Wednesday, 01 April 2020

AGENCY, FACILITATION AND THE REALTOR

Written by William D. North Posted On Friday, 06 December 2019 13:57

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Introduction;  On February 4, 1993, I was invited to appear before the Presidential  Advisory Group on the Facilitator Concept at its meeting on March 8th to “present [my} thoughts on the concept of agency as it  has emerged and (my) thoughts on the future of agency in the real estate industry." This presentation was scheduled for the period 10:45 to 12:00 noon with 45 minutes for questions and answers from the Group Members.

In contemplating how my comments might be presented most clearly in the limited time allowed, I concluded that the Group would be best served if I provided my perspectives and perceptions in writing in advance so that the discussion could be focused on those of my views, comments or positions which are deemed most relevant to the work of the Group or which require further clarification.

At the outset it seems appropriate to state that I consider issue with which the Advisory Group is concerned to be of critical importance to the future of the real estate profession. The confusion, recriminations, ignorance, and self-interest which has characterized the discussions of the agency relationship of real estate brokers and salespersons during the past ten years has reached, what I believe to be, the crisis point. As a result of the agency debate, the real estate broker is rapidly becoming “all things to all persons” and therefore is threatened with losing his “professional identity.”

“Disclosure” legislation is being promoted by NAR and State Associations before there is any clear consensus, understanding or appreciation of the full extent and implications of the agency relationships which must be disclosed. The terms of agency relationships, which are fundamentally consensual agreements, are being contorted by opportunism, and essential safeguards of agent, client, and customer are being eroded, ignored, or obscured. In this connection, it should be noted that despite the charges of exasperated Realtors, it is not a change in the law of agency which has created the liability and litigation problems confronting the profession but rather a very general and substantial change in the willingness or ability of Realtors to accept or understand the obligations and limitations of the law of agency in the litigious society in which they must function.

It is significant, in this connection, that the focus of the agency ferment has been confined almost exclusively to “residential brokerage.” One looks in vain in the literature of management, appraisal, counselling, or industrial/commercial brokerage for any noticeable effort, let alone a significant demand, to redefine or repudiate traditional agency concepts or relationships. On the contrary, real estate practitioners in these areas have increasingly emphasized the imperatives of agency and sought, by Standards of Practice supplementing and amplifying the NAR Code of Ethics, to reaffirm and strengthen agency obligations and liabilities significantly beyond those imposed by law. Nor can it be contended that the application of agency law to these areas of practice is less rigorous than its application to residential brokerage.

The explanation for this striking dichotomy between the attitude towards agency of the residential brokerage practitioners and real estate practitioners in other real estate specialty areas seems to be found in the following differences in the development of the residential brokerage practice as contrasted with that in other specialties.

First, the trend in commercial/industrial real estate and real estate management as well as appraisal has been concentration and integration involving increased supervision and management control. This is in direct contrast with the trend to organizational fragmentation in residential brokerage.

Second, the number of “part-timers” in the real estate practices other than residential brokerage has tended to decline or at worst stayed the same. This is in striking contrast to residential brokerage which continues to encourage and rely heavily on part-timers sales.

Third, while an increasing number of real estate practitioners in real estate specialties other than residential brokerage are employees, the overwhelming percentage of residential salespersons continue to be independent contractors.

Fourth, multiple listing in residential sales, which has no effective counterpart in other specialty areas, has limited the capacity of the residential salesperson to identify with, or to feel a sense of responsibility to, the listing broker or the seller providing the listing.

Fifth, the real estate specialties other than residential have not been substantially impacted by the 100% commission concept, which concept has had the practical effect of (1) discouraging brokers from investing in education and training programs for their sales force, (2) inhibiting the management control and supervision which the broker can exercise over salespersons, (3) prompting brokers to move to the “body shop” concept of operation involving minimal broker/salesperson contact, and (4) most importantly, eroding (and in some cases, breaking) the desirable, if not absolutely necessary, nexus between broker liability and responsibility.

Sixth, relocation companies which have been able to control buyer access to residential broker services, have posed potential conflicts and “identity” problems for residential practitioners not experienced by the other real estate specialties.

My emphasis on the contrast between the impact of agency concerns on residential brokerage as compared with the other real estate specialties is not intended to suggest that the residential brokerage concerns are specious or illusory. My emphasis is intended simply to focus attention on what I believe to be the fundamental causes of dissatisfaction with traditional agency concepts.

Until these causes are recognized, it will be impossible to determine whether the “facilitator” concept, or any other alternative to traditional agency, will truly address the perceived problems of traditional agency relationships.

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