6 Things Every Home Buyer & Seller Should Know About Real Estate Agents
Understanding the relationship between you and real estate agents can be confusing. Here are 6 things every home buyer or seller should know before working with a real estate agent.
1) What are the types of Agency?
- Listing Agreements in which the Real Estate Agent represents the Seller.
- Buyer Agency in which the Real Estate Agent represents the Buyer.
- Dual Agency in which one Real Estate Agent represents both the Buyer and the Seller in a transaction.
2) What Is A Listing Agreement, and What Are Some Types of Listing Agreements?
A Listing Agreement is an agreement between a Broker and a Client.
Types Of Listing Agreements Include:
a) Exclusive Right To Sell Listing
- The Broker has the exclusive right to market the property for the Seller and is paid the agreed-upon fee no matter who sells the property.
- If the Owner sells the property with no help from the Broker, the fee must still be paid to the Broker.
b) Exclusive Agency Listing
- The Broker is hired to act as the exclusive agent representing the owner and marketing the property for sale.
- The owner will not have to pay the Broker a fee if the owner sells the property without the Broker’s assistance.
c) Open Listing (Nonexclusive/General Listing)
- The property owner is not represented by any one Broker exclusively.
- The property owner may use as many Brokers as necessary to sell the property.
- No Broker will receive a fee if the owner sells the property without the assistance of any Broker.
3) What is the Multiple Listing Service (MLS)?
- The Multiple Listing Service is a marketing service that allows Brokers to share information about listings.
- Other Brokers may find a Buyer for a listed property, but the owner who has an agreement with the principal (the Seller) will earn a commission on the sale.
- Other Brokers who facilitate a sale may or may not receive part of the commission depending upon their agreement with the Buyer.
4) What Is the Agent’s Responsibility To The Principal (Client)?
- The Agent has a Fiduciary Duty to the Principal (Client), which may be a Buyer or a Seller. The Agent is the Fiduciary (Faithful Servant) of the Principal.
- The Agent must represent the best interests of the Principal above all others, including the Agent’s own interests.
- Brokers may be entrusted with funds such as the “earnest money” or “binder” that will be credited to the Buyer toward the down payment and eventually be transferred to the Seller. Other Buyer/Seller funds may also be held by the Broker.
- The safekeeping of Client and Customer funds is part of their Fiduciary Duty of the Broker and all monies must be kept in a bank account separate from the Broker’s business or personal accounts to avoid commingling of funds, which is illegal, as is conversion, using Client or Customer funds to pay business or personal expenses.
5) What Are Fiduciary Duties?
A Real Estate Agent is bound by Fiduciary Duty to the Client, who may be the Buyer or the Seller.
The Primary Fiduciary Duties Are:
a) Care – Requires Agent To Use Their Best Effort and Skill To Help Their Client.
- Suggesting that the Buyer Client hire a reputable Home Inspector.
- Informing a Buyer Client about prices of other properties.
- Helping a Seller Client determine the Property’s fair asking price.
- Making every reasonable effort to market a Seller Client’s property.
b) Confidentiality (Provision of Fiduciary Duty)
- Requires Agent to protect Client’s interest by keeping confidential all information that might harm the Client and personal information the Client wishes to keep private.
- Even if the Agent believes that certain confidential information will not harm the Client’s interest if revealed, the information still must be kept confidential.
Examples of CONFIDENTIALITY:
- A Seller Client has a strong desire to sell their property to generate money needed for some other purpose.
c) Disclosure (Provision of Fiduciary Duty)
- A Buyer Client has the ability to pay more for a home than is offered, or needs to buy a house soon so their kids can be settled in for the school year.
- Requires Agent to reveal all known facts that might benefit the Client.
- Even information not requested by the Client, but known to the Agent, must be revealed to the Client if it might benefit them.
Examples of DISCLOSURE:
- A Buyer Customer tells the Buyer Agent that he may have difficulty getting a mortgage and asks the Agent to keep the information private. The Agent must reveal this to the Seller Client.
d) Loyalty (Provision of Fiduciary Duty)
- Requires Agent to put Client’s interest above all others, including the Agent’s own interest.
Examples of LOYALTY:
- An Agent knows a Seller will take $400,000 for a property and the Agent’s Buyer Client wants to offer $410,000 to make a lower offer. Fiduciary Duty requires the Agent to tell the Client.
E) Obedience (Provision of Fiduciary Duty)
- Requires the Agent to follow Client’s instructions as long as they are legal and ethical.
6) What Are the Agent’s Duties To the Customer?
While this article deals primarily with the Agent’s duties to their Client, the Agent also has duties to the Customer who wants to either buy or sell the property of the Agent’s Client.
Agent’s Obligations to Customer:
- Honest and Fair Dealing – Agents must be honest with Customers, treat them fairly and properly account for all funds entrusted to the Agent.
- Reasonable Care – The professional expertise and skills of the Agent must be utilized to assist the Customer to the extent that their Client’s interests are not compromised.
- Disclosure of Material Facts – Important facts that may affect a Buyer’s decision about a house must be told to the Buyer, including structural problems, environmental hazards, leaks, mold, etc.