Law of the West: Realtors
April 14, 2006
by John Scorsine
The Memorial Day weekend was great. I was able to get a number of chores around the house completed and spend some time exploring the surrounding country. As I drove around, I noticed the emerging new crops. Much like those plants sprouting from the ground was another “crop” as well. The proliferation of “For Sale” signs posted nearly everywhere by realtors.
Most Americans, when selling or buying a home, use the services of these trained professionals. However, few individuals that use the services of a realtor truly understand who the realtor works for in a transaction. This has caused a great deal of confusion in the past. A result of that confusion has been the use of disclosure statements that realtors provide their clients early in the relationship.
Realtors typically work in three distinct ways. They may represent the seller, the buyer, or they can in some cases actually “represent” both the seller and the buyer in a mediated transaction. Who the realtor works for is a critical piece of knowledge, since it determines to whom the agent owes a fiduciary duty or, put another way, their loyalty. All reputable realtors, and especially those that subscribe to the ethics of the National Association of Realtors, recognize that they owe all concerned an obligation of honesty and fairness. Yet, the question of “agency” is perhaps one of the hottest in the industry and the source of the greatest number of complaints.
The traditional relationship with a realtor is that of a Seller’s Agent. A homeowner that wants to sell contracts with a realtor to market and sell the property on terms that vary with their specificity. That realtor may post the advertisement for the home in a shared database, often known as a “multi-list” service, so other realtors can assist in selling the home for a portion of the commission. Generally, if you walk into a realtor’s office looking for a home the realtor will show you homes they have listed within that office. If their “inventory” doesn’t have what you are looking for, they will turn to that shared database. Even then, a realtor is generally representing the seller as a sub-agent of the Seller’s Agent. As the agent or sub-agent of the seller, the realtor owes the seller a duty to convey all information that can positively or adversely affect the client’s interest. Information like your financial condition, price range, intended future uses and anything that you share with the seller’s agent you should expect being transmitted to the seller. You have no secrets from the seller with his agent.
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A second, and less traditional form of agency is that of a Buyer’s Agent or Buyer’s Representative. Here the buyer contracts with a realtor to find them a home. The buyer agrees to only use the services of this agent and that any real estate purchase offers he or she makes during the contract period will be presented by the realtor. In most cases, the buyer’s representative is still paid through a commission from the sale of the home you agree to purchase.
In some contracts, the buyer’s representative may charge a fee to the buyer regardless of the ultimate outcome of the relationship to compensate for the time devoted. There are some hybrid compensation plans that take into account that one of the goals of the buyer’s agent is to get you into the property at as low a price as possible. Otherwise, the lower the price negotiated the less the agent is paid. Yet, the lower the price the more work the agent has likely devoted to the endeavor. A Buyer’s Agent will locate properties that fit your interests and price range; help you draft the offer; lead you to lenders that can help finance the purchase; and, generally, be a great aid in negotiating complex real estate matters. The most important aspect of this relationship is that the fiduciary duty or obligation of the realtor is owed to the buyer. The agent will only disclose to the seller that information which you authorize. Together, you can develop a strategy and negotiation plan to obtain the best end result.
The last form of agency, isn’t really an agency at all in the traditional sense. As a cooperating agent, a realtor acts more as a facilitator and helps a buyer and seller complete a sale. This style of representation is gaining in popularity in some markets. Owners that want to market the property themselves but lack the expertise in consummating a sale often use cooperating agents.
As a consumer of realtor services, it is critical that you know your relationship with the realtor. Don’t make an assumption that the realtor represents you simply because you contacted them. Ask them upfront. If you want to hire a buyer’s agent, make that clear from the start. Finally, get the relationship in writing. Most realtors will provide you a written disclosure of their agency explaining who they are working for in the transaction, their fees, and how the fee is paid. Make sure you understand the implications of that relationship.
The National Association of Realtors has a very informative Web site which can be accessed at http://www.realtors.com Closer to home is the Colorado Association of Realtors’ Web site at http://www.colorealtor.org
The information provided in this column is based upon general principles of law and should not be relied upon in any manner. It is not the intent of this column, its author, publisher or the Fence Post to provide legal advice to any person. You should address specific legal questions to your family lawyer. In Wyoming, the State Bar can refer you to competent lawyers in your community by calling (307) 634-7823. In Colorado, call the Metropolitan Lawyer Referral Service at (303) 831-8000. Readers in Nebraska can receive referrals from the State Bar Association by calling 1-800-742-3005.