Everyone worked for the sellers:
Real estate brokerage, as practiced after World War II, was a fiduciary relationship between real estate brokers and a house seller. Real estate brokerages hired agents to market and sell houses for their best and highest price and terms.
At different times, in different states, real estate brokerages developed systems for sharing their inventory of properties for sale with other firms. These developed into what is generally called a Multiple Listing Service, or MLS. It enabled the brokerage who was hired to market and sell the house to advertise to other brokerages to increase the pool of buyers for the property. The brokerage who brought a ready, willing, and able buyer to purchase the house would share the commission, by mutual arrangement. This increased the seller’s access to buyers and the buyer’s access to properties for sale.
At this time, both MLS brokerages – and all agents – had a fiduciary duty to the seller of the house. The agent who showed houses to the buyers was legally obligated to disclose any knowledge they gleaned from those buyers that could lead to the best deal for their client, the seller.
Some worked for the buyers:
In the late 1980s and early 1990s, consumer groups advocated for the implementation of disclosure practices, so that house buyers would be fully informed of the fiduciary duties of the agents they were house hunting with.
At the same time, consumers requested the development of residential buyer’s brokerages, made up of agents who held fiduciary duties to get the best price and terms for the buyer. Before this time, buyer’s agents generally practiced in commercial real estate, but not in residential.
Through the 1990s, there was an increase in the practice of Exclusive Buyer Brokerage (where all agents in a firm held fiduciary duty to only house and condo buyers.) These companies did no property sales on behalf of sellers. Consumer demand for buyer agency grew with awareness caused by disclosure practices and the growing availability of buyer’s agents. (Who would prefer to be shown a house by someone sworn to negotiate against them?)
At the same time, traditional brokerages — who list properties for sale and represent sellers — offered buyer agency when showing and selling properties not listed by the their own brokerage. However, when the buyer agents in these listing firms worked with a buyer who wanted to negotiate against a seller represent in their firm, the brokerage was in dual agency. (Fiduciary responsibility was linked to the brokerage, not the agent. This is similar to practices used by law firms when they have clients with competing interests.)
Early in the 2000s, lobbying efforts led to changes in the definition of fiduciary agency responsibilities required of real estate brokerages. Instead of the brokerage being the fiduciary agent, individual agents could represent competing parties who were negotiating against one another. The practice is called “designated agency” in Massachusetts. Each company was responsible for setting up systems to insure confidentiality and disclosure for their competing clients. This is similar to the “Chinese walls” created in financial institutions.
In 1992, my company gave up all our listings and became an exclusive buyer brokerage. We are one of a very few such companies left in Massachusetts. We like doing business without a “Chinese wall” and without having clients on both sides of the same transaction.
Real Estate Brokerage: Company in the business of selling real estate. The business of a brokerage is supervised by a person or persons with a broker’s license.
Real Estate Agent: Individual employed by and under the supervision of a real estate broker to sell real estate or assist buyers in purchasing real estate. Agents have a salesperson’s license in some states.
MLS: Multiple Listing Service. A subscription data service shared by real estate brokerages for the purpose of exposing a greater number of qualified buyers to houses for sale.
Listing brokerage: The brokerage who has a contract to market and sell real estate that is “listed” on a Multiple Listing Service.
Sub-agency: The brokerage that shows and sells a property that was not listed by their company, but rather was listed by another company. The sub-agent has fiduciary duties to the seller.
Exclusive seller brokerage: A brokerage with an exclusive contract to sell a property. This contract entitles the brokerage to commission on the sale, even if another brokerage introduces the buyer that purchases it through the multiple listing service. (In which case, the commission is split.)
Exclusive buyer brokerage: A brokerage which has exclusive contracts to assist buyers in house purchases. All contracts in this office are with buyers, so that the brokerage is not at risk of dual agency with a buyer and seller client in competing negotiation on a house purchase and sale.
Dual agency: When a brokerage has fiduciary responsibility and confidential information regarding both sides in a contract negotiation on a house purchase and sale.
Disclosed dual agency: When a brokerage informs all clients that they have conflicting fiduciary responsibilities regarding two or more clients who have competing interests on a contract.
Designated agency: The real estate practice, allowed by law since 2006 in Massachusetts, where two agents under the same brokerage license can maintain a fiduciary relationship with both a buyer and a seller. Each agent has a duty to negotiate for the best price and terms on a property for their client; one agent trying to get the highest price, and one seeking lowest price.