A divisive real estate law in Massachusetts, enacted July 1, allows two real estate agents from the same office to represent a home buyer and a home seller in the same real estate transaction.
Opponents say that this practice, known as “designated agency,” introduces a greater potential for conflicts of interest and sharing of confidential information in home sales, while proponents say it allows consumers the option to work with a familiar agent even if that agent works at the same office as an agent representing the other side of a real estate transaction.
The designated agency law in Massachusetts states, “With informed written consent . . . a real estate broker or salesman may appoint one or more licensees to act as a designated agent on behalf of a seller and may appoint one or more other licensees to act as a designated agent on behalf of a purchaser for a potential real estate transaction.” Buyers or sellers can consent to designated agency by signing a disclosure form, the law states.
Dozens of states have passed similar agency disclosure laws, and the National Association of Realtors has since the 1990s encouraged states to draft designated agency language in updating real estate laws. Designated agency laws in several states have met opposition from agents who exclusively represent buyers in real estate transactions, in particular, and these agents have charged that it is not in consumers’ best interests to participate in a home sale involving designated agency.
Realtor trade groups, meanwhile, have said that designated agency offers an alternative to situations in which a single agent works with a buyer and seller in a real estate transaction, and point to a growing number of states that have adopted such measures.
In Massachusetts, some legal experts who oppose the licensing law say its language is confusing for real estate professionals and consumers alike, and they expect there will be lawsuits related to the measure.
Charles Rounds Jr., a Suffolk University law professor who represents Real Estate Agents for Real Agency, a group of real estate agents who oppose the Massachusetts law, said, “The bill is so poorly written that it’s very likely that . . . it’s going to generate a fair amount of litigation.”
Real estate agents have a fiduciary responsibility to do what is in the best interests of consumers, and designated agency laws seem to go against that responsibility, Rounds said.
Just as a lawyer cannot represent a husband and wife in the case of a conflicted divorce, real estate agents from the same office should not represent buyers and sellers in the same transaction, he said. “Clearly the buyer wants the lowest possible price and the seller wants the highest possible price. I think it is extremely unwise to get into such a situation if one was a consumer.”
John Dulczewski, a spokesman for the Massachusetts Association of Realtors, said the new law is intended to provide consumers with more opportunity to receive buyer representation in real estate transactions. According to a 2003 National Association of Realtors survey of home buyers and sellers, “nearly half of all Massachusetts home buyers do not receive buyer representation in the purchase of real estate,” he said. “The statute and regulations provide clear direction on how to ensure consumers are treated fairly.”
He added, “The statutes and regulations address a need in the marketplace and answered a demand by both licensees and consumers,” Dulczewski said, and the state association has been backing the change to licensing law for the past decade. “After talking with thousands of our members at regional outreach programs, our board of directors voted overwhelmingly to support this initiative in a legislative framework in December 2003.”
Designated agency is practiced in 28 states, he also noted. “Some states have had a statute on the books for more than 10 years, and not one of these states have rescinded their law. Research indicates that in these states over 15.9 million transactions have occurred since adopting designated agency, without any increase in consumer complaints. The concerns about possible conflicts of interest regarding designated agency have never materialized in states where similar rules are already in place.”
Rob Authier, CEO for the Massachusetts Association of Realtors, said, “In a nutshell, the law sets a clear path to allow real estate professionals to provide full agency relationship. Agents can provide the full valued set of services, even when the buyer is interested in a property listed by another agent in the same office.”
And Michael Thiel, associate legal counsel for the National Association of Realtors, said he is not aware of any legal challenges to designated agency laws. Thiel said the national association “encourages states in their agency laws to provide for the opportunity for a broker to appoint different agents to represent a buyer and/or a seller in that transaction.” Designated agency laws can prevent situations in which a single agent represents both sides of a transaction, he said, and also can prevent situations in which agents cannot represent long-term clients if an agent from the same company is representing the other side of the property transaction.
“Without this kind of law, it could create a situation where . . . the buyer or seller, probably the buyer more often than not, would have to go and find another agent,” Thiel said.
Fred Meyer, though, said he can see no consumer benefits in the new law, and he resigned his position as a director for the National Association of Realtors over Massachusetts’ designated agency policy. Meyer, a past president for the state Realtor association in Massachusetts who serves as chairman for the Real Estate Agents for Real Agency group, said there are centuries of common law that outline real estate agency practices, and the new law seems to conflict with common law.
“In no state are judges just going to brush those aside,” he said. Meyer said there were no public hearings held for the new designated agency law in Massachusetts, and previous attempts to pass the law had failed.
“There always has been pressure from large real estate companies wanting to practice (designated agency),” he said. “It’s very profitable to represent both sides.” But consumers need to realize that there are potential pitfalls, he said. Agents working on the same transaction in the same real estate office may inadvertently divulge information to the other agent in the course of a transaction, for example, and this could harm the buyer or seller, Meyer said.
The office’s broker is supposed to serve as a neutral party when two agents affiliated with the broker are working in a designated agency situation, he said, and that also presents opportunity for conflicts.
“It is a very difficult thing to explain,” Meyer said, and he questions whether consumers who consent to designated agency actually understand the full ramifications of such a relationship. He authored a consumer guide, “From Horses to Houses,” that is available online, in an effort to explain agency laws and implications.
Steve Perry, a lawyer and Realtor who works exclusively with buyers, said the new law presents challenges because many real estate offices do not have proper safeguards in place to prevent conflicts from arising in designated agency situations. “Most common law cases regarding . . . representing both sides would suggest you have to make some extraordinary efforts to protect your clients’ best interests,” he said.
Perry, an opponent to the new law, said, “There are too many holes here, too many conflicts, too many issues that can arise. I don’t think there has been enough education before or after this law has been thrust upon the Realtor community.”
Realtor groups in Massachusetts have introduced one-page consent forms relating to the new designated agency law, which call for the signature of buyers or sellers and a signature from the broker or salesperson.
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