It is important to know the distinction between the different types of agents. We have discussed exclusive buyer’s agents, but it is worthwhile to understand the other types of agents, and which parties they represent. There are three types of agency relationships you should know.
A buyer’s agent
As the name suggests, a buyer’s agent represents the home buyer, and that is whom he/she owes a fiduciary duty. The National Association of Exclusive Buyer Agents is an organization comprised solely of brokers and agents that only represent buyers while following a strict Code of Ethics and Standards of Practice.
In representing a buyer’s interests, a buyer’s agent scours listings in search of those that are appropriate for his/her client, schedules showings, and, if you like the property, conducts a comps analysis in order to help you formulate an offer. He/she also negotiate the final price and advises you when it is appropriate to move on.
A home buyer does not pay the agent directly. His/her commission is split with the seller’s agent.
A seller’s agent
It is important to remember that the seller has his/her own representation. This person is called the seller’s agent or the listing agent. The listing agent and seller have a contractual arrangement. As a seller, if you do not like your agent or feel he/she is not doing the job properly, you are stuck with him/her for a period of time. The only way out prior to the contract’s expiration is for the seller’s agent to agree to end the relationship.
The listing agent markets the property, including helping the seller formulate a price, advertise the property, schedule open houses, and negotiate any offers.
The listing agent is seeking the highest price but will consider other factors in consideration of his/her client’s interest. These include the buyer’s ability to pass the board’s interview and the strength of his/her financials.
A dual agent
This is where things get murkier. A seller’s agent can also serve as a buyer’s agent, creating a dual agency. In this case, the agent owes his/her fiduciary duty to both parties. While this creates certain conflicts, New York allows it to exist. The agent must inform the buyer and seller of the dual agency, but it raises questions on if he/she can truly maintain impartiality.
This puts the buyer at a disadvantage. Remember, the seller compensates the agent, with the payout based on the sales price. The agent has an economic incentive to enter into a dual agency since he/she collects the entire commission, typically splitting it equally with the broker. This contrasts with the usual situation where the listing agent divides his/her commission equally with the buyer’s agent.
We recommend buyers have their own exclusive representation. This way, there are clear lines, and it leaves no question of where the parties stand. Your agent, while collecting a commission, works solely for your interests. Similarly, if you are a seller, you want to ensure your agent has undivided loyalty to you. There is a temptation for a dual agent to recommend that you accept a lower price since he/she collects the entire commission.