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Wednesday, April 13, 2016

Whose Side Is Your ‘Agent’ On? Here’s What You Need to Know About Agency Laws

The word “agent” is often misunderstood by buyers, sellers and even by real estate professionals. In some contexts it is used as a synonym for “real estate licensee” — a person who is licensed by the state to practice real estate brokerage.

In real estate law, however, the word has a more specific meaning. Under most state laws, including in Colorado, an “agent” is a licensee who has a signed an agency agreement with a “client.”  Without that signed agreement, a licensee can only be a “transaction broker.”

So what is the difference between an agent and a transaction broker?  It’s the difference between fighting for your best interest with “utmost faith, loyalty and fidelity” and being a mere facilitator, not giving you any advice but merely completing forms and presenting offers.
Unless you are fully conversant in real estate law and practice, you want someone on your side in a real estate transaction — an “agent.”
Some buyers think they can get a better deal on a house if they go straight to the listing agent instead of having a “buyer’s agent.”  Is that really a good idea?  Maybe yes, maybe no.
There are two ways the seller's agent can serve you when you don’t have an agent of your own.  The office policy manual at Golden Real Estate says that you should be treated as a “customer” if you want to make an offer on one of our listings unrepresented by an agent of your own.
Most real estate brokerages, it seems, do not have such a policy.  If you go to one of their broker associates about one of their listings, they are likely to sign you up as a client so they become your agent.  But since an agent’s loyalty to the seller conflicts with his loyalty to you as a buyer, that broker associate has both you and his seller sign a document indicating that he is now a “transaction broker” instead of an agent.  In that role, he can’t advise you what to offer, and he can’t advise the seller how to respond.  And he can’t share confidential information about either of you to the other party which might affect the negotiation.
For example, a listing agent might know that the seller needs to sell quickly and would accept less than the asking price.  A buyer’s agent might know that if his client doesn’t get a home soon they’ll be homeless or have to live in a motel. You can see how such knowledge could weaken a party’s bargaining position.
The listing agent’s desire to capture an interested buyer as a client by signing an agency contract goes beyond earning twice the commission on a transaction.  If you don’t get that house, he’s still your agent for finding and purchasing a different house. 
Our policy of treating a buyer as a customer when there’s no bona fide pre-existing agency relationship can and sometimes does result in not earning that double commission and in not capturing that buyer as a client for another purchase if he loses the bidding on that particular listing. 
We have this policy for two reasons. First, it’s the right and legal thing to do.  Second, real estate law still requires us to be fair and honest in working with a “customer,” which includes full disclosure of material facts about the house and not taking unfair advantage of the buyer.
When we tell an unrepresented buyer that our loyalty remains with the seller in any negotiation, it sometimes drives the buyer to seek his own agent.  We accept that decision, although we do explain that we would treat them fairly and if they are comfortable with being “just a customer” in the transaction, we will reward them with totally free metro area moving from their current home to the home they buy with us — free truck, free labor, free gas, free boxes, etc.  Most other brokerages can't offer that perk because they don't own a truck.
Since we discount our listing commission when we don’t have to split the commission with a buyer’s agent, we also explain to the buyer that their full-price offer is worth 1% more than a full-price offer from a buyer with their own agent.  This, too, can make it attractive not to seek out their own agent in the transaction.

Published April 14, 2016, in the YourHub section of the Denver Post and in four Jefferson County weekly newspapers.


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