Understanding sub-agents in real estate is crucial for buyers and sellers alike. A sub-agent is a real estate agent representing the seller’s interests alongside the listing agent. They help with tasks such as marketing the property and facilitating negotiations.
However, it’s essential to note that sub-agents primarily focus on the seller’s needs, which can pose potential disadvantages for buyers. Some states have even eliminated the sub-agency model in favor of buyer’s brokerage agreements to ensure full representation for buyers.
From experience as an agent for the past three decades, subagency doesn’t come into play often. Most transactions have one agent representing a seller and another representing a buyer. It is called a designated agency.
Buyers and sellers must understand the different types of agency. They can be confusing for a layperson. Nonetheless, it is worth getting a handle on them. Without doing so, you could make a nasty financial mistake.
We will discuss at length what you need to know about subagency and a sub-agent.
Understanding Sub-agents in Real Estate
The real estate industry can be complex, and navigating the various roles and responsibilities of the individuals involved is crucial. We will dive into the world of sub-agents in real estate, exploring their definition, function, and how they differ from buyer’s agents.
Definition of a Sub-agent
In real estate, a sub-agent refers to a real estate agent who works with a listing agent to represent the seller’s interests. The sub-agent assists with tasks such as marketing the property, arranging showings, and negotiating offers on behalf of the seller.
It is important to note that a sub-agent owes fiduciary duties to the seller, just like the listing agent. Their primary responsibility is to protect the seller’s interests and maintain confidentiality.
Role and Responsibilities of a Sub-agent
The role of a sub-agent is to collaborate closely with the listing agent in serving the seller’s needs. They assist in day-to-day activities, conducting open houses and facilitating communication between potential buyers and sellers.
Sub-agents also play a crucial role in negotiating offers on behalf of the seller. They work diligently to secure the property’s best possible terms and pricing. Throughout the transaction, they provide regular updates to the listing agent and the seller, ensuring transparency and informed decision-making.
Best Example of Sub-Agents in Real Estate
The best example of sub-agents in real estate is when the listing agent holds an open house. Instead of the listing agent hosting, they ask another person in the company to conduct the event. The agent in attendance becomes a sub-agent of the listing agent.
Moving forward, this agent represents the seller. They are no longer allowed to represent buyers for this specific property. Given this, agents covering open houses must think this through carefully if they represent buyers who could become interested.
If that were to happen, the sub-agent would either remain as such or become a dual agent. Either scenario would not be advantageous to a buyer.
Differences Between Sub-agents and Buyer’s Agents
While sub-agents support sellers, buyer’s agents, on the other hand, solely represent the buyers’ interests. Buyer’s agents help buyers navigate the home buying process, providing guidance, conducting property searches, and negotiating. They perform a myriad of tasks while being a buyer’s fiduciary.
Unlike sub-agents, buyer’s agents owe fiduciary duties to the buyers, including loyalty, confidentiality, and full disclosure. They prioritize the buyer’s best interests throughout the transaction.
Buyers must understand the critical distinctions between sub-agents and buyer’s agents to make an informed decision when engaging with real estate professionals.
- Sub-agents represent the seller’s interests, while buyer’s agents advocate for the buyer.
- Sub-agents owe fiduciary duties to the seller, while buyer’s agents owe fiduciary responsibilities to the buyer.
- Buyer’s agents work exclusively on behalf of the buyer throughout the entire home-buying process.
What is Subagency in Real Estate?
Subagency can occur when a real estate agent from another company, who isn’t a buyer’s agent, shows a home to a buyer. The subagency agent is working with the buyer, but they are not clients. In this circumstance, the agent owes a fiducial duty to the listing brokerage.
Subagency, in this example, is unacceptable for most real estate companies. The reason is the listing agent and brokerage becomes responsible for any misrepresentations about the property by the subagent.
For example, if a sub-agent from another firm told a buyer the lot lines for a property were in a specific location and the information was inaccurate, the listing agent and company could be sued by the buyer.
With subagency, listing brokerages become liable for anything an agent from another company says and does. Along with the introduction of buyer agency in the ’90s, most real estate agencies did away with subagencies.
Potential Disadvantages for Buyers in the Sub-agency Model
Regarding the sub-agency model in real estate, buyers should be aware of certain drawbacks during home-buying. These disadvantages can affect the level of representation, potential conflicts of interest, and buyer protection.
Here are some key points to consider:
Lack of Full Representation for the Buyer
One significant disadvantage of the sub-agency model is the potential for the buyer to receive no representation compared to working with a buyer’s agent. In this model, the sub-agent is primarily focused on serving the seller’s interests, as they are appointed by the listing agent who represents the seller.
While the sub-agent must treat the buyer fairly, their fiduciary responsibilities lie only with the seller. This can limit the buyer’s access to comprehensive guidance, advice, and advocacy throughout the transaction.
Conflicts of Interest in Sub-agency
Another disadvantage is the potential for conflict of interest in the sub-agency model. The sub-agent’s alignment with the seller’s interests may arise where their fiduciary duty to the seller conflicts with the buyer’s best interests.
For example, when negotiating the price or terms of the transaction, the sub-agent may prioritize the seller’s objectives rather than advocating for the buyer’s preferences. These conflicts can compromise the buyer’s position and ability to secure the most favorable outcome.
Buyer Protection and Alternatives to Sub-agency
Given the potential disadvantages, buyers must understand their rights and explore alternative options for representation. One way to enhance buyer protection is by working with a buyer’s agent representing the buyer’s interests.
Buyer’s agents have a fiduciary duty to act in the buyer’s best interests and offer comprehensive guidance throughout the transaction.
Another alternative is to consider exclusive buyer agency agreements, where the buyer engages an agent who exclusively represents their interests and avoids potential conflicts of interest. Such agreements ensure that the agent focuses solely on protecting and advocating for the buyer throughout the transaction.
Moreover, some states have abandoned the sub-agency model, favoring buyer’s brokerage agreements as the standard practice. These agreements solidify the buyer’s agency relationship and clarify representation, fiduciary duties, and potential conflicts of interest.
By being aware of these potential disadvantages and exploring alternative options, buyers can confidently empower themselves to make informed decisions and navigate the real estate market.
The Shift Away from Sub-agency in Most States
The real estate industry has witnessed a significant shift from the sub-agency model in most states. This change has been driven by recognizing potential buyer disadvantages and adopting alternative approaches, such as buyer’s brokerage agreements.
Let’s explore this transition and its implications in more detail.
Adoption of Buyer’s Brokerage Agreements
One notable trend in states moving away from sub-agency is the increasing adoption of buyer’s brokerage agreements. These agreements establish a direct contractual relationship between the buyer and their appointed agent, known as a buyer’s agent.
Unlike sub-agents representing the seller’s interests, buyer’s agents work exclusively in the buyer’s best interests throughout the transaction process. Buyer’s brokerage agreements provide buyers with more representation and protection.
They empower buyers to have someone solely dedicated to advocating for their needs and negotiating on their behalf. This shift addresses the sub-agency model’s potential conflicts of interest and limitations.
Trends and Impact of Eliminating Sub-agency
Sub-agency elimination has been an ongoing trend in certain states, reflecting the industry’s commitment to better-serving buyers.
By shifting towards buyer’s brokerage agreements, states aim to ensure a more equitable and transparent real estate process. This transition has had a positive impact on buyer confidence and satisfaction.
Buyers feel more empowered and supported in their property transactions, knowing their best interests are at the forefront of their agent’s focus.
Moreover, eliminating sub-agency has increased accountability, as agents are now more directly responsible for their clients’ satisfaction.
State-specific Regulations on Sub-agency
It is crucial to note that regulations surrounding sub-agency can vary from state to state. While some states have entirely abolished sub-agency, others have implemented stricter regulations and disclosure requirements to protect buyers.
Before engaging in a real estate transaction, buyers must familiarize themselves with their state’s regulations regarding sub-agency. This knowledge empowers buyers to make informed decisions and understand their rights in the real estate process.
The shift from sub-agency in certain states reflects the industry’s dedication to promoting transparency, accountability, and buyer advocacy. By adopting buyer’s brokerage agreements and implementing state-specific regulations, real estate professionals aim to provide buyers with a more equitable and satisfactory experience in today’s dynamic market environment.
Frequently Asked Questions about Sub-agents in Real Estate
We will address some common questions regarding sub-agents in real estate.
Are sub-agents different from real estate agents?
Yes, sub-agents are distinct from real estate agents. While real estate agents can represent buyers and sellers, sub-agents primarily work with listing agents to represent the seller’s interests. Their role is to assist in marketing the property and facilitating negotiations on behalf of the seller.
What is an offer of sub-agency?
An offer of sub-agency is when the listing agency allows agents from another real estate company to represent the seller. It is usually done through the Multiple Listing Service with an offer of compensation.
How does the sub-agency model affect buyers?
The sub-agency model can present certain disadvantages for buyers. As sub-agents ultimately work for the seller, buyers may not receive the same level of representation as they would with a buyer’s agent.
Sub-agents may not be obligated to prioritize the buyer’s best interests, potentially leading to conflicts of interest and limited advocacy for the buyer.
What is the most significant disadvantage of sub-agency in real estate?
There are two substantial drawbacks. First, the buyer does not have any representation. Second, the seller’s agents are liable for misrepresentations from subagents outside the company.
Can I choose to work with a sub-agent or a buyer’s agent?
While some real estate transactions may involve sub-agents, buyers can work with a buyer’s agent instead. A buyer’s agent exclusively focuses on representing the buyer’s interests throughout the transaction.
They provide dedicated support, advocacy, and guidance for the buyer, ensuring their best interests are at the forefront.
What are the alternatives to sub-agency in real estate?
Recognizing the potential drawbacks of the sub-agency model, various alternatives have emerged in the real estate industry. One popular alternative is buyer’s brokerage agreements, where the agent has a fiduciary duty to represent the buyer’s interests solely.
Another alternative is the creation of transaction brokerage, where the agent is a neutral facilitator for both the buyer and the seller, ensuring a fair and balanced transaction.
Final Thoughts on Subagents and Subagency
With the advent of buyer’s agency, it makes little sense to work with a subagent for the seller when buying a home. In my experience, not having a buyer’s agent fighting hard for your best interests in a real estate transaction is a significant mistake.
Your best bet is to reject subagents and subagency.
About the Author: The above Real Estate information on subagency and subagents in real estate was provided by Bill Gassett, a Nationally recognized leader in his field. Bill has expertise in mortgages, financing, moving, home improvement, and general real estate.
Learn more about Bill Gassett and the publications he has been featured in. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-625-0191. Bill has helped people move in and out of Metrowest towns for the last 37+ years.
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