In the beginning, real estate brokers were known as intermediaries and optional. Back then, the usual practice was for a broker to know about a property for sale, but to keep it a secret from other brokers. It was difficult for these intermediaries to charge a fee for their services, so they resorted to tactics that were not always in their seller’s best interest. Option holders, on the other hand, were generally more successful in collecting their fees because they would immobilize the seller’s property in a Purchase option, sell the property to a buyer at a price higher than the option amount, pay the seller the option price, and then pocket the rest.
The early real estate brokerage business was loosely organized and used brokerage methods that were often dishonest, subject to fraud, and took advantage of sellers and buyers. Over time, a newer concept developed in which the real estate broker is an agent and has a fiduciary duty to the seller and receives payment for his services. This new concept forced the relationship between the seller and the broker to a higher level of service and obligation. It also allowed brokers to list properties for sale through contracts. These contracts are what we now call listings. The above forms of listings we call open listings. Open listing is a type of non-exclusive listing contract that authorizes a real estate broker to offer a property for sale, find a buyer, and receive payment for services at the close of that transaction.
Other brokers might also have open listings for the same property, but only the broker who actually found the buyer would receive a commission. Also, no broker would be paid a fee if the seller sold the property. Open listing discouraged broker-to-broker cooperation as each broker could obtain his or her own open listing. To solve the open list problem, the exclusive agency the list became popular.
The exclusive agency listing is a type of listing contract in which the seller offers only listing brokerage compensation if the buyer is acquired through the efforts of the broker or the efforts of other real estate brokers. This means that in certain situations, such as For Sale by Owner, the listing agency may not receive compensation when the property is sold. In exclusive agency listing, the listing broker or other broker working with the listing broker must hire the buyer in order to claim compensation.
The agency’s exclusive listing encourages competing brokers to find buyers to quote, as the listing broker pays the selling broker’s fee. However, the seller still does not pay a fee when a seller finds the buyer. The list of exclusive agencies eventually led to the exclusive right to sell list.
The exclusive right of sale agreement, the listing brokerage offers compensation in the event of a sale, regardless of who acquired the buyer. The exclusive right to sell a listing ensures that the listing broker will receive a fee, even if a competing broker or seller sells a property. It provides the most protection for the listing broker and is considered in the best interest of the seller because the listing agency will put effort and resources into marketing the property as a commission is guaranteed for the life of the contract.
Even after the exclusive right to sell listing became popular, there was little cooperation between brokers, as a buyer wanting to buy a specific property would have to deal with the broker who had exclusive listings of interest. It was also quite clear to all parties that the broker represented the seller and that the buyer was not represented.
In the 1950s, there was pressure for greater cooperation between brokerages. As a result, a broker working with a buyer will contact competing brokerages to learn about their inventory and potential matches for their clients. The agreements often resulted in the sales agent not knowing the seller or his agent and the sales agent’s only dealings were with the buyer. Suddenly, the concept that the selling agency owed its fiduciary duty to only the salesperson was no longer an orderly and logical concept. However, it would be many years before unviable agency concepts were resolved and led to buyer representation.
As the 1950s and 1960s progressed, a more formalized cooperative brokerage system, known as Multiple listing service (MLS), was developed. Through MLS, the concept of subagency evolved. Simply put, this meant that the listing broker was the agent and represented only the seller. The listing brokerage would hire sales associates who were considered subagents of the seller. The MLS brokerage firm was required to list for the listing to be available for everybody cooperating brokerage within your MLS. These cooperating brokers were also considered subagents of the listing brokerage, who were agents of the seller. If the cooperating brokerage had sales associates, they were subagents of the cooperating brokerage, who were subagents of the listing brokerage, which was the seller’s agent. During this period, an agency relationship with a buyer was not possible, as the agency relationship was always with the seller. The only duty a licensee owed a buyer was not to lie when asked about a property. The concept of “buyer care” was really the reality of how the brokerage business worked and buyers were always unrepresented.
The rise of consumerism, manifested in numerous court decisions, put pressure on the brokerage business to become more concerned with the interests of the buyer. Therefore, licensees who work with buyers have an affirmative duty to disclose known issues affecting a property. For example, if the broker knew that a roof was leaking, they would have to disclose this fact. This concept of disclosure was later expanded by the courts to include conditions on the property that brokers should or could have known.
In the 1980s, a government study found that nearly three-quarters of all buyers believed that the brokerage they worked with represented them as a client. The same study found that nearly three-quarters of all sellers also believed that the cooperating brokerage represented the buyer’s interests. It soon became clear that the agency law concepts that industry and government regulators had tried to impose to simplify and clarify agency relationships had not worked. Continued pressure from consumer groups and the courts eventually led to the buyer representation movement of the 1990s.
In 1991, the National Association of REALTORS® formed an advisory group to study agency representation issues. Testimonials were received from real estate professionals, industry experts, the public, and state regulatory authorities. The advisory group’s report made the following recommendations:
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NAR’s multiple listing policy should be modified to make sub-agency offerings optional. If a cooperating agency did not accept the sub-agency, then the listing agency had to offer compensation to the agency representing the buyer.
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The NAR would encourage state associations to promote changes in real estate laws and regulations to promote the disclosure of agency options. These options would include selling agency, buying agency, and disclosed dual agency. The purpose of this recommendation was to help consumers make informed decisions regarding representation.
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The NAR should encourage real estate brokers to adopt written company policies that address the management of the agency’s relationships with its clients and clients.
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The NAR would encourage the education of all members on the subject of agency representation. State regulatory agencies would also be encouraged to include agency as a required subject in continuing education requirements for all licensees.
Beginning in 1992, the National Association of REALTORS® adopted the following policy:
“The National Association of REALTORS® recognizes the selling agency, the buying agency and the dual agency disclosed with informed consent as appropriate forms of consumer representation in real estate transactions. The association respects the need for all REALTORS® to be able to make business decisions. individual about their agency practices of companies. Additionally, NAR supports freedom of choice and informed consent for consumers or real estate services by creating agency relationships with the real estate licensee. “
These changes from the NAR to the proxy policy changed the way industry practices. Exclusive right to represent Buyer agreements now allow a buyer to contract with a brokerage agency to find and negotiate the purchase of real estate. Generally, these agreements are for a specific period and require the buyer to pay a commission at the closing of the real estate transaction. As the buyer’s agent, the buyer’s brokerage owes all fiduciary duties (care, loyalty, disclosure, obedience, and accounting) to its principal, the buyer.