Buyer agreements vs. representation: A critical distinction by Lisa Piccardo

Industry rule changes took effect six months ago, but many real estate professionals still don't fully understand representation or why it matters.

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The views expressed in this column are solely those of the author.

The NAR settlement has spotlighted buyer brokerage, but many agents and consumers are still struggling to grasp its fundamental principles. Mandatory buyer agreements make it more important than ever to understand accurate representation, how it differs from transaction or intermediary relationships, and why it matters. 

Too often, the distinction between a client and a customer is overlooked, leading to confusion and a lack of transparency. 

What is buyer representation's

Let's break it down and get back to the core of what buyer representation isn't. First, the NAR settlement requires buyer brokerage agreements, but it does not explicitly require buyer representation agreements. This distinction has not received the attention it deserves and underscores a more significant issue: Many real estate professionals do not truly understand the meaning of representation.

Accurate client representation comes with fiduciary responsibilities, including loyalty, confidentiality, providing advice and guidance, and acting in the client's best interest. In contrast, working with a customer typically involves facilitating a transaction, disclosing material facts, and operating with honesty and reasonable skill and care. 

The new rules were intended to increase transparency, but the practical impact has been uneven. Agents operating under showing agreements, transaction broker arrangements, or dual agency agreements should clearly communicate their role during initial consultations. 

A responsible agent in these situations should say: "Remember, I do not represent you unless we sign a contract that specifically says that I do. My role is to facilitate a transaction between you and the seller as a neutral party. I cannot provide advice or opinions, nor should you share confidential information with me until you choose to have me represent you as your buyer's agent."

How this plays out in different states

While some states mandate consumer disclosures to clarify these distinctions, others do not. Buyers moving from one state to another should be given a complete explanation of the agency laws of that state as they may be significantly different.

Some brokerages have implemented policies to better protect consumers, even in the absence of regulatory requirements. Dual agency is currently permitted in 42 states, but certain brokerages have chosen to prohibit their agents from serving as a dual agent as they do not want to risk a conflict of interest. Another policy implemented by one prominent brokerage requires agents to obtain the NAR Accredited Buyer Representative (ABR) designation before representing buyers. Agents without this accreditation must partner with a qualified colleague.

State laws can sometimes complicate the situation. In Florida, for example, the default relationship between clients and agents is transaction brokerage. Florida real estate statutes state that a transaction broker provides limited representation to a buyer, seller or both, but does not represent either in a fiduciary capacity or as a single agent. If a buyer wants complete confidentiality and loyalty, they need a single-agency relationship. Unfortunately, the statutes make it challenging for brokerages to offer single-agency representation due to conflicts that can arise when a buyer is interested in a property listed by another agent within the same company. 

Consequently, most Florida brokerages require their agents to act as transaction brokers. Buyers seeking full representation must turn to a different firm, a choice that could significantly impact the bottom line of brokerages selling 25-30% of their listings, which is not uncommon for larger firms.

Vermont is one of a number of states that transitioned from a transaction brokerage model to designated agency. Under this system, a broker of record assigns one agent to represent the seller and another to represent the buyer, ensuring confidentiality for both parties. While very effective for larger firms, designated agency can present challenges for smaller brokerages, especially if the producing owner or managing broker is directly involved in a transaction.

The path forward

The introduction of mandatory buyer agreements is a step in the right direction, but there is still work to be done. Brokerages and agents that prioritize accurate representation, educate consumers, and articulate the value of expert guidance will ultimately stand out and potentially protect themselves from future litigation.

Clear communication about the benefits of representation can build trust and enhance the consumer experience, making these practices a competitive advantage in the evolving real estate landscape.