Designated Agency Legislation Terribly Flawed – Part Eight


I just came upon some awesome historical presentations about how flawed the designated agency legislation was when it was proposed and passed in the late 1990’s.  These come from a not-for-profit consumer organization that is no longer in existence but shows just how convoluted this legislation was then and still is today.  The organization was known as Real Estate Agents for Real Agency (REAFRA).  It consisted of both buyer and seller agents who were concerned about how large real estate companies in Massachusetts were able to dominate the actions of their association and legislators to do their bidding to their benefit.  The legislation that passed still benefits only large real estate companies in Massachusetts and continues to harm small real estate companies as well as real estate consumers.  I will continue to post numerous articles and postings from their original website as these issues brought up nearly twenty years ago are still at the heart of the problems consumers are facing today.  This is part Eight of Nine.  Tom Wemett

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Legislative Issues

* Under the guise of representing the entire real estate industry, the Massachusetts Association of Realtors (MAR) will approach members of the Massachusetts’ legislature to introduce legislation that will create a new real estate practice called “designated agency”. The new practice would allow one office to represent both sides of a real estate transaction, abrogating the common law principal that “one cannot serve two masters” ie. represent adverse parties in the same issue, as full fiduciaries.

* While couched as an opportunity for all real estate licensees, the new practice will benefit only 1/20th of all real estate licensees in Massachusetts. There are approximately 200,000 real estate licensees in the Commonwealth and approximately 20,000 Massachusetts Realtors, only 10,000 of which will be able to practice “designated agency” since designated agency requires at least three to four people in a local office: the office manager to do the designating, at least one person to represent the seller, and at least one person to represent the buyer.

.* Therefore, the new practice will unfairly advantage large corporate real estate franchises who have the resources and the funding to practically and effectively carry out this practice, thereby placing sole proprietorships, two person partnerships and many small offices at peril and potentially out of the marketplace.

* Under the guise of a “clarification of agency”, MAR’s proposal would drastically change the real estate practice. The shift from all licensees representing the sellers to all licensees representing the buyer, except for one listing agent, is MONUMENTAL, not incremental, and would create confusion for consumers and real estate licensees.

* The new practice is consumer control, not consumer “choice”. Designated agency will increase the risk and perception of conflicts of interest at the “one-stop shopping” franchise for the real estate consumers in each real estate transaction. Many large firms now attempt to handle everything from the real estate purchase and sale, to financial services, home inspections, insurance products, moving and closing services et. al. Designated agency would further dilute the allegiance of the large firm’s agents to their real estate consumers.

* The potential effect of MAR’s proposal raises eerie similarities to the bundling of services and lack of arm’s length consumer choice in the recent Microsoft case. MA Attorney General Reilly calls Microsoft’s practices “monopolistic”. Will designated agency open up possible tort litigation by consumer groups in the Commonwealth?

*MAR’s proposal also exposes the possibility of repeating recent insider trading and conflict of interest scandals seen at large Wall Street brokerage firms, in which the idea that individuals within one office are able to keep transactions at arms length through a “firewall” is impossible to maintain in practice. Sharing information with and collecting fees from the same client for a variety of services in-house is what brought about the massive fines of hundreds of millions of dollars to the brokerage businesses when “sweetheart” deals went sour.

* Designated agency is not an imperative for today’s Realtor. New Hampshire’s and Wisconsin’s legislatures recently rejected designated agency. Why should MA follow a flawed path? The common law practice of “disclosed dual agency” already exists in order to deal with the possibility that one office may have both the buyer and the listing. The common law has served licensees and consumers well. It certainly is not broken and designated agency would not “fix” anything.

* For these reasons, small businesses across the Commonwealth have united to oppose strongly this proposed legislation that will promote the interests of the powerful few. We ask for your assistance in protecting the interests of the small business owner and real estate consumers.

 

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