When you hire a real estate agent, it’s important to understand whose side she’s on as you select a home to buy (or list your current home for sale) and head towards closing, where the actual transfer of ownership happens. There are a lot of ways agents may represent clients. Yours might represent:
By knowing where your agent’s loyalties lie, you’ll know what you can tell her and what you can’t. (If, for example, you’re dealing with an agent who doesn’t represent you but is representing the sellers of a home you want to buy, you won’t want to tell her how high you’re willing to go on the price.) In some states, your agent has to explain the type of representation (also called agency) she’s offering you and ask you to sign a contract identifying who the agent and her broker represent. If an agent doesn’t bring up the subject or ask you to sign a contract, ask about it so you know whom she’s representing.
No matter what form of representation you agree to, watch out for your own interests and understand the six ways brokers and agents represent clients below.
1. Buyer’s Agency
Want the agent to represent you and only you when you buy a home so that all the information you share with her is confidential? Opt for an exclusive buyer’s agent.
Who pays the buyer’s agent? Surprisingly, even if you hire a buyer’s agent, you can still ask the sellers to pay his fee. You can pay your buyer’s agent yourself, or ask the seller (or the seller’s agent) to pay your agent a share of their sales commission.
2. Seller’s or Listing Agency
An exclusive seller’s agent represents only the sellers, not the buyers. If your exclusive seller’s agent finds a buyer for your home, he may have another agent -- maybe even a co-worker from the same brokerage -- represent the buyer in your transaction. In some cases the buyer may have no agent at all. Your exclusive seller’s agent is loyal only to you, so it’s OK to discuss strategy with him.
Who pays the seller’s agent? The seller pays a commission to the seller’s agent from the proceeds of the sale. The seller’s agent may, and often does, share the commission with the homebuyer’s agent.
3. Subagency or Cooperating Agency
Let’s say you find a home online. You call the real estate brokerage that’s offering the home and an agent who answers the phone offers to show you the home right now. You think, “Great, she’s showing me the home, she must work for me.” But unless you’ve hired her as your buyer’s agent, she’s working for the sellers.
The same thing can happen if you go to see a home with an agent whose brokerage doesn’t hold the listing. That agent is assisting you, but she’s not your agent; she’s cooperating with the sellers to get you to buy their home.
In some states, that agent may also be a subagent (think subcontractor) of the seller’s agent. Some states allow subagents, some don’t.
Bottom line: Always ask any agent showing you a home whom she represents. Never tell a subagent anything you don’t want the sellers to know.
Who pays the subagent? The seller’s agent shares her commission with the subagent.
4. Dual Agency
In many states, agents can represent both the buyer and seller. These dual agents seek to bring both sides together. They can’t do something that’s only good for you and not for the other side.
A dual agent situation often arises when one agent represents the buyers and the sellers of the same home. The agent must disclose the relationship and, in many states, you must agree in writing to such dual representation because of the potential for conflicts of interest. While dual agents have an obligation not to share any confidential information of a client without their permission, be sure to inform the agent that the information is confidential and know that any non-confidential information may be shared with the people on the other side of the transaction.
Who pays the dual agent? Usually the seller pays the commission.
5. Designated or Appointed Agency
What happens when the buyer’s agent and the seller’s agent both work for the same broker?
To make sure both sides of the home sale are treated fairly in this situation, some brokers designate an agent in their company to represent only the buyers and another to represent only the sellers. A designated agent or appointed agent will be loyal to you and only you. The strategy helps avoid a dual agency situation.
Who pays the designated agents? The sellers pay the commission and the designated agents share it.
6. Nonagency or Transaction Brokerage
In some states, you can work with an agent who acts as a facilitator. By doing so, you set up a nonagency, transactional, or facilitator relationship with the “agent” even though that person is technically not your agent under the law. Typically, nonagents owe you fewer obligations and duties than those who are actually agents. For instance, they would still be required to treat you fairly, but wouldn’t necessarily owe you confidentiality.
Nonagent responsibilities vary from state to state. To find out what those services entail in your state, ask the broker and agent.
Who pays the nonagent? You, as the seller, might agree to pay a flat fee or a commission, which would be stipulated in the listing agreement.
A REALTOR® can help you sell faster, get a better price, and guide you through what can be a complex process. So you'll want to find an agent who suits your needs. Knowing which type of relationship you have with your agent, and his broker, will help you negotiate the best possible deal, whether you’re a buyer or a seller.