Hiring a Buyer Agent

Obligations of a Real Estate Agent

When you hire a real estate agent, a legal ‘agency’ relationship is created. We will review the basic attributes of ‘law of agency’ and things to consider when hiring a real estate agent. Purchasing a home is a very large investment and you should seek the very best representation.

Law of Agency

There are two parties in an agency relationship:

  • The principal is the person being represented. For our discussion, this is the homebuyer.
  • The agent is the real estate company or broker of record for the company. The salesperson is the agent representing the company. In other words, when you hire Sally Smith of ABC Realty, ABC Reality is the agent representing you, and Sally Smith is agent for ABC Reality. The salesperson is often referred to as the agent, however, they are the agent representing their company. For simplicity, when we reference ‘agent’ we are referencing salesperson and the company collectively.

A real estate agent has five duties or responsibilities to the principal (homebuyer). These are known as fiduciary duties. All of these duties are in addition to specific State laws governing Real Estate Agents and Brokers.

  • Loyalty. This duty obligates a real estate broker to act at all times solely in the best interests of his principal to the exclusion of all other interests, including their own self-interest.  
  • Obedience. An agent must promptly and efficiently obey all lawful instructions of his principal. Any unlawful instructions are excluded from this obligation.
  • Confidentiality. An agent must safeguard his principal’s confidence and secrets. This responsibility survives the transaction therefore an agent cannot ever discuss the financial affairs of the principal.
  • Disclosure. An agent must disclose to his principal all relevant and material information that the agent knows, or in some situations, should have known. 
  • Accounting. An agent must account for all money or property belonging to his principal that is entrusted to him. Normally, this refers to the contract deposit money, also referred to as an earnest money deposit.
  • Reasonable Care. An agent must use reasonable care and diligence in pursuing the principal’s affairs. By reason of their license, a real estate agent is deemed to have skill and expertise in real estate matters superior to that of the average person. Thus, the average person (homebuyer) is not immediately in a position to evaluate the broker or salesperson’s behavior. 
  • In the following discussion, please keep in mind the legal obligation of the agent to the homebuyer of (a) loyalty (b) disclosure (c) reasonable care. 

13 Factors to Consider When Hiring a Real Estate Agent

1. Agency Contract

You will sign an agency agreement. There are four elements to the agreement that you should review.

  • Exclusive Agency. If the contract is exclusive then you could be responsible for paying a commission even if you purchase a home without an agent or thru another agent.
  • Cancellation Period. What is the contract duration (months) and how much notice is required to cancel the contract?
  • Dual Agency. Does the contract allow for ‘dual agency’, where the agent may represent both buyer and seller in the same transaction? States have different rules regarding ‘dual agency’, we do not recommend dual agency.
  • Broker Processing Fees. It is not uncommon for the buyer to become obligated to paying a ‘processing’ fee to the real estate company (agent). The purchase will generate thousands of dollars in commission payable to the agent and the homebuyers pays a ‘processing fee’.  Does this sound reasonable?

2. Finance Knowledge

One of the single most important aspects of any transaction will be the financing and the related charges. The agent should exercise ‘reasonable care’ in assisting you in pursuing the best financial options available.  
With the AskChristee finance platform, there is no reason for an agent to avoid providing financial input in the best interest of the client-buyer. Thirty years is a long time to pay for a mortgage mistake.

3. Referrals

Many agents consider themselves to be a concierge. They refer their buyer-clients to professionals such as lenders, title companies, and home inspectors. Other than the referral, they have little involvement in the finance or closing side of the transaction.

Is it possible that by making the referral there is a conflict of the agent obligations of (a) loyalty (b) disclosure (c) reasonable care. The obvious question is “on what basis do they make the referral’?

  • A personal relationship such as a relative or personal friend.
  • Strictly a professional relationship based upon rates or fees beneficial to the buyer-client.
  • A business or financial relationship exists between the agent and company. The law requires disclosure when certain business relationship exists, however, the law does not cover all potential financial incentives.
  • Is there a potential conflict when an agent refers a buyer to a lender or title company with which the agent has a financial relationship?

The Lender or Title Company DO NOT  represent the homebuyer as an agent. These companies are hired to perform a specific task. They represent their own self-interest and therefore, it is vital that the homebuyer either rely upon their agent to protect their interest, or do their own due diligence before hiring a Lender or Title Company. We suggest that you have this conversation with a potential agent.

4. Lender Fees

It has become very common for mortgage lenders to charge fees such as: processing fees, underwriting fees, and admin fees, among others. These fees are simply additional interest paid in advance. For example, $1,500 in lender fees is equal to paying a ¾ % loan origination fee on a $200,000 loan. The agent should be aware of ‘typical’ charges and therefore, avoid an unwarranted financial cost to the homebuyer.

Providing this service does not require any in-depth knowledge of mortgage finance.

5. Title Company Fees

Every title company, or law firm, has an established set of fees they charge for conducting a closing. Your agent can have these fees sent to you. You may want to review fees from multiple companies. Otherwise, you will receive notice of the fees 3 days prior to closing, which doesn’t afford time to change companies. Without question, saving money on closing fees in the buyer-client’s best interest.

6. Closing Disclosure

At the very least, your agent should be willing to review the ‘Closing Disclosure’ or CD with you, and highlight any possible unnecessary or junk fees. If your agent has experience, then they have seen hundreds of closing statements, and therefore should be able to identify bogus charges. Too many agents simply ignore the closing fees to their clients.

7. Personality

Real estate is a sales position; therefore, most real estate agents will have a somewhat pleasant personality. You must rely upon your instincts to determine the personality mesh and your sense of trust regarding the potential agent. Additionally, you should hire a personality that you sense has the strength to battle on your behalf, when necessary.

8. Knowledge of the Local Real Estate Market

While it is preferable that agents already have keen local real estate knowledge, a good agent can research these matters. 

9. Contracts and Negotiations

Agents should have a thorough knowledge of the contract template within their market area. Agents are responsible to not only draft the offer, but also convey the offer in a compelling way. In other words, they need the skills to present your offer in a  positive light.

10. Experience

Hopefully, years of experience has translated into superior knowledge in all aspects of the transaction. More important than time served, is knowledge and the willingness to utilize that knowledge to your best interest.

11. Work Schedule or Availability

Of course, your agent must be available to work within your schedule. Alternatively, the agent may have support available whenever there is a conflict in scheduling.

12. Complaints Filed with the Licensing Authority

If this is a concern, then you ask or investigate the nature and outcome of the complaint.

13. Transactions Closed in an Average Year

A viable consideration, but not definitive.