Agency Issues - Part 2 - Chapters 4-6 Flashcards
Challenge misconceptions about multiple listing service (MLS) subscriptions and price-fixing practices imposed by industry brokers
Enactment of the Real Estate Agency Law in the mid-1980’s ended many of the complex and legally dubious customs of Brokers working in the MLS environment. It clarified the relationship between brokers and agents, and buyers and sellers - Agency Law Disclosure. For the first time, MLS brokers and their agents were able to act exclusively on behalf of a buyer without the seller’s broker - who is the adversary of the buyer’s broker- controlling the fee sharing arrangement. Buyer’s agents were no longer cooperating brokers working as sub agents of the seller.
In California, MLS subscribers do not need to become members of a trade Association to subscribe to an MLS database, even if the MLS is owned by the association. Thus, the MLS subscriber avoids the suppressive instrumentality of trade association membership.
Competitive associations may join together to eliminate their separate MLS database operations in favor of a single countywide MLS, which improves the effectiveness and efficiency of the consolidated service. However, associations may NOT COLLUDE to price-fix or set the fee each component MLS charges for services it provides, or ban discounting or rebates by more efficient and competitive trade associations within the organization.
Understand the duties of a buyer’s agent to locate suitable property, seek the most advantageous price and terms available and diligently advise the buyer in the transaction
The term “selling agent” - a product of the old MLS environment refers to agents representing buyers and was codified in real estate agency law along with the term “buyer’s agent.” However, though the buyer’s broker is always defined as a “Selling Agent”, the term does not apply exclusively to the buyer’s broker.
“Selling agent” also legally includes a seller’s broker or agent who is in direct contact with a buyer, whether or not the seller’s agent obligates themselves as a dual agent to act as the representative of the buyer. A buyer’s agent who exclusively represents the buyer owes a specific duty to the buyer to locate suitable property, seek the most advantageous price and terms available, and diligently advised the buyer in the transaction.
Agency Law Disclosure
The AGENCY LAW DISCLOSURE is a form containing real estate agency codes which establish the conduct of real estate licensees when representing others in a real estate transaction, which is delivered to all parties in sales transactions other than for 5 or more unit Residential Properties. All MLS sub-agency Arrangements came to a stop by the mid-1980s when the real estate was enacted, codified case law and agency principles, which are disclosed through the agency law disclosure. Only then did buyers listings begin to be generally used. Today the buyer’s offer now sets the fee the buyer’s agent is to receive, not the MLS listing information as in the past.
double-end
DOUBLE-ENDING A SALE is when the seller’s agent receives the entire fee in the real estate transaction, the buyer not being represented by another agent who shares the fee. Thus, when no other broker is involved in a sales transaction, the seller’s broker is also legally referred to as the selling agent, a situation referred to in practice as DOUBLE-ENDING THE SALE. The seller’s broker who double ends a transaction need not be the buyer’s agent at all, even though they are classified as a selling agent (but not the buyer’s agent and, thus, not a dual agent). conversely the seller’s agent may undertake the representation of the buyer to locate and advise on the acquisition of suitable property. Here the broker becomes the buyer’s agent as well as a dual agent.
multiple listing service (MLS)
The MLS or multiple listing service is a subscription available to real estate brokers which pools preliminary information on property listings for publication.
price fixing
PRICE-FIXING is an arrangement among providers of the same service to sell their services only at a predetermined price. Though the price-fixing scheme of “same-percentage, same-split,” was ruled a violation of federal antitrust laws, it remained fully enforced by defiant residential brokers using the MLS system. They continued to require all member brokers to publish listing information on the MLS, including the total fee agreed to by the seller (to always be 6%), to be divided evenly between the listing office (LS-aka seller’s broker today) and the selling office (SO-aka buyer’s broker today).
Back then in 1955 enforcement by residential brokers of the 6% / 50/50 rule was made possible through board binding arbitration. The local Trade union owned or controlled the MLS. More insidious, membership in the trade union was then a prerequisite for a subscription to the MLS. Thus, when a broker using the MLS violated its price-fixing policies regarding the fees, the trade Association became the instrument used by conforming Brokers to enforce their UNLAWFUL PRICE-FIXING activity by a money award in arbitration.
subagent
A SUB-AGENT is an individual who has been delegated agency duties by a broker employed by a client, not the client themselves. In the case of the MLS environment, historically – and incorrectly – the broker and their agent who represented a buyer in a sales transaction were – but no longer are – referred to as sub-agents within the residential multiple listing service MLS brokerage Community until the late 1980s. This misnomer was a product of the pre-1980s MLS environment. Back then, MLS subscribers working directly with a buyer we’re merely SUB-AGENTS employed by the seller to sell a property listed in the MLS through the seller’s primary broker. This is the reason why it was said that all brokers and their agents who were members of a trade union’s MLS were automatically sellers agents. (and is why a buyer’s agent, was referred to as a selling agent back in the day).
supra-competitive
SUPRA-COMPETITIVE PRICING is a market condition where prices are unfairly set by collusion, preventing others from entering the market and hurting consumers.
It is the likelihood that some of the peripheral associations would go out of business under an efficient countywide MLS which led to the price being fixed at a SUPRA-COMPETITIVE and illegal level in the first place. This further led to the banning of competitive pricing for MLS services provided to subscribing brokers by the big associations agreeing not to discount or offer rebates for their broker-subscribers (which would have reflected the actual pro-rata costs incurred by the bigger associations.)
However, competition or economic darwinism needs to be allowed to occur by the process of creative destruction. Under open market conditions, the more efficient association’s bring about the demise of less productive associations to the financial benefit of all the MLS subscribers within the enlarged servicing area. Basically price-fixing is illegal and trade associations may not collude to set the fee charged for the MLS services or by banning ‘discounts’ or ‘rebates’.
Differentiate between agency and fee sharing
Agency, whatever the type, is created either by contract or by the CONDUCT of a broker when interacting with a buyer or seller. Agency is not established by entering into trade memberships or by receipt of a fee paid by the seller, called fee sharing.
Identify situations in which a dual agency or subagency is established and managed
A provision in a listing agreement may authorize the seller’s broker to create a sub agency between their seller and another broker. Under the sub-agency provision, the seller’s broker may act on behalf of the seller to employ another brokerage office to ALSO act on behalf of the seller to market the property.
A dual agent is a broker who is simultaneously representing the best interests of each of the opposing parties in a transaction. Dual agency must be disclosed to the parties involved at the time the conflict arises. Failure to disclose a dual agency relationship can result in the loss of the broker fee, liability for money losses incurred by the clients, and disciplinary action by the department of real estate on a complaint.
Confidential pricing information must remain the undisclosed knowledge of the Dual agent, unless they are authorized to release the information to the other party.
The conflicts that exist in a broker’s dual representation rule out aggressive negotiations to obtain the best business advantage for either party. Thus the principles of a dual agent do not receive the full range of benefits they would have obtained from an exclusive agent.
Understand how conflicts of interest are managed
A conflict of interest exists when a broker or their agent has competing professional or personal bias that may hinder their ability to fulfill the fiduciary duties to give advice and act on behalf of the client.
The conflict of interest which exists when acting as a dual agent, is handled by the timely disclosure to all parties. Disclosure is made prior to providing a buyer with information on a property listed with the broker, or taking a listing from a seller when the broker already represents a buyer who will make an offer. Disclosure of a conflict, such as a dual agency situation, allows the principles to take the disclosed bias into consideration in further discussion with the broker and in negotiations with the opposing party. The disclosure and consent to the Dual agency does not neutralize the bias disclosed. However, it does neutralize the element of deceit which, if left undisclosed, would be a breach of the brokers fiduciary duty.
conflict of interest
A CONFLICT OF INTEREST is when a broker or agent has a positive or negative bias toward a party in a transaction which is incompatible with the duties owed to their client.
dual agent
A DUAL AGENT is a broker who represents both parties in a real estate transaction.
multiple listing service (MLS_
MULTIPLE LISTING SERVICE (MLS) is a subscription available to real estate brokers which pools preliminary information on property listings for publication. The membership of a buyer’s broker in a multiple listing service is not conduct that creates a dual agency or sub agency relationship with any seller whose property is listed for sale with another broker who is a member of the MLS.
subagent
A SUB-AGENT is an individual who has been delegated agency duties by a broker employed by a client, not the client themselves. The seller’s broker employs another broker/agent to help with the marketing of the property.
