer has the status of a “customer” – meaning he/she is entitled to honesty and proper disclosure from the agent, but nothing more. So buyers have no-one ‘in their corner’ so to speak.
Because the agent (or salesperson) legally represents the seller, and is legally obliged to tell the seller everything he knows or learns regarding the transaction, buyers should be careful to avoid disclosing any confidential information they would not want the seller to know. At the outset of their first meeting with an agent or salesperson, a buyer should decide whether this licensee will work with them as a customer or as a client.
Four Representation Choices
If you decide to work with an agent to achieve your objectives, you need to choose which method of representation to adopt. In this regard, you have four choices:
1. Seller Agency
In Australia, this is the most familiar approach. The agent lists the property, markets it and represents the principal or ‘client’ (the owner/seller) in negotiating the sale. The buyer is a ‘customer’ and is not represented, although this fact is seldom mentioned.
The law regarding agency representation requires the agent to always work in the best interest of the principal. The seller is the principal, having signed the Agency Agreement.
Neither the agent nor any of the agent’s employees or subagents may legally negotiate on the buyer’s behalf when it comes to important items such as price, terms, settlement date, special conditions, included personal property and so on.
Under Seller Agency conditions, buyers are shown only those properties listed by the agent. Unless the buyer engages an agent specifically to represent him/her, he/she is without representation.
Buyers wanting to be represented when making an offer on a property should employ their own agent to review the proposed transaction and to represent them. The buyer should pay this agent’s fee, which may be a percentage or a flat fee paid at settlement, or an hourly fee not contingent upon the transaction being completed.
Alternatively, the buyer may choose to proceed with the transaction without representation (i.e. as a ‘customer’). In this case, he/she should be aware that the seller’s agent and any representatives of the seller’s agent owe the buyer a duty of truthfulness and full legal disclosure regarding the property. But they are not permitted to disclose to the buyer any confidential information such as for instance, the seller’s willingness to accept a lower price for the property. Not only that, but any relevant information gained by the agent from the buyer (e.g. ability to pay a higher price) must be fully disclosed to the seller before the seller accepts, rejects or modifies (“counters”) the buyer’s offer.
2. Dual Agency
Practically speaking, it is extremely difficult to protect and promote the best interests of both parties in the same transaction, especially when those interests conflict with each other. Dual agency is possible, but only if both parties give informed consent after full disclosure. Very few situations justify the risks of dual agency – for the principals, or for the agent.
3. Single Agency
Single agency (sometimes inappropriately called ‘purchaser agency’ or ‘buyer agency’) is not widely practiced in Australia. In this approach, an agent represents only one principal in a transaction – either a seller OR a buyer (or a Landlord OR a Tenant), but never both in the same transaction.
The principal (buyer or seller) employs the agent to represent only his/her best interests in the purchase or sale of a property. The principal agrees to pay a professional fee to the agent – either upon settlement, or an hourly fee, or a combination, as the case may be. The single agent collects his fee from his principal unless otherwise directed by the terms of the Agency Agreement signed by that principal.
Because the agent represents only one party, he is in the best possible position to negotiate the best possible price and terms for his client, and to disclose to his client any and all relevant information he gains about the seller, the property and the transaction. Clearly, this arrangement can result in a far better outcome for the client, (even after allowing for the agent’s fee) compared to say, an unrepresented buyer. When buying, in many cases the agent is able to save far more than the amount of the fee off the asking price of the property.
Perhaps THE GREATEST BENEFIT to the buyer of engaging his/her own agent and paying that agent’s fee, is that the agent’s search for the ‘right’ property is not limited to properties already listed by other agents and actively on the market. Because the fee is protected, the buyer’s agent can now negotiate for properties that may not be “on the market” but may nevertheless still be for sale, as well as auction properties, mortgagee sales, “private sales” and so on.
An unrepresented buyer is at the mercy of an experienced adversary who may on occasion, be greedy, unethical, clever or just inept. Most agents strive to do a good job. But virtually all agents act for the seller, thus putting buyers at a potentially severe disadvantage. To overcome this, a buyer may prefer to protect his/her interests by engaging an agent or a consultant on an hourly fee basis, to represent him/her once a suitable property has been located and identified.
A private seller may similarly wish to do likewise when presented with an offer through a buyer’s agent. An hourly fee (like an accountant or solicitor) is payable whether or not the transaction is completed.
Real estate licensees are also sought out and employed to provide guidance and counsel regarding property, even when no transfer of title is contemplated. Again, an hourly fee is appropriate.
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