This article is part 2 of 3 on working with a Realtor or real estate agent. You can find part one here:
Real Estate Designations and Training
Anyone worth their salt in any profession continues to update their knowledge about the work they do. Doctors, lawyers and mechanics face an ever-changing world when it comes to their professions and must take classes to continue to be of service to their customers. The same is true of Realtors®.
State laws require continuing education, but the requirements are usually minimal: three or four one-day classes every two or three years. Good Realtors® find the time to take much more training than that. There are a number of designations denoting certain continuing education landmarks, which are often signified on business cards as acronyms following the name. While some may be in areas not related to residential sales, all show a commitment on behalf of the Realtor® to keep their professional skills honed, and that’s good. Do not work with someone who demonstrates no interest in continuing education. Look for some of the following designations on your prospective agent’s business card:
ABR—Accredited Buyer Representative—requires additional training in agency issues and a thorough understanding of what it takes to represent buyers. While your Realtor® does not need this designation to represent buyers, it denotes their commitment to doing so. Graduates are members of the Real Estate Buyer Agency Council (REBAC) and receive continuing information to keep them informed of new buyer agency issues.
ALC—Accredited Land Counselor—similar to a CRS, this usually requires several years and several thousand dollars to achieve. It’s the “graduate degree” of land sales.
ASP—Accredited Staging Professional—this designates an expert ability to prepare or “stage” a home for sale in order to meet the growing needs and expectations of today’s real estate market. (Not a NAR designation – but great info. )
CCIM—Certified Commercial Investment Member— this designates an expert in commercial property sales, like shopping centers and industrial, office and apartment buildings. It requires extensive continuing education and graduates are members of the Commercial Sales Council.
CIPS— Certified International Property Specialist — the Realtor or licensee who completes this designation coursework has taken at least 5 solid days of coursework on the international real estate market and passed an exam. This indicates an agent’s intense committment to working with international home buyers and sellers.
CRS—Certified Residential Specialist—requires completion of numerous twoto three-day classes held around the country. It takes the average Realtor® a few years to complete and usually costs $5,000 to $10,000 in tuition and travel costs. It provides significantly increased and detailed knowledge in residential issues and is the “graduate degree” of residential sales. Graduates are members of the Residential Sales Council (RSC) and receive continuing information in a variety of ways to keep them abreast of new issues in the area.
e-PRO—Certified Internet Real Estate Professional— this is the only certification program of its kind recognized nationwide and endorsed by the National Association of REALTORS®. Those searching for a Realtor® can have confidence that e-PRO graduates are savvy with all aspects of the Internet. They not only take Internet-empowered consumers seriously, they are also able to meet their online needs.
GRI—Graduate, REALTOR® Institute—represents approximately 90 hours of advanced education beyond the training that is required to be licensed. It is usually the first step to becoming more informed and professional.
SRES—Senior Real Estate Specialist—this designates experts in the field of housing for senior citizens. Members have received special training, regular up-dates and are prepared to offer the options and information needed in making life changing decisions due to the unique lifestyle housing issues and needs of our maturing population. Members can offer senior citizens “senior discounts” when buying or selling among other services.
There are many other designations. If you see one you are not familiar with, ask about it. Most professionals are proud of their designations and happy to talk about them. You can see a list of the many I have (10 as of June 2015) here: http://popehandy.com/about/
We just cannot end this section without a discussion about attitude and disposition. We have mentioned that a good, winning attitude makes up for a lot, and it’s true. We’d much rather work with a newly licensed agent who really wants to help than some old curmudgeon who has been in the profession for years, thinks they have all the answers and won’t listen to anything new. There are a lot of worn-out real estate agents who have “seen it all” still occupying desk space in offices across the country.
Your initial interview with a prospective agent will tell you a lot about their approach to life. Work with an optimist, not a pessimist. Listen to their answers to your questions. Are they saying, “Your house is going to be hard to sell,” or “It might be difficult to find the right buyer, but I know that the right exposure can get your house sold.”
It isn’t brain surgery to figure this out; look for a good, positive attitude as part of your evaluation process.
So that you can understand how representation works, it is important to discuss the concept of agency. It’s easy to bandy about words like seller’s agency and real estate agency, but the fact of the matter is that agency is a legal term. Its use confers a legal obligation and some legal liability.
Let’s say, for example, your parents are going to be away on vacation for an extended period of time. While they are gone, they want someone to deposit their checks, pay their bills and carry on business for them as usual. What they want, in fact, is someone to keep their best interests in mind and to act accordingly. They ask you to represent them, to handle the paperwork in their absence. In order for you to legally perform those functions on their behalf, they would have to sign a document giving you power to act for them in those matters. This document is called a power of attorney, and it makes you their legal representative. The person giving the power is known as the principal, while the individual who has been given the power is known as the agent.
If you were to call your parents’ banker in their absence and ask to transfer money from one account to another, the banker would refuse—unless you can prove you are the agent of your parents. In order to do that, you would have to provide their banker with a copy of the power of attorney.
It is also important to understand that a person empowered to be an agent may be in a better position to handle the principal’s business than is the principal. The agent is either physically in a better location to handle business for the principal, or is more knowledgeable about the matters to be handled than the principal.
An important aspect of agency to be familiar with is vicarious liability. Most people understand that a liability is a risk; it’s an exposure. You take on the possibility of a liability when you hire or authorize a person to take actions on your behalf. You are still liable (pursuant to a specific power of attorney for the transaction at hand) for that individual’s actions. Your child could damage the property of another, and you might be held responsible for reparations. That is vicarious liability. It is extending your risk through reliance on, or responsibility for, others.
In real estate transactions, every time you engage a real estate agent to represent you, you take on some vicarious liability if they act negligibly or unethically on your behalf within the scope of their authority. You rely on your agent to analyze a situation, make and give expert advice and make recommendations on your behalf that are in your best interest. You have also engaged that agent because you believe their knowledge in this area is greater than yours.
When you engage a Realtor® to represent you, it will behoove you to ensure your agent is experienced, knowledgeable, professional and willing and able to work for you. California state law requires real estate licensees who are acting as agents of sellers or buyers of property to advise the potential sellers or buyers with whom they work of the nature of their agency relationship, and the rights and obligations it creates.
When you list your home for sale, you employ a seller’s agent to represent you in the transaction. A seller’s agent has, without limitation, the following fiduciary duties to the seller: the utmost care, integrity, honesty, and loyalty in dealings with the client.
The obligations of a seller’s agent are also subject to an y sp eci fi c p ro vi si on s s et fo rt h i n an ag re eme nt between the agent and the seller. In dealings with the buyer, a seller’s agent should (a) diligently exercise reasonable skill and care in performance of the agent’s duties; (b) deal honestly, fairly and in good faith; and (c) disclose all facts known to the agent materially affecting the value or desirability of the property, except as otherwise provided by law.
If you are buying a home, you can work with an agent as a buyer’s agent. A buyer agency relationship exists when the agent represents the buyer exclusively in the real estate transaction. The agent works on behalf of, and in the best interest of, the buyer. Although the seller still pays the agent representing the buyer, that agent does, in fact, represent the buyer and not the seller.
If you are a buyer and choose to work with a buyer’s agent, you may be asked to sign a buyer agency agreement that must outline the duties to both parties, the duration of contract, any fees (what fees will be earned, who pays and when) and any other duties required by the parties.
A buyer’s agent has, without limitation, the following fiduciary duties to the buyer: the utmost care, integrity, honesty, and loyalty in dealings with the client. The obligations of a buyer’s agent are also subject to any specific provisions set forth in an agreement between the agent and the buyer.
In dealing with the seller, a buyer’s agent should (a) exercise reasonable skill and care in performance of the agent’s duties; (b) deal honestly, fairly and in good faith; and (c) disclose all the facts known to the agent materially affecting the buyer’s ability and/or willingness to perform a contract to acquire a seller’s property that are not inconsistent with the agent’s fiduciary duties to the buyer.
While buyer’s agency seems clear cut, and usually is, problems can sometimes arise. That’s why we use forms, exercise disclosure, and put things in writing. For example, in Silicon Valley, an issue arose that involved the same agency representing multiple buyers who made offers on the same property. There was a case where a buyer became very angry that the same brokerage represented four out of 20 potential buyers for a property on which he was bidding, and filed a lawsuit. Of course, with multiple offers, we never know who has the other offer, but most buyers don’t understand this. So, now, in order to make everything clear for our clients, we use a form.
This is not a new term, but its use poses a hurdle many feel is impossible to overcome. Dual agency exists whenever the same real estate firm represents both the buyer and seller. It requires the broker to simultaneously be an agent and advocate for both the buyer and seller in the same transaction. Obviously, this can create conflicting allegiances. When an agent with one realty company represents a seller and an agent in another company represents a buyer, there’s little conflict. When you sign a contract with a Realtor®, you are actually retaining the agent’s entire company to represent you in your purchase or sale.
In theory, a dual agent owes both the buyer and seller the same fiduciary duties as if the agent represented each alone. These duties include loyalty, disclosure, confidentiality, reasonable care and diligence. By consenting to dual agency, the conflicting duties to buyer and seller are reconciled and instead the dual agent is required to act with fairness to each party. In addition, most of the other fiduciary obligations are affected because of the contrasting motivations of buyer and seller, who have agreed that the consensual dual agency will not favor the interests of one over those of another.
In a dual agency relationship, your agent cannot give undivided loyalty to either side. The agent must simply present the facts and information within their knowledge and insist the buyer and seller make their own decisions, without pressure from an agent.
There Can Be Advantages to Dual Agency
As much as we feel dual agency is harmful to consumers, it does have some advantages. If you are dealing with only one firm, and especially if there is only one individual agent involved, your lines of communication are shorter. For example, if you ask your agent a question that requires input from the other party, you are likely to get a faster answer, as there is one less firm in the chain of communication.
To protect yourself, discuss the firm’s agency policy in your initial contact with them, and ask them to explain how and if they deal with dual agency. Of course, the agent you choose will also have to be experienced and competent in the rest of the skills needed to serve you, which we will address in other areas of this book.
Some states have embraced an alternative to dual agency: non-agency. In a non-agency relationship, the firm has no fiduciary responsibilities to either party. This arrangement is unattractive to consumers for the obvious reason: There are very few circumstances in which you would hire a firm that has no responsibility to you, and possibly no liability if they damage you. We recommend you strongly consider your options as non-agency affords you the least amount of representation.
In California we have something called non-exclusive agency. In non-exclusive agency, an agent basically just takes the seller’s listing, puts it in the MLS and waits for a buyer. The agent will not spend time marketing the home or giving the seller advice. This type of relationship is often used in the flat-fee, or fee-for service brokerages.
In the past, it was up to the seller to inquire about the types of relationships they could have with a broker and what each meant. Most states recognized that this was impractical. How could an unsophisticated consumer be knowledgeable in real estate agency when even most brokers were not? A majority of states eventually shifted the obligation of disclosure to the broker. Presently, the law requires an agent to inform their seller or buyer about the different agency relationships upon the first substantive contact.
You must be an educated consumer. When interviewing potential Realtors® to represent you as either a seller’s or buyer’s agent, if that Realtor® fails to discuss the various choices set forth above, you may wish to reconsider your decision to employ that individual. The agent may be unaware of the law, or is intentionally not informing you of your choices. In either case, they may be doing you a disservice.
Types of Listing Agreements
If you are seeking an agent to help you in the process of selling your home, there are several routes that you can take depending upon the kind of service that you want. Whether you just need minimal services or want exclusive representation by a real estate agent to sell your home, you will most likely sign some kind of listing agreement. Face it, real estate agents have access to buyers and can sell your home much more quickly by pooling all their resources than you can with just a “For Sale” sign on your front lawn. Below are some of your options when signing a listing agreement, ranging from the exclusive right to sell to a one-time show.
Exclusive Right to Sell
If you are looking for the best representation and the widest market through which to sell (remember, the more potential buyers who see your home, the more competitive your price can get), an exclusive right to sell agreement with an agent you trust is the best option you have. With this kind of agreement, you work with one listing agent who will market your home through every channel. They will place your home in the Multiple Listing Service (MLS), market your home to the public and to other agents representing buyers, and possibly hold open houses to find potential buyers.
With this kind of listing agreement, you will get the full array of services from your Realtor® , while your Realtor® is guaranteed a commission when your home sells regardless of who brings in the buyer. However, this does not mean that your agent will be the only agent involved in the transaction. While an agent can certainly bring in one of their own buyers, an agent’s most powerful marketing tool is networking with a whole array of agents who are representing clients interested in buying your home. This kind of arrangement can get your house the most exposure and hopefully the most competitive price, and you’ll end up with the best deal.
An exclusive right to sell agreement is the most common type of listing because of the services it provides and because the agent is guaranteed a commission when your house sells. Therefore, the agent will be appropriately compensated for the amount of time, money and expertise that goes into the sale of your home.
If you are selling your house on your own but are still willing to work with an agent to bring in a buyer, an open listing is what is most commonly used. In an open listing, a real estate agent representing a buyer has the ability to show your home to their client if it suits the client’s needs. If their client buys the home, the agent earns a commission.
There is nothing exclusive about this type of agreement and a seller can offer such listings to any agent who is interested. The only reason that an agent would show your home is because they have a particular buyer in mind who’s criteria is a convenient match for your home. Therefore, in an open listing, no agent will bother to market your home or place it in the MLS because they will only earn a commission through a buyer that they bring in.
A one-time show listing is similar to an open listing. With a one-time show listing, the seller is not represented by an agent but allows an agent to bring in one of their buyers and receive a commission. If you are selling your home on your own, and an agent brings in one of their clients, they might ask you to sign a one-time show listing. In this case, the agent bringing in the buyer is guaranteed a commission should their buyer purchase your home.
Like an open listing, your home won’t be marketed or placed on the MLS. You will simply have to wait until an agent has a buyer who is interested in your home.
Exclusive Agency Listing
An exclusive agency listing is similar to an exclusive right to sell except the agent listing your home is not guaranteed a commission. For this reason, there are very few agents who will sign this type of listing agreement and, in the end, both you and your agent can end up losing. In an exclusive agency listing, an agent is allowed to list and market your home and will get a commission if they sell your home through any real estate agent or company. However, the seller is also able to find their own buyer, and if they do, the agent does not get any commission despite the fact that they put work into marketing your home. For this reason, many agents who sign an exclusive agency listing will not market your home because they are not guaranteed a commission for time and money spent. Most likely, an agent will just place your home in the MLS and see what happens.
Commissions in this country have historically been paid out of the proceeds of the sale, so it has been presumed that the seller actually pays those commissions; however, this is not entirely true. Some professionals believe that because it is the buyer who actually brings the money to the transaction, the buyer pays the commission.
In addition, any party to a transaction may pay any broker’s compensation, without creating or terminating any agency relationship within that transaction. And more importantly, home values in this country are established with real estate commissions factored in, because home sales have been, and almost always are, handled by real estate agents. The cost of that handling becomes part of the ultimate sale price and value of the home. Therefore, it becomes a moot point who pays the commission—it is simply part of the home value, paid out of the proceeds of the sale. Please be aware that listing commission amounts or percentages are negotiable, and the form of commission agreed to may vary as well. There is no “standard” or “normal” commission.
One thing to be aware of is that agents are not allowed to charge you any fee on top of their commission unless it is explicitly stated in the contract. Hopefully you will select a professional Realtor® and therefore avoid these excess charges, but it is always important to know your rights before you enlist any personal representative.
It is increasingly common to see agents charge buyers or sellers a “transaction fee”. This is used, most often, to pay for an in-house escrow coordinator (in essence, an assistant for the agent). Some commission agreements reveal what amount of the commission being charged will be offered to a cooperating broker. You should always know both what this amount is and also how this compares to homes for sale and selling in your neighborhood, as some agents may keep the lion’s share of the commission for themselves and offer a fraction of what you are expecting to a cooperating broker.
The bottom line is that you should not let the dollar amount of a Realtor®’s commission scare you away. It can be negotiable and it can be an invaluable investment. Just as in many complex transactions, expertise costs money, but it is usually well worth the price. You usually get what you pay for, so get the best!
People tend to focus on what is predictable and measurable, like the commission. But a skilled agent can often work the market so much to the client’s favor that they can benefit the client far more than the commission rate earned. Mary has sold homes in seller’s markets where the seller thought she’d just stick a sign in the yard, put it in the MLS and get a good price. Instead, by going the extra mile, Mary got the clients far more than
10 percent over where it “should have sold”. So yes, a minimal approach can sell a home in a crazy market, but going the extra mile can get a better sale price that, in the end, will more than pay for the total commission.
Quote from one of Mary Pope-Handy’s clients:
From the very first instant I began searching for a real estate agent, Mar y Pope-Handy shone through. At first it was the expedient way she got back to me, and every time we communicated, she left no questions unanswered and never left me waiting.
I was selling a home from quite a distance and there were a lot of stressful issues to deal with, as well as legitimate concerns and fears. She was on top of everything before I even had to ask, and I felt a sense of comfort from her from the beginning.
Her professional manner, together with her honesty and hard work, enabled me to get through the selling of my home with minimal amounts of stress, and I feel she guided every step in a manner that gave me confidence that I had chosen the right person.