In the discussion that follows, the term “Broker” means a real estate brokerage or “sponsoring” Broker, while the term “Sales Agent” or simply “Agent” refers to licensees who work for a brokerage or sponsoring Broker, even though such Sales Agents may, themselves, be licensed as “brokers.”
Sales Agents are subject to the control and supervision of their Broker; the acts of a Sales Agent are considered to be the acts of their Broker.
Additionally, in the eyes of the law, both Brokers and their Sales Agents are considered to be “agents” of the party whom they represent. For example, both the Seller’s Broker, and the Sales Agents who work for that Broker, are considered to be “agents” of the Seller. As such, they each owe the Seller certain legal duties.
The “default” rule in Texas is that a Broker represents the Seller, unless there is an express agreement to the contrary between Broker and Buyer. This makes sense in that it is the Seller who decides whether to list a property for sale, it is the Seller who will pay the sales commission for brokering the transaction, and it is the Seller’s Broker (and/or that Broker’s Sales Agent) who will pay to advertise the property for sale.
Thus, when a Buyer calls a Seller’s Broker in response to an advertisement for a property, the Seller’s Broker is representing the Seller, not the Buyer. In this situation, the Buyer is unrepresented.
A Buyer, in order to have independent Broker representation, would need to enter into an agreement with a Buyer’s Broker, that is, with a Broker other than the Seller’s Broker. When this occurs, the Seller’s Broker and the Buyer’s Broker typically share the 6% sales commission (paid by the Seller), with each Broker receiving 3%. Each Broker’s 50% share of the 6% sales commission (3%) is then divided between Broker and Sales Agent.
Texas, like many other states, allows a Seller’s Broker, with certain restrictions, to “represent” both Seller and Buyer. When a Seller’s Broker “represents” both Seller and Buyer, the Seller’s Broker is not required to give 50% of the commission (that is, 3% of the 6% sales commission) to a Buyer’s Broker.
In Texas, this dual “representation” (sometimes also referred to as “dual agency”) can take one of two forms.
The first of these two forms of dual “representation” involves the Seller’s Broker acting as a mere “intermediary” (Texas Real EstateCommission’s term) between Seller and Buyer, without providing any real representation to either. When this occurs, the Seller is not getting the Broker representation that is usually thought by sellers to be included in the 6% commission they are paying to sell their property, and the Buyer, as with the “default rule” described above, still gets no representation at all.
In the second of these two forms of Texas dual “representation” the Seller’s Broker appoints one of that Broker’s Sales Agents to “represent” the Seller and another of that Broker’s Sales Agents to “represent” the Buyer. This arrangement, although on its face may appear to be legitimate, is rife with pitfalls.
As an initial matter, this second form of dual “representation” asks us to naively believe that the two Sales Agents, both of whom work for the same Broker, and who perhaps have offices or desks in close proximity to each other, who may attend Realtor training sessions together, and who might even socialize with each other outside of work, will not put their best interests of closing the deal — and getting paid — above the respective interests of the Seller and Buyer whom they supposedly represent. This is not an indictment of Sales Agents; rather, it is simply an acknowledgment of human nature.
More importantly, however, each of these Sales Agents is, in the eyes of the law, merely an extension of the Broker. Thus, although this arrangement may provide the appearance of separate or independent representation, such an appearance is a mere illusion. One Broker is still representing both sides of the transaction.
Because a real estate purchase-sale transaction, like any other contract negotiation, is, at its core, a transaction with (at least) two mutually-exclusive interests — the Seller trying to sell on terms most favorable to the Seller and the Buyer trying to buy on terms most favorable to the Buyer — it simply is not possible for one Broker to represent the best interests of both Seller and Buyer.
Compare Broker dual “representation” to the representation a Seller or Buyer receives from an attorney or law firm.
Although it is technically possible for an attorney to act as an “intermediary” between Seller and Buyer, and not forming an attorney-client relationship or providing legal advice to either, most competent attorneys would never accept employment on these terms. The major exception, of course, are attorneys who are employed by title companies. The difference here, of course, is that these attorneys do provide representation to a client: the title company.
But back to our hypothetical Seller and Buyer. When was the last time you heard about a law firm representing both sides in a transaction, with one of the firm’s attorneys representing the seller and another of the firm’s attorneys representing the buyer? Probably never, because such arrangements are prohibited.
One last thought as we conclude this article and bring this subject “in for a landing.” When litigation results from a real estate transaction, as it sometimes inevitably does, the Brokers and Sales Agents who were involved in the transaction are almost always subpoenaed to provide testimony about what happened. Such testimony is likely to focus on statements made during conversations by and between Brokers/Sales Agents, on the one hand, and the party they “represented” in the transaction, on the other hand.
Attorney-Client communications, however, are protected from compelled disclosure by the Attorney-Client Privilege. It is extremely rare for an attorney’s client to be compelled to testify about what the client said to the attorney, or for an attorney to be compelled to testify about what the attorney told the client.
Once the match has been made, so to speak, Seller and Buyer should each retain their own attorney to provide legal advice and handle the purchase contract and other legal documents.
The article was excerpted from:
Real Estate Broker or Attorney: Who Should Represent You in Your next Real Estate Transaction?