Why use an agent?
The real estate business, like all business, has changed dramatically with the internet. Sophisticated real estate investors who have the time and the capabilities can search for and market their properties on the web without hiring an agent and have a pretty good chance at transacting. However, for those who are less experienced, a real estate agent can save one time, money, and nerves!
With the internet, the role of the agent has changed substantially and, whereas previously, the role of the real estate agent was primarily match-making, today it is entirely about advisory and coordination of the transaction process.
Before entering into a discussion with a real estate agent regarding a real estate transaction, you should understand what type of agency relationship you wish to have with that agent, if any at all. New York State requires real estate licensees who are acting as agents of buyers or sellers of property to disclose to the potential buyers or sellers with whom they work and the nature of their agency relationship including the rights and obligations it creates. Below are a few important definitions that you should be aware of.
The Seller's Agent
According to the Department of State, “a seller’s agent is an agent who is engaged by a seller to represent the seller’s interests. The seller’s agent does this by securing a buyer for the seller’s home at a price, and on terms, acceptable to the seller. A seller’s agent has, without limitation, the following fiduciary duties to the seller: reasonable care, undivided loyalty, confidentiality, full disclosure, obedience and duty to account. A seller’s agent does not represent the interests of the buyer. The obligations of a seller’s agent are also subject to any specific provisions set forth in an agreement between the agent and the seller. In dealings with the buyer, a seller’s agent should: a) exercise reasonable skill and care in performance of the agent’s duties; b) deal honestly, fairly and in good faith; and c) disclose all facts known to the agent materially affecting the value or desirability of property, except as otherwise provided by law.”
A seller’s agent is instrumental in that he or she:
- Advises on a strategy for marketing the property;
- Advises client on a property’s market value;
- Prepares marketing materials for the property;
- Ensures that the marketing materials are being circulated in all the major internet sites;
- Stages the property for sale;
- Advises on what can be done to increase the value of the property in the pre-marketing stage;
- Responds for requests for information via mail, email and telephone;
- Screens potential buyers to make sure they are capable of executing a transaction;
- Provides important useful information to buyers about the property and its potential;
- Arranges property tours for potential buyers;
- Maintains relationships with buyers’ agents;
- Negotiates the contract of sale with the buyer.
The Buyer's Agent
According to the Department of State, “a buyer’s agent is an agent who is engaged by a buyer to represent the buyer’s interests. The buyer’s agent does this by negotiating the purchase of a home at a price and on terms acceptable to the buyer. A buyer’s agent has, without limitation, the following fiduciary duties to the buyer: reasonable care, undivided loyalty, confidentiality, full disclosure, obedience and duty to account. A buyer’s agent does not represent the interest of the seller. The obligations of a buyer’s agent are also subject to any specific provisions set forth in an agreement between the agent and the buyer. In dealings with the seller, a buyer’s agent should: a) exercise reasonable skill and care in performance of the agent’s duties; b) deal honestly, fairly and in good faith; and c) disclose all facts known to the agent materially affecting the buyer’s ability and/or willingness to perform a contract to acquire seller’s property that are not inconsistent with the agent’s fiduciary duties to the buyer.”
A buyer’s agent is instrumental to their client in that he or she:
- Advises on what a client can achieve on the market given his or her financial profile and investment goals;
- Advises on what type of property will best meet the requirements of the buyer;
- Advises the buyer on the attractiveness of a particular investment vis-a-vis both property and market level risks;
- Researches deals on the market that match the client’s preferences and advises on the pricing of such property;
- Searches for deals proactively which are not currently on the market;
- Advises on development potential of a particular property having knowledge of building codes and zoning laws as well as construction costs;
- Maintains relationships with market players, such as lenders, architects, expeditors, contractors, designers, zoning lawyers etc. who are often important in understanding a property’s potential;
- Ensures that the market is aware of the client’s requirements while maintaining confidentiality;
- Provides feasibility analysis of investment opportunities;
- Provides recommendations to clients on where to invest in order to minimize risk and maximize return;
- Advises on how to maximize value through active management and exit strategies;
- Works in conjunction with external advisers in due diligence exercises;
- Negotiates sale purchase agreement on behalf of buyer and manages the entire closing process.
While the buyer’s agents can, and occasionally do charge the buyer for their services, for the most part, buyer’s agents’ only fees come from the same 5-6% commission that the seller pays in the transaction. This means that buyer’s agency services are essentially free of charge to the buyer!
The Dual Agent
According to the Department of State, “a real estate broker may represent both the buyer and seller if both the buyer and seller give their informed consent in writing. In such a dual agency situation, the agent will not be able to provide the full range of fiduciary duties to the buyer and seller. The obligations of an agent are also subject to any specific provisions set forth in an agreement between the agent, and the buyer and seller. An agent acting as a dual agent must explain carefully both the buyer and seller that the agent is acting for the other party as well. The agent should also explain the possible effects of dual representation, including that by consenting to the dual agency relationship the buyer and seller are giving up their right to undivided loyalty. A buyer or seller should carefully consider the possible consequences of a dual agency relationship before agreeing to such representation.”
In a situation of dual agency, de facto, the only party the agent is representing is his or herself. In these situations, often the agent is able to earn the full 5-6% commission.
The Dual Agent with Designated Sales Agents
In the case where a single brokerage company represents both buyer and seller, dual agency with designated sales agents becomes important. According to the Department of State, “if the buyer and seller provide their informed consent in writing, the principals and the real estate broker who represents both parties as a dual agent may designate a sales agent to represent the buyer and another sales agent to represent the seller to negotiate the purchase and sale of real estate. A sales agent works under the supervision of the real estate broker. With the informed consent of the buyer and the seller in writing, the designated sales agent for the buyer will function as the buyer’s agent representing the interests of and advocating on behalf of the buyer and the designated sales agent for the seller will function as the seller’s agent representing the interests of and advocating on behalf of the seller in the negotiations between the buyer and seller. A designated sales agent cannot provide the full range of fiduciary duties to the buyer or seller. The designated sales agent must explain that like the dual agent under whose supervision they function, they cannot provide undivided loyalty. A buyer or seller should carefully consider the possible consequences of a dual agency relationship with designated sales agents before agreeing to such representation.”