In Massachusetts, prospective buyers should expect to receive and sign an agency disclosure form from each real estate agent whom they meet. The two-sided form -- which is not a contract -- discusses agency law and defines three different types of agency relationships: buyer agency, seller agency, and dual agency.
With the evolution of buyer brokerage in new England, the Massachusetts Board of Registration of Real Estate Brokers and Salespersons revised its agency disclosure regulation to recognize that some real estate licensees act as buyer's agents. The regulation now requires that a real estate agent must disclose his or her form of agency to prospective buyers or sellers at the first personal meeting to discuss a specific property.
One of the purposes of the disclosure form is to advise buyers that they have a choice. Whether a consumer hires a listing broker to sell his home or hires a buyer's agent, the agent should provide the disclosure form prior to signing or entering into the listing agreement. If a consumer is viewing property with a subagent (seller's agent), the agent should request that the consumer sign the form before discussing specific listings or looking through the Multiple Listing Service (MLS) book or computer listings. Brokers are not required to have buyers sign forms at an open house but a sign, poster or literature should state that the broker represents the sellers.
There is no state-approved form for disclosed dual agency, which will be discussed later. However, agents are required to obtain the written "informed consent" from both buyer and seller before acting as a disclosed dual agent.
A pitfall of tying the disclosure to the discussion of a specific property is that some real estate offices request detailed financial information from potential buyers, though buyers are not legally required to provide that information to real estate agents. Buyers who provide their agents confidential information such as salary, the maximum amount they will spend for a home, their assets and credit history, believe it will facilitate the approval process.
But those buyers may subsequently be shocked to learn that the agent to whom they have given this information actually represents the seller and, even more importantly has an obligation to disclose this information to the seller. Buyers should make sure to ask up front whom a real estate agent represents if the agent does not tell them. Buyers who want to keep their financial information private should consider meeting directly with a lender to become prequalified or preapproved.
"Agency" defined
The vast majority of real estate brokers and salespeople in Massachusetts are agents. An agent owes the following duties to his or her client:
A seller's agent can show a buyer properties, provide school and tax information, disclose material problems with the property, provide forms, provide information about home inspectors, septic systems inspectors, lenders, insurance companies, etc. A seller's agent cannot negotiate on behalf of a buyer and offer advice on price.
A seller's agent can assist buyers in a variety of ways while still representing the seller. The seller's agent can show a buyer properties, provide school, zoning and tax information, provide other information about particular communities, disclose material problems with the property, provide forms, provide information about home inspectors, septic system inspectors, lenders, and insurance companies. However, a seller's agent cannot negotiate on the buyer's behalf or advise buyers on what price to offer other than to recommend that they offer the listing price.
In other words, buyers should not tell a seller's agent anything that they would not want a seller to know. A seller's agent is required to disclose to the seller helpful information, such as how high a buyer would be willing to go, the identity of the buyer, the buyer's ability to afford the property, the buyer's motivation for buying whether the buyer is planning to subdivide, resell the property for a profit, convert it into a mall, etc.
What can a buyer expect from a seller's agent? A seller's agent must treat a buyer fairly and honestly. All real estate licensees ar legally required to disclose known defects about a property to prospective buyers. For example, if a seller has told an agent that the home for sale is being treated for termites or has problems with water seepage in the basement every spring, the agent has a legal obligation to disclose this information to prospective buyers. However, if the seller has not disclosed this information, the agent has no obligation to perform his own investigation to determine whether problems exist.
This is why it is so important for a buyer to make an offer to purchase contingent on a home inspection. Also, a buyer may make an offer contingent on the seller's completing a property condition disclosure form, commonly known as a "Seller's Description of Property" form, if the seller has not already completed one. This form asks sellers detailed questions about their property, such as the age of the roof or whether the home has been tested for radon.
Working with a buyer's agent
Additionally, a buyer may choose to work with a buyer's agent, whose role is to assist a buyer in obtaining a property for the lowest price and most favorable terms. Typically a buyer's agent will require a buyer to sign a contract, although verbal agreements can be just as legally binding.
A disadvantage to working with a buyer's agent is that a buyer is required to make a commitment. Buyers who are used to browsing from office to office may feel constrained. In addition, depending on the wording of the contract, a buyer may be required to pay the fee of the buyer's agent if the seller will not allow it to be included in the transaction.
A buyer's agent can provide the same information which a seller's agent can provide to a buyer, such as school and tax information, other information about communities, standard forms, information about home inspectors, title companies, lenders, and attorneys, for example. In addition, a buyer's agent can give advice on negotiations and how much to offer for a property. A buyer's agent can find properties which are "for sale by owner" or other unlisted properties which may not be available to seller's agents. Buyer's agents, if they know, should disclose how long a property has been on the market, the willingness of a seller to accept a price below the asking price, the seller's motivation for selling -- e.g., bankruptcy, divorce, pending foreclosure, etc.
A buyer's agent can protect the identity of a buyer. While anonymity may be more common in commercial real estate deals, it can also be important for buyers of residential property. For example, a rich or famous buyer may wish to make an anonymous offer because of concerns about privacy, or the seller could demand a higher price upon learning the buyer's identity. For those buyers who are not as rich or famous, a neighbor who does not get along with the seller may wish to make an offer.
In addition to anonymous buyers, first-time home buyers and buyers who are from out-of-town and unfamiliar with the market may particularly benefit from working with a buyer's agent. Of course, any buyer is free to work with a buyer's agent.
Buyer's agents may be compensated in a variety of ways. Some buyer's agents request a nominal retainer up front which is credited against the commission if the buyer ultimately buys a home through the buyer's agent. Some buyer's agents will work for an hourly fee. Some buyer's agents accept compensation offered by a listing broker in the multiple listing service or otherwise. More commonly, a buyer's agent seeks compensation from the transaction. For example, a buyer would submit an offer to purchase which is contingent on the buyer's agent being paid from the proceeds of the sale. The seller is free to accept or reject this provision. Finally, a buyer may be required to pay the buyer's agent directly. Buyers should understand these options before signing a contract.
Also, before signing a contract, a buyer should ask whether he will owe a fee to the buyer's agent if the buyer finds a home elsewise, for example through a relative or friend. This is comparable to the exclusive right to sell listing agreement which sellers typically sign. This agreement requires the seller to pay a commission to his agent even if the home is sold to a relative.
A buyer should ask whether the chosen agent represents buyers exclusively. Single agents represent both buyers and sellers but never in the same transaction. A buyer represented by a single agent may not be able to see any homes listed by a single agent who already represents the seller of those listings as a seller's agent. A single agent in this situation may refer the buyer to another firm for representation to view the property in question.
Other firms practice disclosed dual agency. These firms list property yet also represent buyers. If a buyer wishes to view a home which is listed with a firm which practices disclosed dual agency, the buyer must provide his written, informed consent to allow the firm to act as a disclosed dual agent before viewing the in-house listing. In other words, the firm, or in some cases an individual agent, would represent both the buyer and the seller in the same transaction. This changes the buyer-agent relationship. A disclosed dual agent cannot offer undivided loyalty to his client, nor full disclosure. A buyer's agent can negotiate on behalf of the client and provide advice on how much to offer for a property; a disclosed dual agent cannot. A buyer's agent could disclose a seller's motivation for selling his home (if the agent knew this information); a disclosed dual agent cannot.
A buyer should make certain to ask whether a firm practices disclosed dual agency before signing a contract for buyer representation. Some buyers and sellers consent to disclosed dual agency to continue to work with the same real estate broker or salesperson. Others prefer the convenience of having one firm process the paperwork and otherwise handle the transaction. The National Association of Realtors recommends that dual agency be disclosed three times: when a buyer or seller signs an exclusive agency agreement, when the disclosed dual agency actually occurs, and when an initialized copy of the disclosure is attached to the purchase and sales agreement. However, the buyer should learn the identity of the seller of the property in question before consenting to disclosed dual agency again. For example, if the buyer learns that the seller is a real estate developer who lists all of his new subdivisions with the firm, will the firm offer equal representation to a first:time home buyer?
Buyers should make sure they receive an agency disclosure form from each real estate firm they visit, and should read and understand the form before signing. Clients give agents a lot of information about themselves. In return, they should not hesitate to question whom a real estate agent represents, what services the agent can provide, and how the agent will be compensated. Knowledge is power -- and a powerful leveler of the real estate playing field.
Monica Staaf Esq. is general counsel for the Massachusetts Association of Realtors, headquartered in Waltham. She writes frequently about real estate topics.