As Practiced in Illinois
Designated Agency - What is it and Why Does it Matter?
PLEASE NOTE: Real Estate laws, regulations, procedures do vary from state to state. All references made to how Buyer Agency is practiced here refer to how it is done in ILLINOIS. If you seek information on how it is done in other states, feel free to contact me and I'll put you in touch with a responsible professional in that state.
Not all that many years ago, every agent, regardless of whom they worked WITH, represented THE SELLER! Technically, that practice was called 'seller sub-agency'. The way it worked was that the listing agent had an agreement to represent the Seller, and all other agents, regardless of which brokerage they worked through, served as a "sub-agent" of that listing brokerage. I remember when I first got into real estate and started to understand the process, that component of our business seemed very much out of whack! What ran through my mind was "Good grief, when I work with buyers, in order to SERVICE their needs, concerns, and priorities, I'm SUPPOSED to learn as much as possible about those things, how much they are qualified to purchase, what factors might impact where they wish to live, how much they are comfortable paying each month, how much they have for down-payment, what their time frame might be (and why it's important), and lots of other things that come up during the days, weeks, even months or years that we work together. HOWEVER, at that time, BY LAW I REPRESENTED SOME OTHER PERSON, A SELLER WHO I LIKELY NEVER EVEN MET, nor did I know anything about." Now, I ask you, HOW NUTS IS THAT!
Well, thankfully, things have changed, sort of. At least they've changed in most parts of the country. In Illinois, we no longer practice "sub-agency". Illinois was one of the very first states in the country to adopt a practice called "Designated Agency". Every listing agreement with a seller, and every buyer agency agreement with a buyer names the BROKERAGE (ie Executive Realty Group, RE/MAX, Coldwell Banker, Century 21, etc.) as one of the parties to the agreement, and the Seller or Buyer as the other. As consumers, people are used to thinking "I'm listed with John Smith", when in reality the listing is with John Smith's firm, and John is the agent in the firm that the seller expects to market & sell his home. Technically, were it not for Designated Agency, ANY agent that worked under the corporate umbrella of a given agency would work FOR any seller listed with that company. Think about it ... there are many companies in our marketplace (the Chicagoland area) that have literally hundreds of agents in them. Without Designated Agency, EVERY ONE of those agents would represent the sellers of all their company's listings. In other words, only agents with OTHER companies could sell those listings without running the risk of being "dual agents". As a matter of fact, in some states, that's exactly what they do.
So, what's the difference? Why is that important, you ask. Let's pretend you have your home listed with my company, and I'm the agent servicing you. My loyalty is to you, right? It certainly should be! Well, let's suppose we've got a contract on your home and have gone out looking for a new property to buy. And suppose your new dream home happens to be one listed by my company. Without Designated Agency, I would ALSO be THAT seller's agent...even though I'd never met the seller, knew nothing about the seller. In fact, I would be a defacto Dual Agent (that's something else you need to understand). Now enter Designated Agency. What it means is that you, as a seller or buyer, hire my firm to market your home or to find you a home, and my firm "designates" me as your agent. (You thought it meant that YOU designated me as your agent, right? Hey, so did I when I first was exposed to Designated Agency...it's a learning process!) As your Designated Agent, I am the ONLY agent responsible for servicing you and your transaction, even if the party on the other side of your transaction is also represented by my company.
Now that you understand a bit about Designated Agency, why bother getting your own agent anyway. After all, with Designated Agency in Illinois, the Agent works FOR whomever they work WITH...unless otherwise disclosed in writing. In other words, unless an agent provides you with something in writing telling you they DO NOT represent you or your interests, or unless you give them something in writing saying you do not wish them to represent you or your interests, the agent working WITH you works FOR you. This is what the powers that be term "implied agency". And this practice is fine...up to a point.
Real Estate sales differs from virtually any other business. Without knowing what you do for a living, likely you either earn a monthly salary, or you earn an hourly wage. Even if you do have a "commission" based job, chances are you receive a base compensation or a "draw" and your commission earnings are added to that as they occur. In addition, chances are very good that if you do your work, you'll receive a paycheck for your work, and you generally know pretty well how much that paycheck will be from month to month.
Now, just imagine your employer said to you, "I have a very important project for you to undertake. It's POSSIBLE that you may be very well compensated for your work. At this point, I have no way of knowing how many hours of your time it will require, how "creative" you will need to be to accomplish the task, how much money out of your own pocket you'll need to spend to get the task completed, or how much money you will likely receive for your work, IF ANY. In addition, I should also tell you that there are several other people with whom you may be in competition on this project...I don't know yet who or how many they might be. If one of them happens to "complete" the project before you do, they will receive the paycheck. In that case, you will receive my sincere appreciation for all your hard work....but you'll not receive a paycheck at all". Now let's add to your assignment the fact that you will also be required to use a lot of your own resources in accomplishing this task....your car, your computer, your technology investment in systems and hardware (and of course you needed to learn how to use it!...an added drain on your time & attention).
Let me ask you...explained in those terms, how likely would YOU be to jump at the opportunity? That, in a nutshell is the reality for agents in general...UNLESS they have a committed buyer with whom they have a representation agreement.
Why does that matter to you? Even with the assumption that most agents are honest, ethical, "good" people, the fact of the matter is that generally they receive no paycheck unless and until they SELL something and unless and until it CLOSES. So an agent who does not have some sort of real commitment from you that you will be loyal to them is inherently incentivized to try to SELL you something, rather than provide you with the more comprehensive services you deserve.
A buyer agency agreement is designed to provide you and your agent both with guidelines as to what each of you can expect from the other. It defines for you what you should expect of your agent, while also providing a certain level of protection that when you do buy, they will get paid for their efforts on your behalf. It also should give you and your agent the vehicle by which you can determine how you'll each handle such things as dealing with For Sale by Owner properties and New Construction listings, as well as what geographic areas you'll be considering, how you and your agent wish the agent's compensation to be handled, the specific agreement effective dates (starting date and ending dates), etc. You should also expect it to include some legitimate way for you to cancel the agreement if your agent is not performing as agreed.