Real Estate Agency in Michigan

Part 1

Hello Ask the Realtors readers,

The most important aspect of any real estate transaction in the State of Michigan is broadly misunderstood by the general public, and even by some real estate agents. If you are even casually looking at property for sale, you need to clearly understand how the system is set up at its most basic level.

Agency in the State of Michigan is a set of legally defined relationships that seek to protect the consumer, and establish ìwhoî and ìwhatî a real estate agent is responsible for. Most of the rest of real estate law and ethics guidelines are based upon these relationships, but most consumers donít have a clue about how they work.

It is of paramount importance that you understand and utilize the responsibilities that a real estate agent and brokerage has to you as their Client when buying or selling real property. Please read on before suggesting exceptions.

Not unlike attorney-client or doctor-patient relationships, real estate agency is a legally defined and regulated relationship that goes well beyond ìfriendly,î ìfamilial,î ìprofessional,î or ìcustomerî relations in the attempt to provide the greatest benefits and protection to consumers, be they sellers or buyers of real estate. A licensed real estate agent has a fiduciary responsibility to their clients, which mandates duty, counsel, representation, and confidentiality as the basis of the agent-client relationship.

Simple, right?

Unfortunately, no, and as I have said, broadly misunderstood. So, following our propensity for efficient lists, here are the major points of real estate agency and agents in the State of Michigan:

1) Both sellers and buyers of real estate have the right to be represented by a state-licensed agent in real estates transactions in the State of Michigan.

2) In order to utilize the knowledge, experience, skills, and systems of a licensed agent, a consumer must enter into an agreement with the agent through the agentís brokerage.

3) Property-listing sellers have contracted with an agent and brokerage in order to list, market, and sell their property. Traditionally, sellers pay real estate commissions, and brokerages holding those listings traditionally agree to ìcooperateî with other brokerages to sell those properties. The cooperation usually allows properties to be listed on an areaís MLS system, and agrees to ìsplitî commissions between selling and buying sides of a transaction.

4) buyerís agents are free to buyers, provided that a buyer enters in to an exclusive agreement with that agent and brokerage. This is how the buyer establishes the fiduciary responsibility of the real estate agent, and receives the services of the agent. Without the buyer agreement, the agent is prevented from fully representing the buyerís best interests, is unable to share all information that the agent can glean, and is not bound to confidentiality.

5) Michigan law provides for Dual Agency, where an agent represents both seller and buyer on a single piece of property, albeit through a more limited capacity to both parties.

Plenty of people understand the role of a real estate agent from the perspective of a property seller since that aspect of agency for the most part has remained unchanged. Real estate agents originally operated as brokers of real property. Before the internet, before telephones even, agents monitored property ownership and its transfer, and when citizens had a real estate need, be it either selling or buying, they contacted an agent.

The agents were the sole source of this information and service. They literally kept lists of property that was For Sale, tried to match up prospective buyers with the available properties, and see the transactions through to their successful completion. They in turn earned a commission, or percentage of the transaction price, as compensation for their knowledge and efforts. The term ìlistingî originates from these lists of available property that an agent kept. Can you imagine keeping the list in your pocket! Oh, how things have changed.

Currently, when people list their home with an agent, they are represented by that agent and brokerage: the sellerís interests come first, the agent is responsible for timely and confidential communication with their client, they provide information and counsel, negotiate on their clientís behalf, help ensure that the sellers are meeting and fulfilling their legal responsibilities in selling their real property, while simultaneously trying to limit their sellerís exposure. This is in addition to marketing the property, screening inquiries to glean qualified buyers from the masses, and consummating the sale legally and effectively.

It is not difficult for people to understand that the agent is working for, and responsible to, the seller when they have listed their property for sale through the agent and brokerage.

The confusion sets in, however, when we talk about a buyerís agent. Up until the early 1990s there was no such thing in the State of Michigan. Sellers were represented by real estate agents and brokerages when they had real property that they wanted to market and sell, and the real estate industry and its agents agreed to treat buyers ìfairly and honestly.î There was no legal framework, however, to monitor or effectively ensure fair and honest treatment of buyers.

Eventually, the legal forces that be declared this one-sided scenario innately ìunfairî and while caveat emptor (ìbuyer bewareî) is still one of the legal principles of real estate law in Michigan, buyerís agency was designed and implemented so that buyers could enjoy representation by professionals on par with that which property sellers enjoy.

A buyerís agent is responsible to act solely on the behalf of the buyer. The buyerís best interests come first, the buyerís agent is responsible to share any information that they can glean with their buyer client regardless of how that information is gleaned, and they similarly must keep their buyerís confidential information confidential in perpetuity.

We'll continue our in-depth look at real estate agency relationships in the State of Michigan again next time.

Until then, have a great day,


TEAM MIKE

Last Updated: November 02, 2007