What Were They Thinking?

Or, perhaps they weren’t thinking or perhaps they were influenced by traditional real estate industry PAC money.  What am I talking about?  Massachusetts Legislation, Section 87AAA3/4: Real estate brokers and salesmen. 

What were legislators thinking when this section of Massachusetts law passed and become part of the law governing real estate licensees?  Section 87RR predated Section 87AAA3/4 as far as I know and lays out the basics of how a real estate licensee operates.  Quoting from 87RR, “No salesman may conduct or operate his own real estate business nor act except as the representative of a real estate broker who shall be responsible for the salesman and who must approve the negotiation and completion by the salesman of any transaction or agreement which results or is intended to result in the sale, exchange, purchase, renting or leasing of any real estate or in a loan secured or to be secured by mortgage or other encumbrance upon real estate.”

It is a known fact, as this section of Massachusetts’ law points out, that relationships are with the brokerage and not with individual licensees affiliated with that brokerage.  The licensees, whether a salesperson or associate broker, are under the direct control of and are a representative of the broker of record for the brokerage.  That is fact.  So along comes Section 87AAA3/4 which states, “A real estate broker or salesperson and his affiliates may act for more than one party to a real estate transaction as designated agents only with informed written consent.  With informed written consent in the form prescribed by the board, a real estate broker or salesman may appoint one or more licensees to act as a designated agent on behalf of a purchaser and may appoint one or more other licensees to act as a designated agent on behalf of a seller for a potential real estate transaction.”

So far so good.  This is basically dual agency just called something else, that is “designated agency”.  The designated agents are still dual agents for an in-house transaction and unable to provide full fiduciary duties including undivided loyalty.  But then 87AAA3/4 goes on to state, “Appointment of a designated agent shall not be made unless the party has consented, at the commencement of the party’s agency relationship with the real estate broker, that the party’s designed agency relationship shall not extend to any other licensee affiliated with a broker and shall be limited to the licensee appointed to act as designated agent.”

Say what?  “…shall not extend to any other licensee affiliated with a broker and shall be limited to the licensee appointed to act as designated agent”.  I don’t think so.  What happened to “No salesman may conduct or operate his own real estate business nor act except as the representative of a real estate broker…”?  The real estate broker is the one with the relationship with the consumer, not an individual licensee under the broker.  This is in direct conflict with Section 87RR and the common law of agency.  87AAA3/4 goes on to state, “Upon appointment of a designated agent, the responsibility to satisfy agency duties owed to the purchaser or seller shall be solely the responsibility of the designated agent.”  What hogwash.  The consumer relationship and agency duties flow from the broker (brokerage) down to the affiliated licensees of that real estate company.  So there is no way that the individual licensee can provide these duties independent of the brokerage and all other licensees affiliated with the brokerage.  If the broker (brokerage) is a dual agent then all of the affiliate licensees are dual agents.  That is law.

Whose stupid idea was this anyway and how the heck did a bunch of supposedly smart and intelligent legislators pass such crap?  I guess we will have to speculate on this.  First of all, the in-house deal and the resultant double-dipping of commissions is a major revenue stream for large traditional real estate industry companies.  So we have a huge financial incentive to be able to do these in-house deals.  However, dual agency if explained properly to consumers would not be acceptable to most consumers.  A dual agent must remain neutral with regard to the conflicting interest of the buyer and the seller.  In other words, the dual agent can’t negotiate on behalf of either the buyer or the seller.  And, a dual agent cannot satisfy fully the agency duties of loyalty, full disclosure or obedience to lawful instructions.  Any smart buyer would walk away from such a situation and seek true representation from a licensee with another company.  Ouch, that would negatively impact the bottom line of these companies.

So rather than take the high road and refer the buyer out to another licensee with another company, they decided to design legislation in all states which would deceive the buyer and the seller into thinking they were still being represented so that the consumer wasn’t the wiser and business as usual could continue.  So the traditional real estate industry went about infiltrating the real estate boards and commissions that govern real estate activity, raised millions of dollars through PACs, Political Action Committees, and influenced legislators into thinking that the legislation before them benefited the consumer, when it only benefited the industry to the detriment of the consumer.

That is how we got here.  How we get out of here is another question.  Those of us who are true buyer and consumer advocates have a tough battle on our hands.  Our message has been stolen by the traditional real estate industry.  We are outspent a million to one and thus have difficulty getting our message of true fiduciary buyer and seller representation.  But there are some of us still doing the battle and making noise and out here with boots on the ground trying to explain this stuff to buyers and sellers.  By the way, in my opinion and the opinion of others, the home buyer is the one who is the most likely to be harmed.  That is why many of us are home buyer advocates.  The seller knows what they paid for their home.  They know the defects and potential problems in the home.  They know what they owe on the home.  They pretty much know what their bottom line is.  So the only questions they have are is the buyer willing to pay my price and can they get their mortgage and close a deal at that price.  The buyer, on the other hand, is operating in the dark.  They have to investigate everything about the home.  They need true home buyer representation not some salesperson pretending to be a buyer agent.

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