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Good News For Consumer

Good News for Consumers

The Consumer Federation of America (CFA) has finally addressed the confusion around representation issues in the real estate industry and their implications for consumers. The CFA is a nonprofit association of 240 pro-consumer groups that was founded in 1968 to advance the consumer interest through education and advocacy. This past October, they released a report entitled "Changes in Real Estate Agent Representation: Implications For Consumers." The report was prepared by Stephen Brobeck, Executive Director of the Consumer Federation of America.

The report calls on state regulators to protect consumers from "imprecise and ambiguous" language by real estate practitioners. It calls for "aggressive distribution" of informational materials in addition to agency disclosure. These efforts should include "energetic dissemination" of information to the press.

"Truth in Labeling"

Truth in labeling is at the very heart of this report: "Brokers should be required to accurately and understandably label the practices that they advertise." For example regulators should not permit the use of the term 'dual agent,' described by CFA as 'self-contradictory. 'A 'dual agent' is really nothing more than a facilitator and therefore not representing either the buyer or seller. Brokers should acknowledge that and not try to mislead consumers.

Non-agency Relationship Not Worthy of Full Commissions

Good News For Consumers of Real EstateBy experimenting under terms such as "facilitator ship," "transaction brokerage," and "dual agent," the broker seeks to hold on to both sides of the commission while limiting liability. Limiting the role of the broker ought to limit the compensation as well. If compensation is significantly reduced, then this could be an attractive option for a consumer. However, consumers may want a real estate agent, someone who represents their interests can be held accountable. Also, the industry goal, by overwhelming agreement is the preservation of existing commission levels.

Advice to Sellers

The CFA advised sellers to ask for exclusive representation. The report did fall short of elaborating potential risks the seller may face in non-exclusive or non-agency relationships. Some of the headlines regarding the news at the release of their report highlighted the link CFA made between the type of agency relationship and the value of service. They suggested to sellers that unless the broker represents them exclusively the sellers should negotiate a "substantially reduced" fee. They further stipulated fee ranges based on combinations of non-exclusive representation and the presence of lack of co-operating agents in the sale.

Advice to Buyers Seeking Representation

The CFA advised the buyer who wants representation that it is better to work with a buyer broker who represents only buyers. Buyer brokers are legally obligated to represent the buyer´s best interest and can be sued if they do not perform. They did not think under these circumstances that a buyer agent´s sharing of a split commission with the listing agent was a significant disadvantage to the buyer. They pointed out the buyer agent´s reputation, future referral and repeat business, and good reputation are "most important."

Buyer brokers who list property, or whose firm lists property may face conflicts of interest. If the buyer works with such a broker then the buyer ought to insist on full disclosure of these property listings and any financial interests the broker has in these listings. The CFA did not draw this out as to whether this would include the commission arrangements on these properties. They did not suggest that the buyer not reveal any confidential information until the buyer determines that none of these property listings would be of any interest.

Advice to Buyers Without Representation

The CFA defines a dual agent, facilitator and transactional broker as non agents. The buyer is advised to negotiate for him or herself or hire an attorney to negotiate the purchase. The buyer is also advised to "thoroughly investigate" the property with a home inspector.

If the buyer is dealing directly with the listing agent then the buyer is advised to negotiate a lower price that reflects the fact that a second agent is not involved in splitting commission fees.

"Do not work with subagents unless there are no other alternatives." The report goes on to "it makes no sense for there to be two agents representing the seller. "The buyers "will not receive representation in the transaction and are likely to pay top dollar."

What would be most desirable according to the CFA would be the complete separation of listing and buyer brokerage. The listing agent would work only for the seller and the buyer agent would work only for the buyer, thus avoiding the dual agency dilemma altogether.

The Consumer Federation of America can be reached in Washington DC at (202) 387-6121.

Source: Banker & Tradesman, February 15, 1995, Barry L. Nystedt, MABA member


Latest from the Blog

  • Closed Home Sales Down in April After Record Inventory Lows and Rising Prices

    Median Sales Prices Have Seen Year-Over-Year Increases for 19 Straight Months

    WALTHAM, Mass. – May 23, 2017 – The Massachusetts Association of Realtors® (MAR) reported today that low inventory and rising prices caught up to the spring market, with single-family home sales decreasing over eight percent from this time last year. Both single-family and condominium prices saw a hike. Condominium sales decreased almost 10 percent from April 2016.

    April Closed Sales:

    Single-Family April 2017 April 2016 %Change
    Sales 3,735 4,082 -8.5%
    Median Price $362,500 $349,900 +3.6%
    • Closed sales have been down for four out of the last 12 months
    • Median prices have been up or flat for 16 out of the last 17 months
    Condominium April 2017 April 2016 %Change
    Sales 1,455 1,607 -9.5%
    Median Price $345,000 $329,950 +4.6%
    • Closed sales have been down for four out of the last 12 months
    • Median prices have been up or flat for 16 out of the last 17 months

    “With the current trend of plunging inventory and rising prices, the odds were strong that sales increases of the winter market would be unsustainable through the spring,” said 2017 MAR President Paul Yorkis, president of Patriot Real Estate in Medway. “The demand is there; we just need more homes on the market to satisfy that demand.”

    Inventory and Days on Market:

    Single-Family April 2017 April 2016 %Change
    Inventory 13,234 19,392 -31.8%
    Months of Supply 2.7 4.0 -32.5%
    Days on Market 81 107 -24.3%
    New Listings 7,706 8,513 -9.5%
    • 62nd time in the last 63 months of year-over-year inventory decreases
    Condominium April 2017 April 2016 %Change
    Inventory 1,455 1,607 -9.5%
    Months of Supply 2.0 2.8 -28.6%
    Days on Market 60 78 -23.1%
    New Listings 2,640 2,971 -11.1%
    • Inventory down for 16 out of the last 17 months

    “Unfortunately, our existing level of inventory makes it hard for us to meet our current and future housing needs,” said Yorkis. “If we don’t do anything soon, it will have a negative impact on the entire Massachusetts economy.”

    If you are thinking of buying a home anywhere in the state of Massachusetts, it is in your best interest to work with a member of the Massachusetts Association of Buyer Agents. These men and women are dedicated to working exclusively on your behalf to ensure that you have the best possible home-buying experience. Find a MABA agent here.