Representation should not be a forced issue

New York recently joined many other states in creating a requirement for written consent by principals to name the real estate broker representing the buyer, seller or both parties in residential transactions. This requirement - that a broker disclose whom it is representing - has not yet been imposed by law for commercial brokerage relationships. However, brokers are embracing representation in the commercial real estate market, supposedly as a way to define more clearly the focus of brokers' services. But is representation another broker service or does it enhance the array of market services, which seem to characterize the things good brokers do?

Representation is not another service identifiable by special broker behavior but is a characterization superimposed on a broker's behavior so a broker can align with one side of the deal for the sake of half the commission. This is not to disparage brokers who get exclusive listings (for the seller) or exclusive property search assignments (mistakenly, I believe, called buyer or tenant "representations"). Cooperating brokers who add value by either sharing the required grunt work with the first contracted broker or by accelerating the market education of the buyer or seller certainly serve an identifiable purpose in a deal and deserve to share in the fee, regardless of who pays it. But, "representing" the other side of the deal is not another activity distinct from those market services.

The need for a broker to represent only one side follows from the broker's defined legislated role as a fiduciary who, as such, must give undivided loyalty to the interests of the (one) client. Straddling different clients' interests invites conflicts of interests for the wary broker, according to the regulations and their supporters. But after the seller reviews enough prospects and the buyer looks at enough properties, what more in the name of representation is required to protect either party's interests? It is the negotiating process, within fairly clear and rational market boundaries, which determines price and terms.

Reaching agreement on a real-estate deal is the result of a buyer reviewing past sales and current alternatives and a seller analyzing past sales and prospective buyers until the financial abilities and interests of both parties coincide on price and terms. The regulators, lawyers and [Realtor.sup.R] leaders, on the other hand, view the market research and negotiating process as if it were a lawsuit in which interests and confidences are shielded from the other party in an adversarial manner. In the last stages of the process, the buyer and seller try to get the best deal for themselves. But "best deal" may be defined either in terms of the market as a whole or with respect to relative advantages over any particular prospective buyer or seller.

With respect to the market, a good deal is readily confirmable through a study of past comparable deals for both the buyer and seller. There is probably no more accessible, better documented history of transactions than what exists in real estate's ML computers, computerized government sales records and appraisals. It is far more immediately confirmable to a prospective buyer or seller what a good and fair deal is in real estate than in stocks, bonds, cars or a local department store.

With respect to making the best deal vis a vis die opposite party, each side, with or without a broker, can scream, intimidate, withhold information, lie or cajole in an attempt to press its advantage. This type of flailing is what people mean byrepresenting" their clients' best interests, demonstrating loyalty and acting with undivided interest. But such pressing for advantage ("representation") may exact a heavy toll; the other party can look for another prospect, because they are not locked in a lawsuit. This is the under-reported downside of the buyer broker/tenant representative euphoria: an increasing number of sellers and landlords resent such "cowboy" broker representatives, and will not deal with them, if their sole function is to press one side's advantage through intimidation. The better broker function is to make the market intelligible so the meeting of the minds is a fair deal for both.

Some people agree with New York's Secretary of State Gail Shaffer, who said she thinks it is time brokers acknowledged the "inherent conflict between a broker's role as market maker and his or her role of fiduciary" (to Suffolk County Real Estate Board, June 17, 1987). It is this perceived, core paradigm conflict which produced the various disclosure bills in state legislatures and attempts to define away "dual agency" as anti-fiduciary. If what is suggested above is the case, it is in terms of the broker's function as market maker that the buyers' and sellers' interests are preserved as the broker demonstrates what a good deal is for both parties through readily available evidence. This demonstration of value exhausts good broker behavior and makes possible good faith negotiating. This is not to say that two brokers cannot share in the work and share in the fees. But part of that work is not "representing" the other party. There is no such activity independent of the broker's market services.

Therefore, there is nothing to disclose as to "representation." Brokers who attempt to increase their value in the eyes of prospective contractees only confuse the definition of their services. Principals who seek protection of their interests through broker representation are kidding themselves. What brokers clearly should disclose is the scope of their work, their fees, their experience and other information which relates to the quality and quantity of actual services. But representation is not one of those services.

Stephen N. Hunt is president and CEO of Hunt Commercial Real Estate Corp., based in Buffalo, N.Y.

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