In 1983, the Federal Trade Commission (FTC) released a report that would blow the lid off the real estate industry. The Residential Real Estate Brokerage Industry was the first report of its kind to examine the real estate industry. What it found was not flattering.

The report indicated that in cooperative transactions, 72% of potential home buyers believed that the real estate practitioner working with them was working for them. This was in direct contradiction to the reality of business practices at the time in which all licensees either worked for the sellers as listing agents or for the seller as sub-agents to the listing agents while working with the buyers.

By failing to disclose whom the agent/broker truly represented, the real estate industry made itself appear deceitful and untrustworthy, a taint which continues to affect practitioners today. Consumers reacted, and within two years, the NAR formed its first Agency Task Force to study agency issues. It was the NAR's policy at that time to encourage state REALTORŪ associations to work with their state legislatures to enact statutes providing for mandatory agency disclosure.

The emergence of the buyer's agent

After the report, buyer's agents also came into being, but against great resistance. Tom Early, principal of The Buyer's Real Estate Brokerage, Inc. and past president of the National Association of Exclusive Buyer's Agents (NAEBA) was one of the first buyer's brokers in the nation -tomearly@infinet.com.

"I have experienced every kind to tactic to stop buyer representation. I was offered 1 percent coop while others were offered 2 1/2 percent, " says Early. "Some insisted that I go to the office and sign an agreement to take lower coop fees. I had brokers say, "I won't let you show our listings.

"That is illegal. Those kind of tactics were used in the early days, and they are still being used now. In three separate arbitrations, I always won."

Buyer's agency was slow to take hold until the early 1990s. In wasn't until 1991, that the NAR's Presidential Advisory Group on Agency recommended that a standards of conduct in the REALTORŪ Code of Ethics be created to include NAR members working with buyers.

About the same time, the NAR purchased the Real Estate Buyer's Agency Council, (REBAC) an association of exclusive buyer's agents. Under the new management, however, the organization's agenda changed. No longer was the training and support geared for exclusive buyer's agents but for agents who wished to represent both buyers and sellers.

According to Early, the original intent of REBAC was education: to offer buyer agency courses and put together the Accredited Buyer's Representative designation, the ABR. "The intent now is to supply an educational program resulting in the ABR designation for traditional agents," says Early. "The ABR program is to teach agents how to work with the buyer and keep your broker out of trouble. It's basically a broker liability course."

As liability suits and arbitrations between buyer's representatives, listing brokers and consumers increased across the nation, traditional brokers found themselves forced to allow buyer's representation under the protective statutes and common law of dual agency and designated agency. But making things easier for single agents wasn't the NAR's first priority - it was reducing liability for all practitioners, particularly the listing broker. While buyer's agents screamed for protection and support, the NAR went another direction, protecting the broker through non-agency relationships and suggesting that agency be addressed through personal contracts between consumers and agents.

Meanwhile, a Facilitator/Non-Agency PAG was appointed to assess the advantages and disadvantages to both licensees and consumers within a pure non-agency relationship.

The NAR PAG

The NAR PAG on the Facilitator Concept released several recommendations concerning agency disclosure legislation and it is still forwarded to legislators who are considering their votes on proposed statutes. The recommendations include legislative drafting guidance that would clarify the law of agency as applied to real estate brokerage.

• Legislation should include well-defined duties for each type of brokerage relationship.
• Legislation should clarify the common law of agency as applied to real estate brokerage relationships by creating a statutory agency relationship and by creating a presumption that the relationship is one of statutory agency unless the licensee and the client enter into an agreement specifically providing for a different type of representation.
• Legislation should contain clear guidance on disclosed dual agency.
• Legislation should provide for the ability on the part of a broker in an in-company transaction to designate an individual licensee within the broker's company to represent the seller, and to designate another individual licensee within the company to represent the buyer, without creating a dual agency relationship.
• Legislation should eliminate or modify the consumer's vicarious liability for the acts of the licensee.
• Legislature (or state real estate commission) should promulgate mandatory agency disclosure forms and rules providing for meaningful, timely and mandatory written disclosure.
• Legislation should specify how brokerage relationships end, and describe the licensee's duties upon the termination of a client relationship.
• Legislation should address the licensee's disclosure duties with respect to property condition and address broker liability issues.
• Legislation specifically should state that it abrogates the common law as applied to real estate brokerage relationships.

In 1996, the NAR's professional Standards Committee created a Non-Agency Working Group, which recommended changes to the NAR's Code of Ethics to ensure that it included NAR members who wished to practice non-agency.

In 1998, the NAR's president, Sharon Millett, appointed a new PAG on Buyer Representation Liability Issues, chaired by Maryann Bassett, who also served as the chair of the 1992 Facilitator Non-Agency PAG. The purpose of the PAG was to analyze liability issues faced by buyer representatives including the review of judicial decisions; each state's legislation and/or regulations regarding the duties of licensees to purchasers and which limit licensee liability; buyer representation contracts from various states; market research; training materials, and the NAR's Code of Ethics.

What the PAG found was that buyer's representation is here to stay; the majority of residential transactions involve some form of buyer representation, and that the term "buyer representative," in some states, includes specific statutory duties owed to the consumer. Included among the factors influencing the establishment of standard of care for buyer representatives are state laws and regulations; judicial decisions; local practices; and the NAR's Code of Ethics and Standards of Practice, GRI, REBAC and other education programs, Policy positions taken by the Board of Directors and image campaign representations to the public.

What is conspicuously absent from the report is any reference whatever to single agency or to exclusive buyer's agency, despite the fact that the purpose of the PAG was to examine buyer' representation liability issues.

The reason is revealed in the reports findings and conclusions: "Since agency relationships may impose a higher standard of care on a licensee and may create vicarious liability for the consumer, they should be created with specific written agreement between the consumer and the licensee."

According to the PAG chair, Maryann Bassett, the problems with establishing agency relationships rest in the collective law of agency, which differs from state to state. If the specific duties of the licensee can be outlined by statute, and the state legislatures allow the statutes to supersede the common law of agency, then the industry can move forward with well defined licensee duties and disclosure of said duties.

"A common law agency relationship imposes certain fiduciary responsibilities and liabilities for a licensee and vicarious liability for a consumer. Consequently, laws should be encouraged mandating that agency relationships only be established through written agency agreements outlining all of the licensee's duties and responsibilities and any vicarious liability to the consumer," said Bassett.

This is how it would work, according to the PAG. A managing broker can use designated agency, in which individual licensees within the brokerage can act as exclusive agents for buyers and designated exclusive agents without creating an agency relationship between the consumers and the broker. But this scenario still raises questions of ethics. The PAG admits that because buyer's representation has only been widely practiced since about 1994, that few widely accepted specific standards of care of duties to a buyer have been established.

Some states are already voting down the concept of designated agency as a definition of non-agency. Transactional brokerage, another form of non-agency, may be the next weapon in the NAR arsenal against broker liability.

Editor's note: REBAC has responded to this article with the following:

In the June 15 article Evans cites Early, an Ohio REALTOR and past president of the National Association of Exclusive Buyer's Agents (NAEBA), to provide a look back at the infancy of buyer agency. While his recollections of those days indeed reflect the initial resistance to buyer representation, his memory seems to fail him somewhat when he recalls the mission and development of REBAC, one of the first organizations to directly address that resistance.

Citing Early, Evans writes that REBAC’s original aim was the education that led to the Accredited Buyer's Representative (ABR) designation, but now the “program is to teach agents how to . . . keep your broker out of trouble. It's basically a broker liability course.”

Not true, says REBAC executive director Janet Branton. “Put most simply, REBAC’s mission has always been to prepare its members to serve the needs of the home-buying consumer. And it still is.” Broker liability, while covered, is just a minor part of the comprehensive two-day designation course, which itself is the cornerstone of an entire curriculum of buyer representation education.

Education, however, is but one member service, albeit the most important. To support its 42,000 members, REBAC, the largest of the National Association of REALTORS’ institutes, societies and councils, provides a full range of member services, including: member and consumer publications, press relations, buyer representation advocacy, consumer and member-to-member referrals, and new product development.

Likewise, Early’s assertion that REBAC was an organization of exclusive buyer’s representative prior to its 1996 sale to the National Association of REALTORS is not true as well Says Tom Dooley, chairman and CEO of REBAC the four years before NAR ownership, “In the years it was owned by the North American Consulting Group, REBAC’s scope was always to provide training and expertise for real estate professionals in all approaches to buyer representation, and to recognize consumers’ right to select the approach they prefer.”

Before that, when owned by Denver REALTOR Barry Miller — and with rolls barely numbering 300 — REBAC’s focus was indeed on Exclusive Buyer Representation. But that soon changed. As Dooley puts it, “From the moment NACG acquired REBAC, the scope was expanded to include the full range of approaches to buyer representation. To reflect this change, an entirely new designation program (ABR) was instituted, replacing the CBR designation (Certified Buyer Representative) in effect under the previous ownership.”

In the transition from NACG to NAR ownership, that vision did not change. “We realize that homebuyers differ in the types working relationship they prefer,” says Branton. “So REBAC has to encompass the entire scope of buyer representation to include all the types of services our members offer.”

That reflects something that Branton said was right on target in the article. “Buyer representation is here to stay. In fact, over fifty percent of all homebuyers now rely on the assistance of buyer’s representatives. And the vast majority express keen satisfaction with the service they get.”

REBAC also agrees with the assertion in the article that the field of buyer representation is continually evolving. New tools, new approaches, new legislation, new technology all mandate consistent attention. Because of this, problems are bound to arise — which the article also points out — especially because of the inconsistency in the laws governing agency from state to state. However, Branton notes that despite the differences in legislation, the majority of states have incorporated into their codes most or all of NAR’s recommendations for agency disclosure and buyer representation.

“Yet one thing is for sure”, Branton concludes. “The vast majority of American consumers know that when they look to buy a home, they can be confident that they can be represented professionally, effectively and exclusively by real estate specialists who represent only their interests in their pursuit of a successful home buying experience.”