Take away, for a minute, the words real estate and let’s just discuss what an agent is. An agent is an individual who, by his/her actions or formal agreement, acts in a capacity for an individual (the “client”) wherein the agent’s actions, in or on behalf of the individual, are intended to represent the best interests of the individual over and above the agent’s interests. In other words, an agent owes loyalty to the Individual and must act as instructed–short of being asked to commit improper, unethical or unlawful acts. In short, an agent is his client’s “doormat”.
Let’s add back to the agent the words “real estate”. A real estate agent can represent a seller or a buyer in a real estate transaction but not both. When the agent represents the seller he tells the seller what he thinks the seller’s best course of action should be in terms of a price at which to list his property and other steps the seller should take to ensure a sale. An honest agent will not mislead the seller about a list price, i.e., the agent will not suggest a higher price just to secure a listing. The agent will advise the seller to be forthcoming about property defects or other issues that could impact a sale. The agent will not advise a seller to accept an offer to buy that is not in the best interest of the seller. The agent could be perceived as trying to save his commission and putting his interests before the seller’s. If the agent is aware that the seller will accept an offer at a price less than list price, he will not disclose that fact to a purchaser without the (written) consent of the seller. To do so is a violation of the law.
If a real estate agent represents the buyer he must represent the buyer’s interests as opposed to the seller’s and negotiate the best possible transaction for the buyer. If he believes his buyer client may be offering too much for a property, based on his best knowledge, then he should tell the buyer even though it would mean a reduced commission. If a buyer has an intended use for a property and the agent knows or believes that the property would not serve the buyer’s intended use, he must tell the buyer. Just as with a seller’s agent, a buyer’s agent may not convey his knowledge of the buyer’s bargaining position without the permission of the buyer.
Can an agent represent both the buyer and the seller? Can the prosecuting attorney represent the defendant? Absolutely not! If a buyer comes to my real estate office and wants me to represent him in the purchase of one of my company’s listings I cannot do it because I already represent the seller. I have no choice but to send the buyer to another real estate company even though it will cost my company half the commission. If the buyer so chooses he can still purchase through my company but he will be on his own. It is very important to point out that, even when the agent represents the seller, the buyer whom he may be assisting in the purchase of his client’s house, must be treated fairly. An agent may not withhold from the buyer any information that would affect his ability to properly assess a purchase. For example, if an agent sells land in a floodplain and fails to inform the buyer, who had planned to build a house on the property, the agent could lose his license. An agent can be considered as having committed a deceptive act if he withholds information necessary for sound decision making, not only if he knew the critical information, but also if he should have known.
Finally, there is, in Texas, a lawful way for an agent to work with both a seller and a buyer. It is called Intermediary. Both buyer and seller have to consent to the intermediary act. An intermediary is actually, in the purest sense of the word, no form of the agency at all. Under Intermediary agents are assigned by the broker to work with the buyer and seller but may convey no information back and forth between the buyer and seller that they have not been given permission in writing to do. The agents must still treat both parties honestly and disclose any material facts that would be important to either the buyer or seller.......other than negotiating tactics. According to the Texas Real Estate License Act, when acting in an intermediary capacity, an agent may give "advice and Opinions." What the heck does that mean!? Does it mean I can tell the buyer I am working with that the seller is desperate to sell? Well, the law is not clear on this. An attorney with the Texas Association of Realtors® once described Intermediary to me as a "legal fiction." Of what benefit is Intermediary to the buyer and seller? Absolutely none! The sole purpose of Intermediary is to allow the company handling the transaction to keep the entire real estate commission in its office. Bottom line: If a buyer or seller insists on proper representation somebody will have to go to another real estate company. For more information on the laws of agency in Texas, go to http://www.trec.state.tx.us/ . If you ever have a doubt about a real estate transaction in which you are involved, contact an attorney competent in real estate contract matters.
Mike McEwen is a real estate broker with 28 years in the business.