Or is it OK if the same firm represents you as the buyer, and at the same time represents the seller of the home?
If a bill before the state Senate becomes law, the Realtor will have to explain those and other options concerning representation to you the first time you meet. And whatever you decide will have to be put in writing.
Realtors say the bill is needed to educate consumers about the many choices they have regarding agency relationships in today's real estate market.
Rita A. Smith, president of the Lehigh Valley Association of Realtors, says that, with this bill, "Everything will be laid out right up front for the buyer. The buyer will sit with the agents and understand what their role in the purchase is all about."
However, consumer groups oppose the proposed agency disclosure legislation. They say it will only serve to legitimize conflicts of interest and reduce a broker's accountability and liability.
"If this bill were to become law, consumers would be deprived of protection, guidance and remedies for wrongs in what is often a consumer's largest single purchase," says Jan Bukac of the National Real Estate Consumer Network in Oil City, Venango County. The network is a project of the Institute for Civic Renewal, founded by Ralph Nader.
Proposed by state Rep. Mario Civera, R-Delaware, the bill unanimously passed the House in June. Realtors are hoping the Senate will make passage a priority when the Legislature reconvenes in Harrisburg next month. Critics fear the law is likely to pass because the Realtors are a powerful lobbying group.
House Bill 1172 is needed to update the state's Real Estate Licensing and Registration Act, says Todd Umbenhauer, a Pennsburg Realtor and a director of the Pennsylvania Association of Realtors.
Pennsylvania's current law does not recognize buyer's agents because that form of representation was not practiced in Pennsylvania when the act was last amended, he explains.
Buyer agency emerged in the '80s after a landmark Federal Trade Commission report found that a majority of buyers thought the agent showing them homes worked for them; sellers thought the same. However, the agents worked for the sellers in most cases.
The new bill would not only acknowledge buyer's agents, who are growing in number, but also add several new Realtor-client relationships, including designated agency. Designated agency is where the broker/owner of the firm that lists and sells the property appoints one agent in his office to represent the seller and another agent to represent the buyer. The broker could do so as long as he had the consent of both parties in writing.
Loren Keim of Century 21 Keim Realtors in South Whitehall Township says more buyers today are requesting representation.
Realtors say a designated agency would allow buyers to have that representation. In a traditional sale, the buyer had no representation because the agents represented the sellers.
The proposed bill also would recognize the transactional licensee. A transactional agent is one who simply facilitates a deal between a buyer and a seller; he does not legally represent the interests of either party. Some states, such as Colorado and Florida, recognize this type of agent.
Realtors say a transactional broker would be a good option for consumers who need a Realtor to help them with the paperwork and other steps in completing a sale, but who don't need help negotiating or representing their interests in a deal.
Bett McCarthy, executive vice president of the Lehigh Valley Association of Realtors, says most other states already have enacted similar legislation, and that Pennsylvania is just catching up.
"This isn't groundbreaking legislation," she says. "Over 45 other states already enacted it and it's working very smoothly. It seems everybody is better informed because this is written declaration of agency relationships."
Derena Updegrave, director of governmental affairs for the Pennsylvania Association of Realtors, which has more than 26,000 members, says the state has been studying the issue of agency since 1993, when the state's Real Estate Commission held hearings on the subject.
Whom the Realtor represents is important when it comes to matters of loyalty, confidentiality and full disclosure. For example, under agency law, any information offered by a buyer to a seller's agent must be passed on to the seller. If a seller's agent were to learn a buyer's top price, he'd have to pass that on to his client -- the seller. A buyer would prefer the seller not know his top price. If the agent works for the buyer, he doesn't have to disclose that information.
Whom the Realtor represents is also a question of liability. A seller's agent is responsible for disclosing any potential problems with the property, including those that the homeowner may not have disclosed or even known about. Buyers could sue seller's agents for not disclosing defects, and they have. In fact, McCarthy says, the proliferation of lawsuits stemming from questions of representation and disclosure is what has prompted states to update their agency disclosure laws.
However, consumer groups say that changes in Pennsylvania's agency laws are unnecessary and that the new categories the bill would create would only encourage more Realtors to do the impossible and try to serve both buyer and seller.
Jerilyn Coates of the Real Estate Consumer Council in Narberth, Montgomery County, says Pennsylvania's agency disclosure laws "are pretty darn good," even though they allow one firm to represent buyer and seller in a sale. The practice is known as dual agency, and fortunately, she says, it's rarely used.
She says if the laws were to be changed, it should be "to make it absolutely clear that dual agency is to be used only in extraordinary circumstances, such as in a commercial transaction where both parties are knowledgeable about real estate." Unfortunately, she says, the proposed bill "would make dual agency a matter of general practice" by adding disclosures and calling it something new -- the designated agency.
Coates says dual agency never works because it's impossible for an agent to represent both sides, especially when the seller is trying to get the highest price he can for his home, and the buyer is trying to pay the lowest price.
"Buyers' and sellers' interests are mutually exclusive," Bukac agrees. An agency representing both sides in a sale would be as outrageous as the plaintiff's law firm also representing the defendant in a lawsuit, she says.
Bukac says Realtors only are interested in dual or designated agency relationships so they can keep the entire commission. If one firm lists and another sells the property, the commission -- typically 6 percent of the sale price -- is split between the two, she says. If agents of the same firm handle the sale for the seller and the buyer, the firm doesn't have to share the commission, which could be $4,200 on a $70,000 home.
A dual or designated agency would not necessarily affect the amount of the commission or who pays it. Generally, the commission is the same whether both agents represent the seller or one represents the buyer and one the seller, and usually the seller pays it.
Coates adds that Realtors are pushing for designated agency because many of the mega-firms also own title, mortgage and inspection companies. If they were able to act on behalf of the buyer and the seller they could steer more of the related business from the sale their way. "The conflicts of interest are rampant in all of this," she says.
Randy Miller started Buyer's Resource of the Poconos in Stroudsburg six years ago. It is one of the few firms in Pennsylvania that represents buyers exclusively; it accepts no listings.
Miller says he doesn't see how two agents working in the same office could represent both sides in a sale without problems. To be able to arrange showings of its listings, an agency's files are kept open and accessible to everyone in the office, he says. It would be easy, he says, for either of the agents "passing by a filing cabinet to find confidential information about the other agent's client."
Confidential information might include why the home is for sale, which could affect the sale price. Are the sellers in a hurry? Or can they take their time? Is it a divorce situation?
Miller says a transactional agent, who merely helps coordinate the deal, is no solution either. Such an arrangement, he says, "would only reduce the level of professionalism that someone can expect from a Realtor. If an agent is not working for the buyer and he's not working for the seller, that leaves only one party who he's working for, and you can guess who that is."
Bukac says that the requirements added to the bill at the last minute that the agency disclosures be in writing won't help. Because written disclosures are required Realtors claim the bill is pro-consumer, she says, but so many forms and disclosures are required when buying and selling real estate that one more would just get lost in the shuffle.
Memo: Special to The Morning Call
