What Is Agency?

 

To understand the different relationships available to the consumer in New Hampshire, and the advantages or disadvantages of hiring a Buyer's Agent, one must first understand the concept of Agency.  According to common law usage, an Agent is an individual who is authorized and consents to represent the interests of another person.  An agency relationship imposes fiduciary duties upon the agent—he or she owes their principal (the person they represent) the duties of reasonable care, competence, obedience, accounting, loyalty, and disclosure.

 

Let’s explore some practical examples of how that works:  If you see a For Sale sign in a yard and call the listing office asking to set up a showing, you will probably speak with the listing agent; let's call her Helen.

 

 

Seller's Agency

 

In this case, Helen represents the Seller.  In other words, she has a fiduciary duty—a legal obligation—to the Seller to represent his or her best interests.  Helen must exercise care in helping the Seller decide on a price for the house, show competence in marketing and showing the house, she must obey the wishes of the Seller, account for any monies that change hands relative to the sale of the house, consider the interests of the Seller above her own, and disclose any information that might benefit her Seller client.

 

This last point is important.  If, while looking at the house, you happen to mention to Helen that you just won the lottery, she is bound by her fiduciary duty to pass that information along to her client, since that could impact the negotiating position of her Seller.  If Helen discovers any other information about you that would help her Seller—whether you need to find a house quickly, how much you've been preapproved for, etc.—she must tell her client.  Helen represents her client, not you.

 

If that’s not the house for you, you may ask Helen or another real estate agent to help you with your search and perhaps set up some showings.  Prior to July 15, 2024, when new rules took effect arising from the settlement of a class-action lawsuit against the National Association of REALTORS®, a consumer could go look at houses with a real estate agent without signing any agreements, but since July 15, 2024 an agent must have a signed agreement in place with a consumer before showing a property.

 

That agreement can be one of two types—Facilitator or Buyer Agency—and it can be for a specific duration (one day, or three months, for example), or a specific property (i.e., just for 123 Main Street in Goffstown), or any other mutually-agreeable parameters.  But it must also specify the compensation that you as a consumer would owe that agent if you purchase a property within those parameters.  This is to ensure that consumers always know what their obligations will be.

 

So what’s the difference between a Facilitator and a Buyer Agent?

 

 

Facilitator (or Non-Agency)

 

If you sign the Facilitator Agreement and Helen is showing you homes, she will not be representing the Sellers of these other homes, and although she will be assisting you, she will not represent you, either—she does not owe you any of the fiduciary duties of an agent, although she must treat you fairly and honestly.  If she knows you won the lottery, she doesn't have to keep that a secret; if she knows the seller is being relocated and must sell quickly, she doesn't have to tell you that.  And should you decide to submit an offer on one of the houses she has shown you, she can help you fill out the paperwork, but she may not advise you on what terms to offer or negotiate on your behalf.

 

 

Buyer's Agency

 

If you hire Helen as your Buyer's Agent, you now have someone who owes you those fiduciary duties I mentioned, and now you are on the same footing with every Seller you come in contact with.

 

A Buyer's Agent can and must disclose to you anything he or she knows about the Seller that might benefit you.  So as your Buyer's Agent, Helen must tell you whether the sellers are going through a divorce and must sell quickly (if she knows that information), or whether they have reduced the price of the house at any time; she must disclose anything she knows about the property that could benefit you; she can advise you on what terms to include in your offer and what price might be acceptable to the seller; and she can negotiate on your behalf as well.

 

 

Should You Hire a Buyer's Agent?

 

Despite the greater level of service that a Buyer's Agent provides, some people are wary of hiring one.  Some think that hiring an agent might cost them extra money or put them at a disadvantage when submitting offers, and others feel uncomfortable committing themselves to a single agent.

 

When you hire a Buyer’s Agent, you are legally responsible for paying them the fee you’ve agreed to as specified in the Buyer Agency Agreement.  In the real estate world prior to that July 15, 2024 rule change, most listing agents offered a portion of their listing commission—referred to as a co-broke fee—as compensation to Buyers Agents, and any such offer of compensation was credited against whatever you owed your Buyer Agent, so usually most or all of that fee was covered by the listing agent and was not a cost to you at closing.

 

Since that rule change, whether the agent is allowed to offer that co-broke fee, or whether the Seller is offering any Buyer Agent compensation, is more explicitly left up to the Seller.  Some Sellers are still willing to pay it, and some have chosen not to.  So it might still be the case that most or all of that fee is covered by the Seller and won’t be a cost to you at closing; but it’s also possible that you must pay the full amount of your Buyer Agent’s fee at closing. 

 

You can always ask that the seller cover some or all of that fee in your offer, but there’s no guarantee the Seller will be willing to do so.  It’s just one term in the many terms negotiated in an offer. 

 

An important point to keep in mind is that unless you actually buy a house (or unless other arrangements are made) you won't owe anyone anything.  In some (rare) cases a Buyer Agent may request a non-refundable retainer fee when hired, but that retainer is credited against the Buyer Agency fee and therefore is not an additional cost (unless you don't buy a house, in which case you forfeit the retainer).

 

So hiring a Buyer's Agent could cost you a little extra.  But by the same token, your Buyer's Agent may be able to provide you information about the seller or the house that lets you negotiate a better price with the seller; they might be able to negotiate a more favorable repair after a home inspection; or they might advise you about external factors (like a mall being built nearby) that could affect your later resale value.  So a Buyer's Agent might be able to actually save you money.

 

Also, although hiring a Buyer's Agent could cost you a little more, you should ask yourself this question: in which other profession can you hire someone and get the full benefit of their services for free (which is the case if the is willing to cover the Buyer's Agency fee) or for a fraction of their stated fee (if the seller will cover some portion of the fee)?  There are a few, like travel agents, but not many.  Has the plumber who fixed your broken pipes ever been paid by someone else?  Have you ever hired a lawyer for $200 per hour and actually paid her $40 per hour?

 

The second objection to a Buyer Agency agreement—that you might not want to be locked into a contract with one agent if they turn out to be less than helpful—is easily addressed.  Although in order to view a property with a REALTOR® you will be required to sign a Buyer Agreement, you can make it specific to that one property.  If you don’t buy that property and don’t like the agent, you have no further obligation to them.  And if you do hire a Buyer's Agent, make sure they offer a Service Guarantee that will release you from the agreement if you're not satisfied.

 

As you're considering these options, keep in mind that REALTORS® like to work with people who want to work with them.  Real Estate is one of the few businesses where months of work can go unrewarded.  If a REALTOR® commits to working with you to find a home, he or she hopes that you will commit to him/her and maintain a degree of loyalty.  A Buyer's Agency Agreement is the legal manifestation of that loyalty, and it helps ensure that if you buy a house, the agent will be fully compensated for his or her labor.

 

 

Dual Agency and Designated Agency

 

In New Hampshire, the Agency Relationship established with a Seller by the Listing Agreement, and the Agency Relationship established with a Buyer with the Exclusive Buyer Agency Agreement, CAN apply not just to the individual agent you're dealing with but to every agent in that person's office.  In this case, if you hire Helen as your Buyer's Agent, you in effect have hired every agent in her office.  They are all bound by their fiduciary duties to represent your interests.  But what happens if you want to purchase a house that is also listed for sale by one of the REALTORS® in their office?  That Agent (and all of her colleagues) represent the Seller's interests, but they all must represent your interests, as well.

 

The New Hampshire Real Estate Commission has given much attention to this situation, which is fraught with difficulty.  How can an office represent both parties fairly?  Well, it can't.  In this situation, which is referred to as Dual Agency, the law says that those agents can still provide brokerage services to each party, but they may not disclose any information that might benefit or compromise either party; nor can they discuss the price either party would accept, the terms they would accept, or their motivations in entering into a Purchase and Sale Agreement.  The agents must in essence play a neutral role and guide the parties to a successful closing.

 

If this situation arises, the first step the agents must take is to inform both Seller and Buyer of the situation and get their written consent to such representation.  Dual Agency without informed, written consent is illegal in New Hampshire.  If either party is uncomfortable with the transaction, then typically the Buyer is encouraged to find an agent in another office to assist them, or to work with their agent in Another Relationship (or as a non-agent).  In my experience this seldom happens—in most cases both buyer and seller have been sufficiently coached and advised about the process and feel comfortable working through the transaction.

 

Some offices, however—including Keller Williams Realty Metropolitan—have adopted Designated Agency.  In the situation outlined above, in a Designated Agency office, Helen would only represent you as the Buyer, and the listing agent—let’s call him Tom--would only represent the Seller.  No one else in the office would have any relationship to the buyer or seller.  In these firms there are “firewalls” within the office to prevent Helen from discovering any information about Tom’s client and Tom from finding out anything about you.

 

Dual Agency can still arise in a Designated Agency office like mine.  It would only take place, however, if the same agents represents both parties--for example, if I listed a house (representing the Seller) and then you (whom I represent as a Buyer) expressed an interest in it.  I would be a Dual Agent—but again, not without the written consent of both parties.

 

 

Confused?

 

If all of this seems highly confusing, you're not alone.  Real estate licensees, as part of their continuing education requirements, can take a 3-hour course on the subject of Agency and Non-agency, and many of them come out of the course confused as well.  It's just not a simple subject.

 

If you have questions about Agency and Agency relationships, feel free to contact the New Hampshire Real Estate Commission:

 

64 South Street
Concord, NH 03301-3670
(603) 271-2701 
TDD Access: Relay NH 1-800-735-2964

http://www.nh.gov/nhrec/

nhrec@nhrec.state.nh.us