The Facts of Agency

By WILLIAM DEVINE
6/1/03

uestion: When you see party A saying of party B, “I do not need them,” “ They are a necessary evil,” “They cannot be trusted,” and “They are overpaid,” are you (a) learning about National Football League owners from the new bestseller, “Al Davis’ Greatest Depositions,” (b) reading George Bush’s diary entry for the day Dick Cheney and Don Rumsfeld told him that wearing the flight suit was a one-time thing, or (c) trapped in a conversation with someone who resents his real estate agent?

If you chose answer (c), then you know that agent-client tension can kindle a firestorm of anger and ill will.  What you may not realize, though, is that if you hire an agent, agent-client tension is inescapable.

Say Rick considers hiring Kris to sell his $500,000 house for a five percent commission that she will split with the buyer’s agent.  What is Rick’s interest?  To sell the house for the highest price possible, in a reasonable amount of time, and with minimal impact on his life, and to keep as much of the sale proceeds as possible.

What is Kris’ interest?  To sell the house for the highest price possible without making the sale lengthy, complicated or work-intensive, to turn Rick into a satisfied customer and a source of referrals, and to collect her commission.

Note that while these are honest, red-blooded interests that overlap in part, they are not identical. In particular, note that Rick may not mind holding out for a high price because Kris’ work does not cost him anything until the deal closes, whereas Kris’ desire to close a deal at some price and earn some money may increase as she invests more time and effort in the listing.

What if Kris and Rick agree that she will take one percent for her share of the commission?  Their interests are about the same as when Kris earns three percent, with the twist that since Rick will pay Kris less money, Kris may want to devote less work to the listing.

What if Rick and Kris agree that she will earn $200 per hour instead of a commission for her work?  Once again, these interests are honest, red-blooded and not identical.  Note that if Rick holds out for a high price, then Kris performs more work and Rick owes her more money.  Note that if the house never sells, Rick still owes Kris for the hours she works.

Bottom line—no matter how Kris and Rick tweak the compensation scheme, they possess different interests in this transaction, and those differences create tension between them.

n the afterglow of a profitable deal or in the drive to sell services, some people claim that you can experience an agency relationship without agent-client tension, but that is wishful thinking.  The tension exists because the interests differ, so the intelligent question is how to manage agent-client tension, not how to avoid it.

Why is this distinction important?  Because if you search for an agent intent on hiring one with whom you will experience no tension, your search cannot succeed, and you will probably hire someone who makes a good friend but who may not be an effective agent.  Even if the person could be an effective agent, you may not push him or her to advocate your interests because of your focus on being tension-free.  When you realize how much your interests differ from your agent’s, you may be well into the transaction and you may be upset, but you have little recourse because you squandered your best opportunities to manage the tension between agent and client interests.

People who manage agent-client tension well begin by deciding whether to hire an agent.  If their interests, temperament, skills and budget point toward representing themselves, they represent themselves.

If they decide to hire an agent, they study the costs and interests of traditional agents, discount agents and alternative services.  They select the type of agent whose fees and interests suit their interests and budget.   They discuss interests and negotiate services and fees with the agent they hire.

They also use the agent for tasks an agent performs best.  Good agents constantly educate you about the market, organize information, deliver documents, coordinate escrow issues, and save you time.  Good agents perform well as intermediaries, and excel at improving a client’s negotiating leverage by developing alternative deals to pursue.

Those who succeed with an agent ask the agent for advice, but they never delegate the decision about what to do.  They know an agent’s interests differ from a client’s, and they kindle no anger or ill will about this difference, because they know it is just a fact.