Reading Time: 29 minutes

Dr, Larry Hasbrouck

"larryhasbrouck"

OFFICE POLICIES & PROCEDURES INCLUDING AGENCY OFFICE POLICIES

BUSINESS POLICIES AND PROCEDURES

What are your company’s ethical policies?

What business policies and procedures has your company adopted?

How effective are they?

Everyone in the organization needs to know exactly how to conduct themselves—the rules of the game.

Let’s use the game analogy. In planning, your team must know the object of the game (the mission statement), the goal of the game (the goals for the organization) and the plays that will be used to score the goals (the strategies the organization will use to achieve its goals).

Unless you tell the team the rules of the game, you’re fielding a team that may execute plays in ways that could be inconsistent with your philosophy or policies.

The broker makes the rules by first establishing a philosophy for doing business. This creates the culture for the organization—the rules of fair play and ethical conduct. Then the broker establishes policies and procedures that support the organization’s culture and the particular nature of the company’s business. After the broker makes these decisions, (s)he must be sure that everyone knows them.

A published rule book—the policy and procedures manual—tells people how they are to conduct business for your company.

A policy and procedures manual is a valuable management tool. It provides authoritative guidance about how the company functions, which also avoids the “nobody told me” problem. By addressing potentially problematic situations, along with solutions, the manual minimizes the amount of time management must devote to solving problems and resolving controversies. Essentially, people can govern themselves in most situations.

By setting up rules ahead of time, it’s much easier for management and fairer for the workers when managers do not have to make up the rules as they go along. Sports events have referees who assess penalties for infractions, but we hope that the analogy ends here.

Management should be coaching rather than refereeing the game, but management must also be willing to penalize the offenders.

The policy and procedures manual
This is a handbook that tells people “the way we work” in the organization. Often that is explained in the introductory statement in the manual. With specific procedures related to your firm’s services, a manual reinforces practices that are consistent with your business objectives. We cannot overstate the value of a policy and procedures manual for• providing ready answers for many of the dilemmas people face during the course of daily operations;
• setting rules by which everyone shall play;
• helping to resolve conflicts before they arise; and
• providing a risk-management tool for both the company and its staff.Policy and procedures manuals are worthless if they aren’t used. Provide everyone in the organization with a personal copy. This is also a good orientation tool for new staff. Make it a living document by encouraging them to refer to the manual. (This also spares a manager the aggravation of repeating answers to questions that already have been addressed.) Management must stand behind the policies and procedures and adhere to them consistently. Once you start playing favorites and allowing some people to circumvent the rules, you create many of the conflicts the manual was intended to prevent.A policy and procedures manual is also a public declaration about certain policies that have legal implications. If you are involved in litigation, it can be your ally by supporting the company with a written statement about the way the firm works. Or it can be your enemy if you don’t adhere to the established guidelines. The manual also should clearly differentiate between working procedures for employees and independent contractors. Involve legal counsel in the preparation and use of the manual to be sure you are managing rather than creating risk for the organization.What you say about various procedures will determine the standards by which people are expected to perform their jobs and by which the company delivers its services. Also be sure to provide sanctions or enforcement procedures. The following is a discussion of issues that should be addressed when constructing the manual. Because your company may hire employees as well as independent contractors, some issues will apply to all personnel and others will apply only to independent contractor/salespeople or to employees.General Business Policies

Begin with general statements about your organization. These tell who the company is and what it does: the mission statement, a brief history of the organization and a description of its target markets by geographic area and types of properties or services. This is also where you state the company’s general philosophy of doing business and its ethical code. At this point you are making pronouncements that affect everyone who works for the company, as well as telling the public who you are.

There also are a number of policy decisions that the company must make which relate to its real estate services. These identify the specific services the company provides and define the conduct of the people who work for you, according to the multitude of laws that affect your business. The company has the right to expect that all workers, including independent contractors, conduct themselves in a legal and ethical manner.

Agency. The broker must clearly define the company’s policy, in accordance with state law, regarding law of agency relationships. The policy must state whether the firm represents buyers/tenants, sellers/landlords or both as disclosed dual agents or as designated agents, and state a position about sub-agency. Procedures must be outlined to explain how fiduciary obligations are to be discharged, including agency disclosures.

Detailed procedures, especially those that preserve confidentiality and loyalty, are essential if you are practicing designated agency. If your state’s law permits nonagency relationships, the broker must define policies and procedures accordingly.

Antitrust.

Because practices in our industry are constantly being scrutinized for antitrust violations, the broker must be very specific in explaining the rationale for the company’s charges and the various fee structures for its services. Equally important are procedures that provide guidance to the salespeople about protecting the company from antitrust violations.

Equal opportunity in housing.

The real estate industry must comply with all applicable fair housing laws. The company should express its commitment to equal opportunity and establish procedures to ensure that everyone in the organization serves all customers and clients properly under federal, state and local fair housing, civil rights and disability laws.

Real estate licensing laws and regulations.

A policy should state that all of the activities in the organization must comply with your state’s licensing laws. Any procedure that is defined in the manual should support this policy. Because the company must not permit unlicensed employees to engage in activities for which licensure is required, procedures should address what unlicensed people can and cannot do.

General Policies for All Workers

Whether you are writing a policy and procedures manual for independent contractors or personnel policies for employees, several general policies will apply to all of your workers. These normally address the following issues:

• Equal employment opportunity (including a culturally diverse workplace)
• Sexual harassment (between staff members, management and staff and employees/independent contractors and customers and clients—see NAR’s sample policy)
• Substance abuse (what, where and procedures for violations of policy)
• Smoking (in the workplace and outside with customers and clients)
• Personal safety and security in the workplace (including procedures to protect personnel and precautions for salespeople)
• Standards of conduct (including issues such as theft, conflict of interest and violations of laws, ethics and policies)
• Worker relations (general working environment and climate for professional development)
• Confidentiality (company matters as well as clients)
• Public relations (image of the organization)
• Actions on behalf of the organization (only authorized individuals permitted to make legal commitments on behalf of your firm)
About the work day:
• Office hours (including procedures for salespeople being in the office after hours)
• Holidays (including accommodations for cultural and religious preferences)
• Personal phone calls (including emergency procedures and reimbursement of charges)
• Dress policy (general professional appearance)

Procedures for Independent Contractors/Salespeople

Although salespeople will enter into independent contractor agreements with the company (unless they are employees), their working status should be reaffirmed in the policy and procedures manual. As the procedures are detailed, they should be carefully worded to avoid violating the independent status (another important reason why the manual should be reviewed by counsel). The manual should address the following issues:

• Personal assistants (their role in your company, whether they are employees of the salesperson or the company; licensed and unlicensed activities)
• Sales teams (the way they are accommodated in your company, including notification to management about how the team has structured its relationship)
• Part-time agents, full-time agents and home officing (hiring policies and the way they work)
• Referrals (procedures for distributing in-house leads and referrals between salespeople and referrals to other companies)
• Agent cooperation (in-house, including sharing customers and clients)
• Standards for servicing customers and clients (listings and sales)
• Open house procedures (including sales procedures and safety precautions)
• Transactions:
Listing and agency agreements (types; situations in which each are used; policy on written versus oral agreements)
Forms and contracts (policy for written and oral contracts, written disclosures, contingency forms, transmittal forms, record keeping)
Escrow money (tracking procedures, deposits and withdrawals, co-brokerage procedures, disputes)
Litigation and legal expenses
Settlement or escrow procedures
• Commission programs
• Insurance (coinsurance on autos, errors and omissions)
• Dues and fees (professional association, MLS, franchise)
• Education and designations
• Advertising and marketing procedures (who pays and for what, which publications are used, frequency, content and approval of copy even when salesperson is paying the bill and solicitation)
• Internet policy (representing broker affiliation, copyright and trademark infringement, defamation, sexual harassment and racial discrimination, wire fraud)
• Telephone procedures (personal and business calls, phone log, who gets the lead on an inquiry, expectations for returning messages)
• Dissemination of information (about the company and its listings, including the nature of information to be discussed on the phone and who is permitted to disseminate what information)
• Keys and lock boxes (procedures, who pays)
• Signs (procedures, who pays)
• Office equipment (use of supplies, fax, copier, computer and Internet connections and company-owned computer software)
• Postage, printing and direct mail (who pays, limits, review of copy)
• Attendance (recommendations for floor time, sales meetings, training sessions)
• Parking at the office
• Salespeople’s selling and purchasing real estate for themselves
• Handling disputes (between salespeople, with customers and clients, with licensees in other firms)
• Termination (grounds, procedures, disposition of listings, leads and pending closings)

Employee Personnel Policies

In addition to the items listed under General Policies for All Workers, a number of issues are addressed in personnel policies that relate specifically to employees.

• Categories of employment and related fringe benefits
• Pay procedures
• Travel/expense accounts (if any)
• Overtime
• Attendance and punctuality
• Employment procedures (including recruiting, selecting, hiring, performance reviews)
• Layoffs
• Disciplinary actions
• Resignation and discharge
• Vacation and leave:
• Personal days
• Vacation time
• Sick time
• Court duty
• Bereavement leave
• Military leave
• Family leave (check requirements under the federal Family and Medical Leave Act of 1993)

A number of state and federal laws exist to protect employees and govern their working conditions. Because many brokers are unaccustomed to hiring employees, you need to become familiar with these laws. Seek legal advice to be sure that the polices, employment procedures and conditions in the workplace are in compliance with these laws.

How do you formulate a business philosophy and policies and procedures?

Only the principal(s) of the company, whether the broker/owner or senior management, can determine the business philosophy, because it reflects the values and ethics this person sets for the organization. The culture in which people work and the company’s policies, rules and procedures rise from that philosophy.

This project takes time. Don’t rush to publish a manual just because a management book says the organization should have one. This project requires careful planning, particularly because a number of situations must be contemplated to ensure that the document addresses all of the critical issues. Developing a manual is not necessarily a cumbersome exercise. After all, certain policies and procedures have evolved over time and are already in practice; they just need to be committed to paper. As you do this you also can identify inconsistencies or improvements that should be addressed.

It’s not advisable to copy someone else’s manual. The philosophy of the company and the policies and procedures that support it are specific to that organization. Those that are suitable for one firm may not be suitable for another. A number of issues that should be addressed are suggested below, but the specifics of how they should be handled must be determined by the individual company. The purpose of this chapter is to present some points to ponder as the manual is prepared.

BUSINESS ETHICS

Ethics involves morality and a set of beliefs that guide a person’s actions. Behavior is defined as good or bad, right or wrong, morally approved or disapproved, according to the ethics of various groups or cultures. Individuals as well have developed their own definitions and consequently, their own beliefs about what is right, wrong, good, bad and so forth.

In the business world there needs to be a guide by which words and deeds can be measured to determine ethical conduct. But there cannot be different sets of values that govern different parts of our lives or one standard that governs our personal lives and one that governs business.

One standard must govern all areas of our lives. Peter Drucker, in his book Management: Tasks, Responsibilities, Practices, argues that there is no such thing as separate ethics for business. All professionals should have one fundamental ethical principle that guides them:

“Above all, do no harm.”

The Heart of Ethics

Before we explore an ethical code for your company, we need to make several points about human behavior. Our country seems to be in the midst of an ethical dilemma, with reports of scandals in government, cheating on college campuses and resignations of corporate officials. Recent studies also indicate that consumers rank the ethics of real estate practitioners low. (Various accounts list them sixth or lower from the bottom of a list of 25 business practitioners.) When you hear these reports, you may think, “Don’t these people know any better?” Other people might say, “I’d do the same thing they did,” “They must have a good reason,” or “I’ll not likely get caught.” Isn’t it interesting that not all of us size up situations the same way?

Why don’t we? One reason is that each of us has developed our own personal set of values that guide our behavior. Ask a group of people what they value in their lives and you’ll get a variety of responses. For some it may be money; for others it may be such things as freedom, health, family, prestige, respect or loyalty. Certainly, there are others as well. The point is that people prioritize those values for themselves. The passion that burns within them guides their decisions and, therefore, their behavior.

We could expand this discussion into the root of values and the theories noted authorities have developed about value systems. But for our purposes we leave with the point that our past experiences, family upbringing, cultural influences and traditions and the lessons we learn about fundamental principles that guide morality all contribute the formation of individual value systems. Because all of us don’t come out of the same mold, the challenge is to blend us together and provide order for the group.

Society does this with laws, codes to live by, including codes of ethics, and rules. These work with varying degrees of success because personal values may be different than those established for the group. Each of our heads gets into the act, too, as we think through the rules of the group. Some people comply because they decide to avoid undesirable consequences they would incur if they don’t. Others may see the rules as inherently flawed and therefore discount them as worthy of being followed. (Not all laws are “right” in everyone’s mind.) Some people are less motivated by the legality of an issue and more persuaded by how a rule affects an individual situation or the group as a whole.

These rules that are intended to guide behavior of the group, be it your company, the industry or the community, fall into two general categories: laws and ethics.

Laws are established by government along with consequences for violators; conduct can then be described as legal or illegal. Ethics are driven by morality, the values and principles of individuals in the group as well as the group as a whole; conduct can then be described as ethical or unethical. Some laws may appear to be unethical, which is the reason that ethics often impose a higher standard for conduct.

Commit your ethics to writing. While you can identify values or ethical standards for your organization, they are meaningless unless they are cast in print. Intangibles are elusive and difficult to enforce. Written statements show a commitment and leave no room for ambiguity, as long as they are specific. For example, it’s not sufficient to state that “integrity is expected of every salesperson.” You must identify specific behavior that exemplifies integrity. A code of ethics that is too vague becomes a public relations document rather than a meaningful script for the organization.

Communicate your code of ethics. Once the values are identified, they must be communicated to everyone in your organization. This can be done through training and orientation programs, pamphlets, letters and, most important, by personal example. The firm also should communicate its commitment to the public. This can be accomplished in brochures, contracts and advertising. The behavior of the people who work for you, however, is the firm’s most powerful communication.

Get actively involved. The broker/owner and all levels of management must lead by example to gain commitment from others in the organization. Make ethics an integral part of every aspect of the organization. Clearly communicate that unethical conduct will not be tolerated regardless of the financial gain that would result. Do not impose expectations for production that will compromise the value systems of the people who work for you or the organization.

Sales or office managers play a significant role in implementing the company’s code of ethics. These are the people who work directly with the staff who interact with customers and clients. The institutionalization of ethics is measured not only by actual behavior but also by how employees, customers and clients perceive the ethics of the company. Because the managers are responsible for creating an ethical environment in the office, they can take a lot of the credit or share some of the blame for this perception.

Enforce the code of ethics. The most powerful way to institutionalize ethics is to confront violations. One of the reasons unethical behavior persists is because organizations do not aggressively pursue enforcement. You must remove barriers that discourage people from stepping forward and informing upper management about unethical conduct. Otherwise, the organization is functioning with a code of silence rather than a code of ethics. Provide directives about ways suspected unethical behavior is to be reported. Establish an investigation process and a series of penalties that will be assessed for violations. Then do it!

Reinforce the code of ethics. Constant exposure to and reinforcement of the code is essential. It should be addressed in workshops and seminars on an ongoing basis. Ethics training will not produce the desired behavior without case examples to illustrate the code of ethics in action. People should understand the factors that must be considered in ethical decision making, the dilemmas they could encounter that might discourage ethical behavior and develop possible solutions to these dilemmas.

You can either manage or mismanage ethics. Some simply ignore the issue, but those who do could suffer unintended and undesirable consequences. Because some unethical conduct is also illegal, the company’s legal liability is significant and the penalties can be costly.

To conclude this brief lesson, we turn our attention to the real estate industry. We practice under an expanding body of law, which is intended to enhance the protections afforded to the consumers with whom we do business. Repeatedly in this text we mention compliance with certain laws because the consequences for violations can be quite damaging to the organization. But laws alone are not sufficient. We need ethics, the higher standard, to enhance the conduct of our business. Our professional organizations have codes of ethics. Companies need to adopt policies or codes for ethical behavior as well. It’s even more important that people practice what is preached and that the policies are enforced.

 

POLICIES AND PROCEDURES

Earlier we mentioned the rule book—the policy and procedures manual. This is a handbook that tells people “the way we work” in the organization. Often that is explained in the introductory statement in the manual. With specific procedures related to your firm’s services, a manual reinforces practices that are consistent with your business objectives. We cannot overstate the value of a policy and procedures manual for

• providing ready answers for many of the dilemmas people face during the course of daily operations;
• setting rules by which everyone shall play;
• helping to resolve conflicts before they arise; and
• providing a risk-management tool for both the company and its staff.

Policy and procedures manuals are worthless if they aren’t used. Provide everyone in the organization with a personal copy. This is also a good orientation tool for new staff. Make it a living document by encouraging them to refer to the manual. (This also spares a manager the aggravation of repeating answers to questions that already have been addressed.) Management must stand behind the policies and procedures and adhere to them consistently. Once you start playing favorites and allowing some people to circumvent the rules, you create many of the conflicts the manual was intended to prevent.

A policy and procedures manual is also a public declaration about certain policies that have legal implications. If you are involved in litigation, it can be your ally by supporting the company with a written statement about the way the firm works. Or it can be your enemy if you don’t adhere to the established guidelines. The manual also should clearly differentiate between working procedures for employees and independent contractors. Involve legal counsel in the preparation and use of the manual to be sure you are managing rather than creating risk for the organization.

As was mentioned earlier, the manual contains your company’s philosophy, policies and procedures and supports your company’s business ethics. What you say about various procedures will determine the standards by which people are expected to perform their jobs and by which the company delivers its services. Also be sure to provide sanctions or enforcement procedures. The following is a discussion of issues that should be addressed when constructing the manual. Because your company may hire employees as well as independent contractors, some issues will apply to all personnel and others will apply only to independent contractor/salespeople or to employees.

General Business Policies

Begin with general statements about your organization. These tell who the company is and what it does: the mission statement, a brief history of the organization and a description of its target markets by geographic area and types of properties or services. This is also where you state the company’s general philosophy of doing business and its ethical code. At this point you are making pronouncements that affect everyone who works for the company, as well as telling the public who you are.

There also are a number of policy decisions that the company must make which relate to its real estate services. These identify the specific services the company provides and define the conduct of the people who work for you, according to the multitude of laws that affect your business. The company has the right to expect that all workers, including independent contractors, conduct themselves in a legal and ethical manner.

Agency

The broker must clearly define the company’s policy, in accordance with state law, regarding law of agency relationships. The policy must state whether the firm represents buyers/tenants, sellers/landlords or both as disclosed dual agents or as designated agents, and state a position about sub-agency. Procedures must be outlined to explain how fiduciary obligations are to be discharged, including agency disclosures. Detailed procedures, especially those that preserve confidentiality and loyalty, are essential if you are practicing designated agency. If your state’s law permits nonagency relationships, the broker must define policies and procedures accordingly. (Sample office policies about agency relationships are available from the National Association of REALTORS®.)

Antitrust

Because practices in our industry are constantly being scrutinized for antitrust violations, the broker must be very specific in explaining the rationale for the company’s charges and the various fee structures for its services. Equally important are procedures that provide guidance to the salespeople about protecting the company from antitrust violations.

Equal opportunity in housing

The real estate industry must comply with all applicable fair housing laws. The company should express its commitment to equal opportunity and establish procedures to ensure that everyone in the organization serves all customers and clients properly under federal, state and local fair housing, civil rights and disability laws.

The company also could participate in affirmative action programs. As an example, the National Association of REALTORS® and the Department of Housing and Urban Development have entered into the Fair Housing Partnership Agreement. This is a voluntary program in which participants can further equal opportunity in housing by engaging in certain advertising practices and outreach programs in the community.

Real estate licensing laws and regulations

A policy should state that all of the activities in the organization must comply with your state’s licensing laws. Any procedure that is defined in the manual should support this policy. Because the company must not permit unlicensed employees to engage in activities for which licensure is required, procedures should address what unlicensed people can and cannot do.

General Policies for All Workers

Whether you are writing a policy and procedures manual for independent contractors or personnel policies for employees, several general policies will apply to all of your workers. These normally address the following issues:

• Equal employment opportunity (including a culturally diverse workplace)
• Sexual harassment (between staff members, management and staff and employees/independent contractors and customers and clients—see NAR’s sample policy)
• Substance abuse (what, where and procedures for violations of policy)
• Smoking (in the workplace and outside with customers and clients)
• Personal safety and security in the workplace (including procedures to protect personnel and precautions for salespeople)
• Standards of conduct (including issues such as theft, conflict of interest and violations of laws, ethics and policies)
• Worker relations (general working environment and climate for professional development)
• Confidentiality (company matters as well as clients)
• Public relations (image of the organization)
• Actions on behalf of the organization (only authorized individuals permitted to make legal commitments on behalf of your firm)

About the work day:

• Office hours (including procedures for salespeople being in the office after hours)
• Holidays (including accommodations for cultural and religious preferences)
• Personal phone calls (including emergency procedures and reimbursement of charges)
• Dress policy (general professional appearance)

Procedures for Independent Contractors/Salespeople

Although salespeople will enter into independent contractor agreements with the company (unless they are employees), their working status should be reaffirmed in the policy and procedures manual. As the procedures are detailed, they should be carefully worded to avoid violating the independent status (another important reason why the manual should be reviewed by counsel). The manual should address the following issues:

• Personal assistants (their role in your company, whether they are employees of the salesperson or the company; licensed and unlicensed activities)
• Sales teams (the way they are accommodated in your company, including notification to management about how the team has structured its relationship)
• Part-time agents, full-time agents and home officing (hiring policies and the way they work)
• Referrals (procedures for distributing in-house leads and referrals between salespeople and referrals to other companies)
• Agent cooperation (in-house, including sharing customers and clients)
• Standards for servicing customers and clients (listings and sales)
• Open house procedures (including sales procedures and safety precautions)
• Transactions:
Listing and agency agreements (types; situations in which each are used; policy on written versus oral agreements)
Forms and contracts (policy for written and oral contracts, written disclosures, contingency forms, transmittal forms, record keeping)
Escrow money (tracking procedures, deposits and withdrawals, co-brokerage procedures, disputes)
Litigation and legal expenses
Settlement or escrow procedures
• Commission programs
• Insurance (coinsurance on autos, errors and omissions)
• Dues and fees (professional association, MLS, franchise)
• Education and designations
• Advertising and marketing procedures (who pays and for what, which publications are used, frequency, content and approval of copy even when salesperson is paying the bill and solicitation)
• Internet policy (representing broker affiliation, copyright and trademark infringement, defamation, sexual harassment and racial discrimination, wire fraud)
• Telephone procedures (personal and business calls, phone log, who gets the lead on an inquiry, expectations for returning messages)
• Dissemination of information (about the company and its listings, including the nature of information to be discussed on the phone and who is permitted to disseminate what information)
• Keys and lock boxes (procedures, who pays)
• Signs (procedures, who pays)
• Office equipment (use of supplies, fax, copier, computer and Internet connections and company-owned computer software)
• Postage, printing and direct mail (who pays, limits, review of copy)
• Attendance (recommendations for floor time, sales meetings, training sessions)
• Parking at the office
• Salespeople’s selling and purchasing real estate for themselves
• Handling disputes (between salespeople, with customers and clients, with licensees in other firms)
• Termination (grounds, procedures, disposition of listings, leads and pending closings)

Employee Personnel Policies

In addition to the items listed under General Policies for All Workers, a number of issues are addressed in personnel policies that relate specifically to employees.

• Categories of employment and related fringe benefits
• Pay procedures
• Travel/expense accounts (if any)
• Overtime
• Attendance and punctuality
• Employment procedures (including recruiting, selecting, hiring, performance reviews)
• Layoffs
• Disciplinary actions
• Resignation and discharge
• Vacation and leave:
• Personal days
• Vacation time
• Sick time
• Court duty
• Bereavement leave
• Military leave
• Family leave (check requirements under the federal Family and Medical Leave Act of 1993)

A number of state and federal laws exist to protect employees and govern their working conditions. Because many brokers are unaccustomed to hiring employees, you need to become familiar with these laws. Seek legal advice to be sure that the polices, employment procedures and conditions in the workplace are in compliance with these laws.

CONCLUSION

If your policy and procedures manual includes the scope of information we’ve discussed, it provides a fairly complete picture of your organization—its general business policies and ethics and its rules for the way business is done and how people conduct themselves with one another in the company, with their customers and clients and with other professionals.

The company makes a commitment to these policies and procedures by putting all of them in writing. Management then becomes responsible for implementing them throughout the organization. As with any other document that guides the organization, the manual should be flexible and change as the company changes (which is why assembling the manual in a loose-leaf binder is a good idea).

CREATING OFFICE POLICIES ON AGENCY

As the principal broker/owner of the office, you are preparing for the monthly sales meeting. While gathering your papers, you overhear a conversation between two of your salespeople:

“So, it became really clear that this guy wanted his own representation.”
“What did you say?”
“I told him, fine, I can be your agent, I can be a buyer’s agent.”
“Really! I wasn’t sure we could do that in this office. I’m glad you told me. Now I can offer it too.”

Sound familiar?

With the increase in demand for buyer representation, this type of confusion is common in offices all over the nation.

The need exists for creating office policies on agency practices.

Even without the new Standards of Practice, creating a policy on the agency relationships permissible within the office makes good business sense. Agency relationships are the foundation of the real estate industry and you want to make sure your agents do it right. The policy specifies for the agents whom they represent, how it should be done and the proper time to disclose this representation. A detailed written office policy that outlines what is expected of your agents in their relations with consumers leaves little room for doubt and encourages consistency within your office. In addition, by putting your policies in writing and requiring your agents to comply with the policies, you are reducing your risk of non-compliance with agency laws.

Creating an office policy on agency practices does not have to be difficult. It may be helpful to follow this outline:

I. Review the different agency alternatives available in the marketplace.
II. Review the Pros/Cons of each alternative.
III. Select which alternative or combination of alternatives is best for your company based on past practices and future goals.
IV. Draft a company policy that explains all available alternatives, outlines which alternative(s) your office will follow, and details the procedures that a salesperson must take and the documentation necessary in this alternative(s). You may also want to include a brief explanation as to the reasons why you selected this alternative(s) in order to encourage support for your position.

Now let’s look at the suggested outline in more detail.

I) Review the different alternatives available in the marketplace.

Currently, the majority of real estate firms appear to be practicing one of the following types of agency relationships:

• Seller agency exclusively
• Buyer agency exclusively
• Seller agency and buyer agency, with disclosed dual agency for in-house sales
• Single agency

a) Seller agency exclusively: This is the practice of only representing sellers in all transactions and never the buyer. Agents within the company that sell the listings will be acting as subagents to the seller.
b) Buyer agency exclusively: This is the practice of only representing the buyer in a transaction and never the seller. The company that practices this alternative never takes a listing from a seller and thus, never has a seller as a client. In addition, the agents within this company never accept subagency that is offered through the Multiple Listing Service.
c) Seller agency and buyer agency, with disclosed dual agency for in-house sales: Here, the company will represent sellers as clients and buyers as clients with the understanding that for in-house sales, the practice will be that of a disclosed dual agency relationship.
d) Single agency: This is the practice where a company will represent either the buyer or the seller, but never both in the same transaction. In this situation, there is no opportunity for a disclosed dual agency relationship.

II) Review the Pros/Cons of each alternative.

a) Seller Agency Exclusively
Advantages:
• Traditional practice thus comfortable and more familiar to most agents
• Historical method of compensation in cooperating sales
• Accommodates the sale of a company’s own listings (in-house sale)
Disadvantages:
• Increasing desire of consumers for buyer representation
• Liability for the actions of the subagent flows to the seller and seller’s agent
• High potential for undisclosed dual agency
• When a seller’s subagent works with a buyer, it results in an “unnatural” working relationship

b) Buyer Agency Exclusively
Advantages:
• Eliminates the liability to the seller and listing agent for the actions of a sub-agent
• Minimizes the possibility for a dual agency conflict
• Promotes a more natural relationship for agents working with buyers
• Buyers have representation
• When brokers use an exclusive buyer’s contract, insures loyalty of the buyer
Disadvantages:
• Focusing on one side of the transaction results in a limited client base
• Resistance within the industry to new practices
• Introduces compensation issues (1) as to whether seller or buyer pays buyer agent’s fees and (2) whether listing agent will share his compensation
• Lack of available training and education
• Potential conflict when two clients provide two offers on the same property at the same time
• Broker has increased liability to buyer resulting from breach of fiduciary duties
• If compensation is based on a percentage of the sales price, potential for a conflict of interest exists

c) Seller Agency and Buyer Agency with Disclosed Dual Agency for In-House Sales
Advantages:
• Substantially reduces the possibility of undisclosed dual agency problems
• More natural for agents and less disruptive to current practice
Disadvantages:
• Under dual agency situations, neither buyer nor seller have full range of agency representation
• Lack of available training and education
• Disclosed dual agency is not well understood
• Potential inability to sell in-house listing to a buyer who wants representation but refuses to allow dual agency

d) Single Agency, Whether Listing or Seller
Advantages:
• Brokers can offer both seller and buyer agency
• Allows full representation of client
Disadvantages:
• Buyer cannot have agent representation if buying a company listing
• Potential for undisclosed dual agency
• Economic implications if company adopts policy not to show company listings to buyer clients

III) Select which alternative is best for your company.

You may have already structured your office so that it predominantly practices one of the types of agency relationships above. If so, your next step would be to determine whether or not this type of practice will help you achieve your future goals. For example, if a main goal of your office for next year is to increase listings and your office only represents one or two buyers a year, structuring your office as exclusive seller agency office will minimally affect your bottom line and focus your salespeople on achieving your goals.

On the other hand, your office may have no set structure or policy on its relationships with consumers. It may help to take a look at your company’s past performance to see if one type of agency relationship dominates your practice. First, ascertain the main source of the company’s revenue. For example, if most of your revenue is from listings, your practice appears to be leaning toward practicing seller agency exclusively. However, if few of your sales commissions are from in-house sales, then the company may be practicing single agency or buyers agency exclusively.
Secondly, consider the type of training that your agents have taken. If they have had no exposure to buyer agency training, few may be practicing this type of representation.

Don’t stop at that question, though, because your decision will affect their future. Ask them with which types of agency relationships they are familiar, what are they most comfortable practicing, what are their goals for the future of the company and for themselves individually, and to how much training have they been exposed. The answer to these questions along with the clues you’ve gathered from your investigation of revenue and training will be of extreme value as you determine which type of agency relationships your office will practice in the future.

IV) Draft the company policy.

Once you have made your decision, it is time to put it into writing. First, state the overall policy you have selected for your office. This can be as simple as the following:
“The ABC Company will represent sellers in the sale of their homes and buyers in the purchase of a home. The ABC Company will also practice disclosed dual agency in the sale of an in-house listing. This type of relationship will only exist after making full disclosure to, and obtaining the informed consent of, all parties to the transaction.”

Next, the policy should detail what is involved in putting your policy into practice. For example, if you adopted the above policy of disclosed dual agency, you will need to explain what seller agency and buyer agency is all about as well as the definition of disclosed dual agency. The policy will also have to detail how the agent treats the seller(s) and buyer(s) in all scenarios, i.e., what disclosures are necessary, when are disclosures to be made, etc. This is where you need to be as detailed as possible as to the procedures an agent is to take. Include any standard disclosure forms in the written policy that you want the agents to use. In addition, specify the training that is expected of each agent before they practice each type of agency relationship selected.

There will always be cases that create exceptions to the rule. For example, how does the broker who has opted for seller representation only handle transactions in which the buyer is a close friend or relative? Your policy should detail how exceptions to the policy will be handled. It may be that you will allow no exceptions to the rules or you may set up a procedure whereby agents take their unique situations to you to discuss an alternative procedure. If you receive enough exceptions, it may be time to change the policy.

The next step is to have an attorney review the written policy manual. Most states have adopted laws or regulations on agency disclosure and your policy must conform to these laws. In addition, in enforcing your policy you must not go to an extreme whereby it jeopardizes the independent contractor status of any of your agents. Attorney review is a safeguard that should be used before the policy is distributed to your agents.

Once you have put the actual policies into writing, you will need to bring your current practices into line with the new policies. This may take some time, especially if you are focusing your office in an entirely new direction. You will also need to conduct agency training for all your salespeople to make certain that everyone in your office is aware of the new policies. Periodic review of the office policies is also important to make certain they are consistent with current practice and goals. Your firm’s focus may change over time, mandating revisions to the policies. Finally, and most importantly, it is your job to make certain that your agents act at all times consistently with the agency status selected. Your policy is only as effective as your agents make it. Liability is most effectively reduced if the policies and actions go hand in hand.

CONCLUSION
There is evidence that few real estate brokers have established a written office policy on agency. If they do exist, most office guidelines focus on the traditional listing agent/subagent relationship. Each brokerage firm should review all forms of agency relationships and make a conscious decision on which agency relationship best reflects the way it chooses to do business. Moreover, this decision needs to be reduced to writing in an office policy that provides clear direction to the broker and sales associates as to their duties and obligations in the selected agency structure.

Back to: Office Policies and Procedures – Sensei > Section 1: OFFICE POLICIES AND PROCEDURES