By Blackwell M. Brogden, Jr., Chief Deputy Legal Counsel
No, North Carolina law does not mandate which party an agent must represent in a real estate transaction, nor does it mandate who will pay the agent. Instead, the agent's principal is determined by the contractual arrangement between the agent's employing firm, the party it proposes to represent, and, if different, the party who agrees to pay for the agent's services.
Seller Agency
In traditional residential sales, the seller hires a real estate agent and firm to list his property. The agent and all firm members are thereby agents of the seller. if the transaction is co - brokered through an offer and acceptance of sub-agency by licensees from another firm, the co - brokers are also agents of the seller. In the absence of express contractual agreements to the contrary, the seller is therefore the party who pays for their services.
This type of relationship remains lawful. A selling agent may still work with buyers by showing them properties and performing related services yet represent the interests of the seller. However, recent changes in co - brokering practices by various listing services in the state have generated much interest in the subject of other agency relationships.
Buyer Agency
In addition to the traditional "seller agency" and "seller sub-agency," listing services are now offering co - brokerage participation in transactions where the co - broker represents the buyer as a "buyer's agent."
A licensee or firm which intends to offer "buyer agency" should first decide how to approach any possible conflict of interest or other potential problems. A firm may decide to limit its practice to only buyer representation or only seller representation; or it may combine that service with non - conflicting brokerage functions such as property management or property sales of a type which is not of interest to the buyers represented by the firm. A firm might also pursue related activities such as insurance sales, appraisal services, or general contracting.
Dual Agency
Some firms are choosing to offer both buyer and seller representation as an alternative to the exclusive "seller agency" or "buyer agency" service. These firms must solicit their clients to agree to "dual agency" if a buyer/principal desires to purchase a property listed with the firm by a seller/principal. Such firms use forms which disclose agency as well as compensation.
As earlier stated, the law does not require a selling agent to be the buyer's agent, nor does it prohibit it. Therefore, an agent representing a seller as a subagent and being paid by the seller through the listing agent, may make an agreement with the buyer to act as his agent and to be paid by him, so long as he does so with the knowledge and consent of all parties. The buyer's agent may also co - broker with the listing agent, but any payment from the seller or the listing firm to the buyer's agent must be disclosed to both the seller and the buyer, and made with their permission.
Potential Problems
While this practice is lawful when all facts are disclosed and the parties have given their informed consent, it does have complications. The Real Estate License Law holds the agent responsible for certain fiduciary obligations to his principal. (Other general obligations are imposed upon the licensee in dealing with non - principals.) When a buyer/principal desires to purchase property listed with the firm by a seller/principal, the result is to impose on the agent fiduciary obligations to both sides of a transaction. That is, the agent is duty - bound to try to negotiate the lowest price on behalf of a buyer, at the same time he is trying to secure the highest price for the seller.
Obviously, a firm acting as an agent for both sides in a transaction is subject to charges from both sides of breach of fiduciary obligations. The Commission has disciplined agents in cases where the loyalties of the respective licensee were divided. Examples of such cases include cases in which the seller's agent conceals knowledge about the buyer because of loyalty to the buyer; "double dipping" cases where the licensee conceals a receipt of compensation from the other party in the transaction; and, 11 secret profit" cases where a licensee subverts the transaction for his own benefit.
Thus there are obvious advantages to a purchaser who chooses the services of an exclusive buyer's agent over those of a dual agent: A buyer's agent would be aggressive in educating buyers about the local marketplace; there would be no incentive for a buyer's agent to use unqualified or disreputable inspectors or closing attorneys. In theory, this should reduce complaints from buyers to the Commission that one or more agents concealed "the airport noise," "the new freeway," "a local landfill," and similar complaints of nondisclosure.
Similarly, a buyer working with an exclusive seller's agent can take steps to protect his own interests if he understands that the agent is representing the seller's best interests rather than the buyer's best interests. An informed buyer can further protect himself by selecting his own inspectors and closing attorney.
Caveat
Yes, the changing real estate market has brought new questions and new problems along with its new services. However, the Real Estate License Law has not changed. The licensee must continue to fulfill his statutory duties and comply with the Commission's rules - no matter whom he represents!