Dealing with a broker is a fact of life for all but a brave few looking to buy, sell, or rent an apartment in New York City. Throughout the process, the broker can seem like a priest, a nurse, a confidant, a therapist. Above all, the ideal picture of the broker is as a proxy steering one through the maze to find a deal in one's best interest. What many don't know going into the process is that in addition to the broker working for the buyer or the seller, the landlord or the renter, brokers can work for both sides at once.
We spoke to real estate attorney Toby M. Cohen about what it means for a broker to represent one side or the other, and when it makes sense to have one represent both. What follows is a discussion about buyers and sellers, but the responsibilities of rental brokers are basically the same.
Among the first things a prospective buyer or seller should try to find out when meeting with a broker for the first time is whom the broker is representing, or whom she wants to represent. Each type of broker has her own specific set of responsibilities.
Buyer's agents, seller's agents, and dual agents
Buyer's agents are supposed to represent a buyer's fiduciary interests. This means trying to find a place within the buyer's budget, keeping an eye out for potential red flags, and negotiating for the best price on the buyer's behalf.
On the flip side, the seller's agent is supposed to help the seller find a financially capable buyer, and whether the seller's goal is to move the property quickly for all cash or prompt a bidding war, figure out the best way to make that happen, all the while keeping the seller's cards close to the vest. There is also something called a broker's agent, who is hired by the buyer's or seller's agent to help that agent out.
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Then, crucially, there are dual agents, who work for both the buyer and the seller at once, and have fewer responsibilities to either. Specifically, the dual agent doesn't have the responsibility to act in the fiduciary interest of the buyer or the seller.
It's standard for agents to represent one side or the other, but dual agency is also fairly common.
When the dual agent's role is unclear to a client, "That’s where the problems arise," Cohen says. "After the closing, [sellers] find out [the broker is] a dual agent. Maybe the price they got wasn't that high because [the agent] working for the buyer as well as the seller."
Disclosure forms are supposed to come early in the process
To avoid exactly this sort of situation, the state legislature passed a law in 2010 that requires brokers to disclose who they're working for. To prove they've disclosed, brokers have to provide clients with disclosure forms at the point of "first substantive contact," typically at the end of the first sit-down meeting. Failure to do so can result in a $1,000 fine, and potentially the forfeiture of a broker's commission.
If the brokers don't provide the form, and there's any ambiguity about who the broker works for off the bat, Cohen says you should ask. Also, don't be surprised if your broker plunks down a form at the first meeting and says you have to sign it, but also, don't sign blindly.
"Always make sure you fully understand what you’re signing," Cohen says. "And if you have a question, don’t hesitate to ask, because at the end of the day, you’re in the driver’s seat. You’re what’s called the principal. Your real estate agent is working for you. If you’re not satisfied, keep asking. If you have an attorney, ask them."
Who would knowingly work with a dual agent?
To back up a moment, why would someone want a dual agent? The truth of the matter is, there isn't an obvious benefit to working with a dual agent, whether you're a buyer or a seller. However, the agent may have positioned himself to give you no other choice. If he's scared off other brokers and seems to be the only path to a deal on a place you want to buy, bully for him, because he gets to keep the fee, usually 6 percent, which would otherwise be split between the buyer's and the seller's broker.
The drawbacks of using a dual agent, on the other hand, are obvious.
"The biggest one is usually in price negotiation," Cohen says. "You have to remember that working to get the buyer the best price and the seller the best price—it's hard to reconcile those things."
Brokers are no substitute for research
Beyond negotiations, brokers who represent one side or the other are required to disclose bad facts to the side they represent, but they don't necessarily have to go out of their way to find them out. For example, if a buyer's agent finds out that a house a buyer is looking at has asbestos, he is obligated to share that with the buyer. Similarly, if a deal is contingent on financing, and the seller's agent finds out that the buyer has a history of bankruptcy, she should let the client know that it may not be the best idea to sell to that buyer. Neither of these scenarios should suggest that you should consider casually asking a broker a substitute for an asbestos inspection or for running a credit report on a buyer, and the boundaries get especially murky when you're dealing with a dual agent.
"What [the broker] should’ve disclosed is almost always a factual question, if this could have an adverse affect on the closing," Cohen says. "If you’re going to sue over this, you need to have damages. [At the bargaining table] it’s always everyone thinking, 'If I don’t tell them about this and something happens, how are the damages quantified?'"
"Everyone" in this scenario are all the real estate professionals. And as in most other real estate situations, it's much more comfortable to head off any nagging questions up front than to have to rehash who said what when a year later in a courtroom, surrounded by lawyers who bill by the hour.