Real estate transactions - experts debate the question of who represents whom

When you get in touch with a real estate broker, asking him or her to find the best possible house for you and your family, isn't that broker your agent or representative in finding the house and negotiating a favorable price and terms?

Probably not.

The question of who represents whom in a real estate transaction is important , but surprisingly little understood by property buyers and sellers - even the brokers themselves.

A house is usually the most expensive purchase a family will ever make. Professional service and competent representation are key factors in finding the right house and structuring a sound purchase agreement.

This year, for the first time, brokers, attorneys, and executive leaders in organized real estate are seriously scrutinizing the long-established system of broker representation with an eye toward possible changes that would make it more fair and equitable. This could result in changing the rules and procedures within local boards of realtors, or in more instances where a prospective buyer retains his own broker agent.

As it now stands, the broker you contact, the cooperating broker (usually in response to an ad or referral from a friend), probably works in the capacity of a subagent under the broker who listed whatever property he is presenting to you. In other words, he represents (legally) the property seller and has an obligation to push primarily for the seller's best interests.

After all, both the listing and selling brokers are generally paid for their services by the seller. They most commonly share a commission paid from the sale proceeds received by the seller.

As a practical matter, it would seem that a broker represents both buyer and seller in a real estate sales transaction. It's the broker's professional role to bring both buyer and seller together in a mutually acceptable agreement. But that ideal situation is not always possible. In some cases, it would be comparable to an attorney representing both the plaintiff and the defendant in court. Somewhere along the line, the representation scale will tip to one client or the other.

Another key consideration relates to the liability of the seller. In a rare case where his direct agent (the listing broker) really goofs - communicates false information to a buyer, for example, that results in a lawsuit - the seller could be held at least partially liable.

In the many cases where a cooperating broker is involved, the same liability potential exists. Since the cooperating broker works as a subagent to the listing broker, liability problems can flow right back to the seller. Real estate attorneys and brokers alike are expressing increasing concern about this dilemma.

''The issue is not an imaginary one,'' says Jack Collison, an attorney who specializes in real estate law.

''Although many, but not all, real estate brokers fight the concept that a real estate transaction is more than just 'bringing people together,' it must be recognized that it involves an adversary negotiating procedure.

''The major difficulty is the reluctance of organized real estate associations to initiate corrective changes,'' he continues. ''When solved, it will upgrade the professional standards of brokers and at the same time protect the property-buying and -selling consumer.''

William Broadbent, a broker and industry leader in California, recognizes the potentially serious problems in trying to represent both buyer and seller. He is a strong proponent of having prospective buyers employ their own broker-agents.

''There are many benefits to the buyer in employing his own broker,'' Mr. Broadbent says. ''One of the biggest benefits is that it opens up the entire marketplace to the buyer, whereas under the current system the buyer is often excluded from certain properties.''

As for a viable solution to today's prevailing ''dual agency problem,'' Mr. Collison suggests the following:

* Establish the cooperating broker as an independent representative of the buyer.

* Remove the subagency relationship between the cooperating broker and the listing broker.

* Remove the liability of the seller for acts of the cooperating broker.

These changes could be easily accomplished, he asserts, by adding a paragraph to the listing agreement form and deposit receipt (purchase contract form).

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