Why Most Massachusetts Real Estate Companies Don't Allow Sub-Agency


Sub-Agents Are Rare in Massachusetts Real Estate Transactions

Author Bill Gassett owns Maximum Real Estate Exposure.

In real estate, there are many confusing terms for consumers. Buyers and sellers are often bombarded by words they don't quite understand. Sometimes, Massachusetts real estate agents forget this point. Many assume that they know our language when they don't.

One of the more confusing topics is agency in real estate or who represents whom. There are three major types of real estate agents. You have sellers or listing agents who represent homeowners. There are buyer's agents who represent buyers. Lastly, dual agents represent both parties in the same transaction.

We will cover sub-agency and sub-agents in Massachusetts and why it is no longer a regular practice.

What is Sub-agency in Massachusetts Real Estate?

Massachusetts Real Estate AgentPhoto byDeposit Photos

Sub-agency in real estate refers to a situation where the listing agency does not directly employ an agent working with a buyer or seller but acts as a representative of that agency. Sub-agency can have its benefits. For example, expanding the reach of the listing agency and providing greater access to potential clients. It also comes with inherent risks and liabilities.

One of the potential liabilities that the listing agency may face in a sub-agency relationship is misrepresentation by the sub-agent. For this reason, most companies now only allow designated agency. In a designated agency, a real estate company represents buyers and sellers.

Why Most Real Estate Companies do not Practice Sub-Agency

Misrepresentation occurs when a sub-agent provides false or misleading information about a property to a buyer or seller. This can happen unintentionally due to the sub-agent's lack of knowledge or negligence. It can also be a deliberate act to manipulate the transaction in favor of their client or themselves.

Regardless of the intent, misrepresentation can lead to serious legal consequences for both the sub-agent and the listing agency.

When a sub-agent misrepresents a property, it can result in financial losses for the buyer or seller, who may have relied on the false information to make decisions about the transaction. For example, if a sub-agent inaccurately represents the condition of a property, the buyer may incur unexpected repair costs. They could also discover undisclosed defects after closing. This can lead to lawsuits against the listing real estate brokerage for failing to disclose material information about the property or for the sub-agent's actions.

Another example would be a sub-agent telling a buyer the location of a property line. Someone without connection or knowledge of a property should not give information like this.

Vicarious Liability Under Sub-agency

Another reason why a sub-agency creates liability for the listing agency is the concept of vicarious liability. Vicarious liability holds an employer responsible for the actions of their employees or agents, even if the employer was not directly involved in the misconduct.

In the case of the sub-agency, the listing agency can be held liable for the misrepresentation or other wrongdoings of the sub-agent. This happens because they are considered acting on the agency's behalf. The perfect example is what I mentioned about a real estate agent pointing out lot lines.

To minimize the liability associated with sub-agency, the listing agency must select and supervise their sub-agents carefully. Thoroughly vetting potential sub-agents, ensuring they have the necessary qualifications, and providing proper training and oversight can help reduce the likelihood of misrepresentation.

In addition, establishing clear communication channels and regularly monitoring the sub-agent's activities can help the listing agency identify potential issues or misconduct early on and take appropriate action to rectify the situation.

In conclusion, sub-agency in real estate can create liability for the listing agency, particularly in cases of misrepresentation by a sub-agent. The listing agency can be held responsible for the actions. It is why so few companies in Massachusetts practice sub-agency anymore.

Designated Agency and Buyers Agency Are Now Standard in Massachusetts

Designated Agency in MassachusettsPhoto bykrakenimagesonUnsplash

What is Designated Agency in Massachusetts?

In real estate, designated agency refers to a specific type of agency relationship between a real estate brokerage and its agents. It is a legal structure that allows for the appointment of an individual agent within the brokerage to represent a client in a real estate transaction exclusively. This designated agent is the primary point of contact and advocate for the client. They must act in their best interests.

Designated agency is often used when multiple agents within a brokerage are involved in a transaction, and it helps avoid conflicts of interest that could arise if all agents in the brokerage represented both buyers and sellers. By designating a specific agent to work solely with a particular client, the brokerage ensures that the agent can provide undivided loyalty and confidentiality to that client.

The designated agent is responsible for providing the client with accurate information, negotiating on their behalf, and protecting their interests throughout the transaction. They must maintain confidentiality and not disclose confidential information about the client to other agents within the brokerage. This allows the client to have a trusted advisor solely focused on their needs and goals, ensuring a higher level of personalized service.

Designated agency provides a clear and transparent agency relationship between the client and the designated agent, establishing trust and accountability.

It ensures that the client's interests are protected and their agent works solely in their best interests. This structure allows for effective representation and communication, fostering a stronger client-agent relationship in the real estate transaction. There are certainly more pros than cons with designated agency.

The roles of each agent are clear. A seller's agent does numerous things for homeowners. Likewise, buyer's agents perform numerous tasks for their clients.

What is Buyer's Agency in Massachusetts?

Buyer's agency is a concept in real estate where a real estate agent or broker exclusively represents the buyer's interests in a transaction. In traditional real estate transactions, the seller's agent represents the seller's interests. They work to secure the best deal for them.

However, in a buyer's agency agreement, the agent advocates for the buyer. They help them navigate the market and negotiate their desired property's best terms and prices.

What a Buyer's Agent Does

When working with a buyer's agent, the agent has a legal and ethical duty to act in the buyer's best interest. Buyer's agents have several roles and responsibilities. They assist the buyer in various aspects of the home-buying process, including conducting property searches, scheduling property showings, and providing market analysis. They offer guidance throughout the negotiation and closing processes. Essentially, the buyer's agent is a trusted advisor, providing expert advice and support to meet the buyer's needs and goals.

One of the critical benefits of buyer's agency is the access to exclusive listings and information. Buyer's agents often have access to a broader range of properties, including those not listed on public databases. They can provide their clients with information on off-market properties, foreclosures, and other opportunities that may not be readily available to the general public. This inside knowledge can give buyers a competitive edge in the market and increase their chances of finding their dream home.

Help With Negotiations

In addition to their expertise and access to information, buyer's agents also provide a valuable service in assisting with negotiations. They help buyers determine an appropriate offer price based on market conditions and comparable sales. They then negotiate on the buyer's behalf to secure the best terms. This can include price negotiations, repair requests, and other real estate contingencies that protect the buyer's interests.

Overall, buyer's agency is a valuable resource for home buyers, providing them with dedicated representation and support throughout the home-buying process. Buyers can make more informed decisions by having an agent solely focused on their needs and goals. They will have a smoother and more successful real estate transaction.

What is Dual Agency in Massachusetts?

Dual agency in real estate refers to a real estate agent or brokerage representing the buyer and the seller in a transaction. In other words, the agent is acting as a neutral party, representing the interests of both parties simultaneously. While this practice is legal in some jurisdictions, it is generally considered controversial and potentially detrimental to buyers and sellers.

One of the main concerns with dual agency is the conflict of interest it creates. In this form of agency, the agent may find it challenging to provide unbiased advice and negotiate in the best interest of either party.

The agent's loyalty is divided, and they may be more inclined to prioritize their commission over the buyer's or seller's specific needs and objectives. This lack of undivided loyalty can lead to a compromised negotiation process. Ultimately it can result in a less favorable outcome for one or both parties.

Lack of Disclosure

Another drawback of dual agency is the potential lack of transparency and full disclosure. When an agent represents the buyer and the seller, they may hesitate to share all the relevant information with either party. This could include details about the other party's motivations, negotiation strategies, or even information that may impact the value or desirability of the property.

Buyers and sellers may not have access to all the information required to make informed decisions. Lack of information could lead to misunderstandings or even legal issues.

Moreover, dual agency can undermine buyers' and sellers' trust and confidence in their agents. Real estate transactions are significant financial decisions, and individuals expect their agents to fully commit to their best interests.

When an agent represents both sides, it can create doubts about the agent's impartiality and dedication to securing the best outcome for their clients. This can erode trust and hinder effective communication. It makes the overall real estate experience more stressful and complicated for buyers and sellers.

In summary, while dual agency may seem convenient, it can introduce conflicts of interest, compromise negotiation outcomes, hinder transparency, and undermine trust. It is not in the best interest of buyers and sellers in real estate transactions.

As a result, it is recommended that individuals involved in real estate seek separate representation to ensure they receive the highest level of advocacy and support throughout the process.

Final Thoughts on Sub-agency

Buyers and sellers need to understand how agency law in real estate works in Massachusetts. You could find yourself in many problems without knowing who represents whom. Make sure you read any disclosures presented to you carefully. Dual agency disclosures are especially vital as many agents will gloss over them without explaining how they work.

You could be very disappointed if you unknowingly participate in dual agency.

Did you enjoy this advice on why sub-agency is rare in Massachusetts? See other real estate articles on NewsBreak for more timely tips and advice. Bill Gassett frequently writes about general real estate, mortgages, finance, moving, and home improvement.

Bill has been selling real estate for thirty-seven years and has been one of the top Realtors in New England over the last two decades. He has a bachelor's degree in business and marketing from Northeastern University. Reach out to him for your real estate needs in the Metrowest area.

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Bill Gassett is an authority on numerous real estate topics, including finance, mortgages, moving, home improvement, and general real estate. His work has been featured in numerous prestigious real estate publications.

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