1.1 "Don't Quit Your Day Job"
2. "No Sign of Reform in NAR Leaders"
3. "The Wrong in the Percentage Commission"
Reality in Realty: Part 4
States of Confusionby Ray Wilson September 30, 1999
© 1999 Ray Wilson
Part 1 examined dual "agency" (it "isn't") and whether an individual agent can represent both buyers and sellers. Part 2 revealed which licensees do what, for whom and to whom. Part 3 placed the job descriptions of "agents" in the setting of the firm or would-be "agency." Here, Part 4 shows how real estate companies fish for both sellers and buyers with artificial lures like "transaction brokerage" and "designated agency" -- and identifies the states which grant the fishing licenses.
I ended Part 3 with the declaration that open and disclosed dual agency is a perfectly honorable business, but one that cannot survive profitably in the long term -- not as long as consumers are aware of its shortcomings in meeting their needs. What that tells most honorable businesspersons with foresight is to get out of the dual-agency business as a main source of income.
I am not about to lose faith in the honorableness of the typical mainstream traditional real estate agent -- but even honorable people can have their foresight clouded. We are in the closing daze of the 1999 baseball season and my annually resurrected belief that this will be the year the Red Sox will blow the Yankees out of first place at the finish line. When the cloud- makers are organized and seated in high places, many can be fooled; and when there are a few who are indeed dishonorable.... Lincoln did say "you can fool all the people some of the time."
The sun which keeps burning through the clouds is the Common Law. By its very nature it organizes the common experiences of people into the common language, terms and descriptions of common sense -- light in which consumer awareness grows and flourishes, and the inadequacies of dual agency are exposed. The solution for those who want to resist consumer awareness (and even the awareness of honorable professionals) is to extinguish the sun.
The move to extinguish the Common Law (and the common good) has temporarily succeeded in twenty-eight states -- usually as a matter of anti-consumer legislation proposed by a trade lobby presenting itself as "consumer advocate" to naive lawmakers. In two cases, however, the same regressive effect was achieved not through new law, but by the mischief of those charged with administering the law.
In not one of these 28 states do I see any new or enhanced right of the consumer -- no new market or legal function, or access or protection or convenience which did not already clearly exist under the Common Law. Now common is engineered confusion, blatantly obvious as serving only one common purpose -- to obstruct consumer awareness of their right to agency when buying as well as when selling. It is neither coincidence nor sudden contrition for past sins which has led the mainstream real estate profession in these and other states to call for reform of the very practices it proudly upheld for a century. It is a business response to the competition of exclusive buyer agents; it is a deliberate effort to restrain the expansion of the new buyer agency trade within the real estate industry; and it has enlisted both the willing collaboration and the unwitting cooperation of public officials in this restraint of trade campaign!
The only saving grace in all these states is that -- except for the right to be clearly informed -- the right to buyer agency has not been prohibited (although the "business is business" crowd in Oklahoma slipped a bill actually banning agency past one house). Thus no informed buyer has to settle for transactional brokerage or be trapped in designated agency. The catch-22 here is that the whole thrust of transactional brokerage and designated agency is to prevent the consumer from being informed! The big lie in both is that there is no problem of representation until after a buyer and property are potentially matched -- the big truth in both is that promises made by the firm to the consumer before that time simply don't mean very much.
Transaction brokerage just puts a new name on dual agency and makes it the default position when consumer and licensee don't specifically stipulate seller or buyer agency. The pro's are now said to "work for the transaction" rather than for one side against the other. Funny how the third side in all this never comes up -- the real estate firm's. Someone is being worked for here, and if it is not either of the principals.....
Transaction brokerage enables firms to sidestep the stigma of dual agency so they can practice dual agency. It is a new name literally signifying nothing (the absence of agency obligation to those probably paying full agency price). Obscured is that the stigma was deliberately put there by those who will now embrace the practice (before they needed a gimmick to deal with buyer agency). Recall that it was a two-level stigma: everyone knew that even disclosed dual agency was generally bad business for consumers and, when undisclosed, it was pure fraud. The disclosure imperative does not evaporate with a new label. Unless transaction brokerage is explained so all the weaknesses of dual agency are plainly disclosed, it is not only dual agency, but undisclosed dual agency. I cannot imagine it being a successful business practice when buyers and sellers are made aware that:
Designated Agency ignores the social reality of the organization, pretending its members are even less interrelated than strangers collected on an elevator. It ignores the common sense Common Law concept of Principal Broker, allowing the designation of "buyers agents" and "sellers agents" within a firm. Thus, even more insidious than transaction brokerage, this subterfuge bestows the title of "agent" on those who cannot meet the promises of true agency. There may or may not be individual licensees dealing only with buyers or only sellers, or a system with them chasing both listings and serving buyers while calling themselves "agents"; in the latter case the "designation" comes in when a firm-represented buyer is interested in a firm's listing, and an individual "agent" is then "designated" for each involved principal. It is a sham, making a mockery of centuries of common experience, common sense, and Common Law. It is placing the good of the firm over the public good.
Confusing? Of COURSE it is -- the very purpose of the legislation, to counter the threats to profitability posed by public awareness. Still, it is not too confusing for genuine professionals to figure out and honestly present to people. Pull transaction brokerage, designated agency, and all the other garbage creations out of the equation. Let sellers' agents work FOR sellers, and buyers' agents work FOR buyers -- and it gets very SIMPLE for the pros and understandable by the laypeople. It's why we have "professionals" -- people competent to "profess" it to the satisfaction of their principals. The professional interest is thus to make it clear, to clarify; but clarification is not in short-term business interest of those too short-sighted to see beyond the next transaction and kindred spirits who cannot see beyond the next election.
Here they are folks, the States of Confusion, all but two of which (both italicized) have passed anti-consumer legislation including either transaction brokerage, designated agency, or some equivalent sabotage of the Common Law.
Alabama, Arkansas, Colorado, Connecticut,Florida, Indiana, Illinois, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio, Pennsylvania, Tennessee, Texas, Virginia, and WashingtonIn New York and North Carolina, it was not legislators, but misguided executives who turned designated agency loose upon consumers (NY:Secretary of State; NC:Real Estate Licensing Commission). Odd -- one might have expected these nonlegislators and nonjurists to enforce the prevailing law rather than write their own.
One final piece of not-so-clear clarity -- but worth chewing over. The common law is simply the articulated common sense of the people about the reality of common experience and the welfare of the common good regarding obligations to promises made and justice for promises broken. As long as promises are made or implied, obligations will need to be enforced and justice rendered when they are broken. That is the Common Law. It doesn't go away through legislation or relabeling. When it is violated, victims will pursue recourse, and judges will see through even legislated camouflage. Maybe even before that, consumers and voters will know they've been had....