Agency ~ Who Does The Realtor Really Work For?

Realtors, also called agents, work on commission; they work for the money. While there are variations in different states, usually there are 3 common types of Agency.

Seller Agency: You see a property advertised and call the listing agent to see the house. The realtor is helpful and friendly. You think you’re getting all the information you need to make an informed decision about purchasing the property. What isn’t commonly known is that the realtor represents the person selling the property. The realtor’s loyalty will always be to the Seller. You are standing in the rain without an umbrella.

Dual Agency: You see the perfect property advertised and call the listing agent or another agent working for the same company. Some at the company slides an innocent looking piece of paper under your nose and candidly explains ‘dual agency’ to you. In plain English that paper means that the real estate company is representing both the buyer (you) and the Seller. Confidential information, which might be to your benefit, will not be revealed to you unless the Sellers give their permission. You are still standing in the rain and your umbrella has holes in it.

Buyer Agency: You see the perfect property advertised. You do the smart thing and research a different real estate company to find the best realtor to represent your interests. You call your chosen realtor and make an appointment to interview the realtor. Only after you are confident that this realtor will represent your best interests should you sign on the dotted line. The first time you put your signature on a piece of paper it should be an “Exclusive Buyer Agency” agreement. It should state that the realtor is working exclusively for you. Remember realtors work on commission. Unless you buy a property, the realtor does not get a check. You are standing in sunshine and you’ve got a BIG umbrella just in case it rains.

Advantages of Buyer Agency

You have an agent who has only your best interests at heart because they won’t get a commission check unless you buy a property. You can rest assured that your agent will work very hard to help only you.

Information

Your agent can reveal to you more information about the Seller than you would receive under Seller or Dual Agency.

Your agent might be able to dig up is some very beneficial information such as:

• The lowest price the Seller will accept on the property.

• What the Seller is willing to do to sell the property; the Seller might foot the cost of new carpet or replacing the roof.

• Pertinent information about the Seller’s reason for selling the property or if the Seller is in a financial bind.

CMA (Comparable Market Analysis)

Don’t you hate it when you buy stereo and find out another store sells the same stereo for significantly less? A smart shopper will call around and find the best deal on stereos before plunking down their hard-earned money. Purchasing real estate is a much bigger investment than a stereo. As you are smart enough to have an exclusive buyer's agent, you have access to a CMA.

Your agent should develop a Comparable Market Analysis (CMA) for you. You want to determine the market value the property you are interested in before you make an offer. A CMA report shows the selling price of similar properties in the same general area. The CMA will be invaluable in helping you decide the price you will offer should you decide to make an offer.

BEFORE Making an Offer

Get Pre-approved for a Mortgage

Your realtor can steer you in the right direction to get pre-approved before making an offer. Knowing what your financial boundaries are is fundamental. A pre-approved mortgage commitment has many advantages to you and your realtor such as:

• Your agent won’t waste time looking for properties that you have no hope of purchasing.

• Any seller will give serious consideration to your offer because they know you are sincere.

• Your bargaining position is stronger. A Seller might take your offer, even if it’s a couple of thousand less, because they know you have the financial backing to close the deal.

Get the Property Condition Disclosure

Sellers usually fill out a Property Condition Disclosure that lists all the non-real property included in the sale and very important information about the condition of the property. All you have to do to get this report is ask.

A few examples of what the Property Condition Disclosure spells out are:

• The overall condition of the property.

• What appliances are included and if they are in working condition.

• The personal property included in the sale, such as curtains or lawn ornaments.

• The condition of the water and sewer system, including the source of household water.

• The condition of the roof, walls, floors, and foundation.

• The condition of the heating and/or cooling systems.

Get a Mold Disclosure & a Lead-Based Paint Disclosure

Mold in a home can make you and your family sick, prevent you from getting insurance on your home and cost tons of money and time to get it out of your home.

If the home was built prior to 1978, it may have lead paint. This could be a problem if you have young children or if you are going to do extensive remodeling.

Earnest Money

When making an offer, you will be required to put down earnest money. Usually Earnest Money is around $500 to $1,500. It can be up to 5% of the purchase price in some instances. Earnest Money is held in a Trust Account until both Seller and Buyer are in agreement and close (you actually purchase) the property.

Protect Yourself When Making an Offer

Price

You should discuss with your agent what price you’re willing to offer to the Seller. Keep in mind that the realtor’s commission check is based on the selling price; lower price, lower commission check.

There is no rule of thumb for that first offer price; however, there is always some wiggle room. This is where the CMA comes in handy. Look at what the homes were listed for and what they actually sold for. If the homes were listed at 5% above what they sold for, then you know to offer around 5% less than the listed price.

It is ultimately up to YOU to figure out what you are willing to pay for this property. Don’t let anyone, including your agent, know the highest price you’re willing to pay for the property. You’ll be taking a chance but you can usually raise the stakes later.

Contingencies – A Buyer’s Best Friend

Contingencies are conditions (your safety blanket) written into the offer to prevent you from being obligated into buying a house that would be a financial disaster or one that is structurally defective. Contingencies also insure that you will get your Earnest Money returned to you in the event things fall apart. Keep in mind that too many contingencies are likely to make the Seller bolt, so choose your contingencies carefully. Some examples of contingencies are:

Financing Contingency – the purchase is subject to you being able to obtain a satisfactory mortgage. You can even state maximum interest rates you’re willing to pay, and/or other specific terms.

Home Inspection Contingency – the purchase is subject to an acceptable whole house inspection report. This one is a must; it’s your protection that you’re not buying a train wreck. Count on hiring a professional to conduct the inspection, the extra money is well spent and could save thousands down the road.

Included Property Contingency – State exactly what non-real property you expecting to be included in the sale. Don’t assume that really nice swing-set is included. You should have the Property Condition Disclosure, but you might want to add something not covered in the Property Condition Disclosure.

Other Terms and/or Conditions Contingency – If you want the Seller to replace the roof (or reduce the sale price to cover a new roof) this is where you state clearly what has to be done before you will buy the property. You can be specific as to what work needs to be done and even set a time limit on completion.

Remember you're in a better position to negotiate price and get your offer accepted if you don't have a lot of contingencies so use common sense when protecting yourself and your Earnest Money.

Offer Made, Counter Offer Returned

You have gone over the details and made your first offer. You might get your offer accepted or you might get back a Counter Offer. Don’t take the Counter Offer personally; the Seller isn’t insulting you. The bad news is that the Sellers are saying that the first offer was unacceptable. The good news is that they might be willing to sell to you with just a few changes. Your next step is to decide if you want to accept, reject, or counter the Counter Offer.

Accepting the Counter Offer

You agree to all changes made by the Seller and have just made a binding contract to buy the property. Keep in mind that the Counter Offer replaces the original terms of your offer.

Rejecting the Counter Offer

If you don’t want to accept the offer, you can walk away from the deal and tell your agent you want to sign a “Notice to Terminate Contract and Release of Earnest Money.” You’ll get your Earnest Money back and start over at square one.

Counter Back with Your Own Counter Offer

The smartest option may be to counter back with an offer that meets the Seller somewhere in the middle. Maybe they want a higher price or a shorter time to closing. Spell out what conditions are acceptable to you. You’ve already spent quite a bit of time and effort on this deal, why not see if you can you can come to a meeting of the mind with the Seller.

Sometimes Counter Offers can fly back and forth several times before an acceptable compromise is reached. Once the Seller and the Buyer agree to the terms then the deal is essentially done. It is rare for things to get sideways at this point and usually all that’s left is for the closing documents to be signed and the keys handed over to you.