Ch 5. Buyer Agency
The seller will submit a property condition disclosure report for the buyer to analyze with his or her agent. Questions the client can ask the seller to agree to
- All adverse environmental conditions to be removed - All required building permits have been issues - The property is the same or the required improved condition at the time of closing as the buyer contracted it to be - The property is clear of debris and the plumbing, heating, air conditioning, electrical systems, and appliances are all in good working condition - No personal property items will be substituted for those at the property when it was shown and that were expected to remain with the property by contract
The evaluation of whether to turn the buyer into a client should be made by answering these questions:
- Are they going to buy? - Are they going to stay with me? - Do they have the ability to get a mortgage?
A buyer's agent should clarify the types of services to be offered to the buyer-client:
- Assisting in determining favorable financing - Providing information relating to market values - Giving advice during contract negotiations - Structuring the offer to purchase -Assisting in related services such as insurance
Misconceptions about Buyer Agency
- Buyer agency must be created by written agreement to be lawful - Buyer agency is too complicated for the average buyer or seller to understand - Buyer agency is not recognized by lenders - Buyer agency increases the risk of procuring cause disputes - Buyer agency is illegal - Buyer agency is prohibited by State laws or MLS rules - Buyer agency does not permit the seller to pay the commission or allow the listing broker to split commissions with the buyer's agent
Some of the advantages of exclusive buyer agency are:
- Buyers have greater confidence that they will see all the properties available from every source - Buyer loyalty to the agent increases under an exclusive buyer agency agreement - An exclusive buyer's agent is more likely to be able to charge retainer fees because buyers are confident of the commitment they receive from the broker - It reduces the possibility of the unauthorized representation of more than one party because exclusive buyer's brokers do not take listings - Exclusive buyer agency tends to prevent mistakes in negotiating objectives that often occur when brokers move from one role to another
Some of the disadvantages of exclusive buyer agency are:
- Buyers that want to sell will have to look elsewhere for representation as the exclusive buyer broker will not take listings. - A potential conflict of interest arises if two clients want to make offers on the same property - Because the company has no listings, the possibility of earning commissions from both the listing side and the selling side of the business is not possible
Other items to be negotiated in the contract counteroffer stage of negotiations:
- Earnest money and down payment deposits - Financing and seller financing (if applicable) - Interest rate, commissions, and terms - Homes warranty, termite inspection, repairs, and inspection contingencies - Assessments, appraisal, closing costs, title report - Possession date, hazard insurance, extensions - Person property inventory (what stays and what doesn't)
Buyer paid fees can take many forms including:
- Hourly rate - Percentage fee - Flat rate
How does a salesperson terminate a buyer agency?
- Inform the broker - frill out a Termination of Buyer Tenant Representation Agreement - Send it to the buyer's mailing address with a letter of explanation
Some disadvantages of the sellers paying the commissions are:
- May change some expected tax advantages for the parties - Is relatively untested in the courts in Texas - Could delay closings if there is confusion among lenders concerning the transaction
Some advantages of the sellers paying the commissions are:
- Presents no suggestion of interfering with the listing broker's commission agreement with the seller - Allows no reasonable basis for procuring cause disputes - Clears up questions of who works for whom and who pays whom - Protects the buyer-client from having to pay the broker's commission at closing if the seller refuses to pay but it provides the option to do so should the situation require
Key points to consider in buyer's broker agreements would include:
- Role of the agent - Conflicts of interest - Termination date and reasons for termination - Exclusivity of representation - Compensation
Before entering into a buyer agency agreement the real estate licensee is required to provide the buyer with a written statement describing:
- Seller agency - Buyer agency - Intermediary brokerage
Buyer agreements are generally forms approved by
- The Texas Real Estate Commission - Texas Association of Realtors - The broker's attorney
Additional items that may be included in a purchase contract for the buyer's benefit include:
- The buyer is given credit for any escrow accounts on assumed mortgages - The buyer is granted a right of first refusal to purchase any adjoining property owned by the seller - The seller allows the buyer reasonable access to the property to permit inspections by the buyer such as termite, engineers, home inspections, architects, roofers, plumber - The seller permits the buyer to show the property to prospective tenants - The buyer is permitted occupancy prior to closing - The buyer is given the right to lock in points on a loan - The seller agrees to allow the buyer to substitute collateral on any seller provided financing - The buyer is given the right of first refusal if the seller discounts the sale of any purchase money mortgage that the seller carried back
The buyer's agent should keep in mind:
- The client makes all the decisions - They're not an attorney and to avoid any unauthorized practice of law - Make the offer as fair as possible - Complicated drafting should be left to an attorney
Flat fees are based upon these factors:
- The estimate by the agent of the work and skills involved - The potential fee that will be paid by the seller - The probability of success
A licensee explains the commission when the buyer's representation agreement, in 3 different ways:
- The seller could pay the commission - The buyer could sell the commission - The seller and the buy could both pay the commission
Licensees should evaluate the needs and abilities of the customer and come up with a plan of action:
- Turn the buyer into a client - Keep the buyer as a customer and sell them something - Allow the buyer to work with some other licensee
Assignable contract
A Contract which the rights can be given, or assigned, to some other party.
What does the broker need with each sponsoring agent, or avoid problems that could arise from procuring cause?
A Policy and Procedures manual, and independent contractor agreement
What is an assignable contract?
A contract which the rights can be given, or assigned, to some other party
What should accompany an offer to explain a compensation method which differs from the traditional splitting of the broker's fee?
A cover letter
What must a broker provide to a buyer?
A written statement describing seller agency, buyer agency, and intermediary brokerage
When a licensee decides not to work as an agent with the buyer, they enter into a what?
A written understanding of their working relationship
Most MLS requirements have the listing broker disclose what?
All fee arrangements to other brokers when the property is published by the MLS
What is a retainer fee?
An advanced payment for services
A written acknowledgment of buyer representation is in the form of a what?
An agency disclosure form
What would be the only exception to every real estate office working with a buyer-client?
An independent office that doesn't belong to the local board or MLS and will not cooperate with any other offices
Disputes on who was the procuring cause of the sale is sometimes resolved in
Arbituration
A better drafted agency agreement works to eliminate what?
As many communication pitfalls as possible, before they can happen
When can buyer agency be terminated?
At any time by the broker or the client, or the agreement expires
The National Association of Realtors Code of Ethics and Standards of Practice require that the buyer's agent disclose the relationship to the listing agent when?
At first contact
Buyer's representation agreement: Parties -
At the top of the form is a place to write in all the pertinent information about the client and the broker, including email addresses
Percentage fee
Based on the selling price of the property bought by his or her client
Why do licensees like buyer agency so much?
Because the buyer will be loyal and will stay with the salesperson to purchase a home
Agents know that an exclusive-right-to-sell or exclusive-right-to-buy agreement provides what?
Better control over the transaction
Regarding Texas law and the common law, who is held to a higher standard of skill and care in working with the buyer?
Buyer's agent
How does an agent show a FSBO?
By contacting the seller, obtain a one-time showing listing agreement, and disclose how the commission will be earned
Tenant representation is common in
Commercial real estate
Tenant representation is frequently found where?
Commercial real estate representation
Most problems that arise between client and licensee stem from
Communication issues
When working with the buyer, the licensee should:
Decide, disclose, and obtain the necessary signatures to work for the buyer
What does FSBO mean?
For Sale By Owner
Generally, the buyer's broker's fee is paid from where?
From the sales proceeds at closing
Who is the procuring cause?
Generally the first agent to show the property to a ready, willing, and able buyer
A licensee motivated to show and sell the client all available properties that meet the client's requirements has a commission that is what?
Guaranteed and Protected
When would a salesperson be more likely to receive a commission?
If the buyer was a client instead of a customer
When should clients be brought into the middle of a commission dispute between brokers?
Never
The buyer's agent should mention the potential need for the buyer to consult with whom?
Other expert advisors such as attorney, CPA, etc
A report the seller provides the buyer that discloses information about the property is called what?
Property Disclosure Form
In addition to having greater control, what can an agent do with an agency agreement?
The agent can ask more questions, find out if the buyer is pre-qualified, and has little concern about losing the buyer to a FSBO or another broker
Procuring cause agent
The agent who ultimately caused the buyer to purchase the hoe and earned the comission
What is all representation, including tenant representation, about?
The broker and salespeople putting the needs of the client first
What if the buyer does not want to create an agency with the broker?
The broker or the salesperson needs to decide if they are still willing to show the property to the buyer
Buyer agency exists when
The broker represents the buyer exclusively in the real estate transaction
In a buyer representation with a broker, the buyer can do what with regards to the agreement?
The buyer can tailor the agent services to meet the buyer's needs and adjust the compensation accordingly
Gross price method
The buyer pays the gross purchase price and the seller pays the buyer's broker's commissions. The seller acknowledges and accepts that the buyer's broker solely represents the buyer and not the seller despite the payment of the fee by the seller
Buyer's representation agreement: Competing Clients -
The client acknowledges that the broker may represent other buyers who may be interested in acquiring properties that are of interest to this client
Which method helps reduce the concerns over excess commission expense and double charging, and makes it easier for the seller to understand and respond to a customary sales price?
The gross price method
A buyer's agent is held to the same standard of performance in dealing with the buyer that the listing broker is held to in dealing with whom?
The seller
Contract Acceptance
The seller's acceptance of the offer is effective only if delivered in writing to the buyer or buyer's agent. The buyer can revoke the offer at any time before the seller's acceptance. The acceptance should be dated and timed.
Because of better disclosure rules, regulations, and laws, agents are required to provide better service to whom?
Their clients
What barriers prohibit the seller from paying the buyer's broker fee or authorizing the listing broker to share fees with the buyer's broker?
There are no legal barriers that prohibit the seller from paying the buyer's broker fee
When the buyer is a customer, what is the type of representation?
There is no representation when a buyer is a customer
A buyer-client may consider it to be a conflict of interest when
They find out the broker is also representing the seller for the property the buyer wishes to make an offer on
Buyer's representation agreement: Intermediary -
This is the paragraph where the client indicated intermediary status as either wishing to be shown the broker's listing, or not wanting to be shown or acquire any of the broker's listings
Broker's representation agreement: Default -
This paragraph defines what constitutes default and what the client's responsibility will be in such a case
Broker's representation agreement: Attorney's fees -
This paragraph describes how attorney fees will be paid in the event of legal action
Broker's representation agreement: Mediation -
This provision deals with the parties' agreement to negotiate in good faith to resolve any disputes
Buyer's representation agreement: Definitions -
This provision defines some important terms. It is also the place where the broker will write in the geographical locations where the property search will take place. As we mentioned earlier, this could be just one physical address if that is the only property the client is interested in acquiring
Buyer's representation agreement: Confidential Information -
This provision describes what information a broker cannot disclose
Buyer's representation agreement: Broker's Fees -
This provision is long and discusses all fees the broker may receive for a transaction with this client
Buyer's representation agreement: Appointment -
This provision says that the client gives the broker the exclusive right to act as his or her agent in aquiring property
Buyer's representation agreement: Representation -
This provision says, among other things, that the client can legally enter into an agreement and that he or she is not a party to another representation agreement with another broker
Buyer's representation agreement: Term -
This provision states the actual beginning and ending dates for the agreement
Broker's representation agreement: Additional notices -
This section deals with other important items the buyer must be aware of, including fair housing/discrimination practices and notice that a broker cannot give legal advice
Broker's representation agreement: Limitation of Liability -
This section describes what a broker will NOT be liable for
Buyer's representation agreement: Broker's obligations -
This section detatils what the broker will do for the client
Broker's representation agreement: Addenda -
This section lists various other forms that, if checked, become part of the agreement
Buyer's representation agreement: Client's obligations -
This section outlines the client's obligations to the broker, including letting other brokers and salespeople know of the existence of the agency agreement
Broker's representation agreement: Special provisions -
This space is provided to write in any other items that were not addressed elsewhere in the agreement
A buyer-agency relationship can be created by:
Verbal agreement or by implication and expressed in writing or orally
When working with a buyer's agent, under what circumstance might a buyer-client consider it to be a conflict of interest?
When he or she finds out the broker is also representing the seller for the property the buyer wishes to make an offer on
Hourly rate
When the agent is deemed a consultant, charging a non-contingent hourly rate. It's payable regardless of whether a sale or lease is made.
Unnecessary risks are taken when brokers do what with buyer agency agreements?
Write their own agreements
A broker will have no legal recourse against a seller or buyer who refuses to pay commissions without a
Written agreement
When the buyer hires a broker under an exclusive-right-to-represent agreement, the agent does not sell a house, they
assist the buyer-client in purchasing a homes
The most important reason that the buyer should want to be a client is that:
they will be in the strongest negotiating position possible
