How to Use a Buyer's Broker: Part Two
In this age of consumerism buyers are demanding, and to some degree receiving, representation in the real estate market. If you recognize the changes taking place in the industry, you can capitalize on an opportunity to obtain better service and reduce your home buying costs. To take advantage of this opportunity you need to understand the material we present on entering into buyer's broker listing agreements.
Consumerism is here to stay. Consumerism is people going out of their way to learn about the products they purchase. The law goes out of its way to protect consumers, even in the largest ticket item of all, real estate.
Real Estate Terminology
Real estate terminology can be confusing. You can deal most effectively with real estate professionals if you understand the terms they use.
Principal A principal is a person who hires or authorizes another person to act for him in dealings with third parties.
Agent A person authorized to act for another in dealing with others. A real estate broker is often referred to as a real estate agent. Agents have duties to the persons hiring them. Tese duties include:
- Always acting with the principal's approval,
- Not revealing any private information,
- Not making a hidden profit,
- Using reasonable skill and care in handling their duties,
- Obeying all lawful instructions of the principal,
- Not revealing factors about one party to another party that would influence the other party's decision, if these facts were known,
- Providing a report regarding all money received and spent.
Broker A real estate agent who represents another person (buyers or sellers) in dealing with third parties (other buyers, sellers, or agents) is a broker. A broker
- Must take required courses, pass a broker's exam, and become licensed in the state in which he does business,
- May hire sales associates including salespersons and other brokers to work for him,
- Is responsible and liable for the actions of his employees,
- May charge for his services and the services of his employees.
Salesperson A salesperson is a person who has taken required courses, passed a entry level exam, and become licensed in the state where he works. A salesperson
- Must work under the supervision of a broker who is responsible and liable for the slesperson's actions,
- May be paid only by the broker for whom he works,
- May not work by himself or hire any other real estate professionals to work for him.
Sales Associate A real estate professional with either a broker's or a salesperson's license, who acts as an agent for a broker is considered a sales associate.
Licensee Anyone who has a current real estate license is a licensee. Both brokers and sales associates are licensees.
Subagent One agent working for another agent. Subagents have duties to the persons hiring them -- both the principal and the agent.
The duties to the persons hiring them are the same as those listed under "agent" except that a subagent must alway act with the principal's AND the agent's approval.
Single Agent A single agent is an agent who represents only one party in a real estate transaction. A single agent may represent either the buyer OR the seller but not both at the same time.
- Buyer's broker (selling agent) represents the buyers in a transaction.
- Seller's broker (listing agent) represents the sellers in a transaction.
Dual Agency A broker's action in representing both the buyers AND the sellers in a real estate transaction is known as dual agency. The broker may represent both parties either directly or through one or two sales associates. Dual agency is legal in most states but has the potential for perceived or actual conflicts of interest.
Divided Agency Divided agency is the action of an agent in representing both buyers and sellers in a transaction WITHOUT the knowledge and consent of both. Divided agency is illegal because of the tremendous potential for imagined or actual conflict of interest.
Termination of Agency Representation by an agent may be terminated (ended) by various methods including
- The agency agreement expires.
- You revoke (cancel) the agency.
- Either you or the broker die or are incapacitated.
- The property is destroyed.
- You and the broker mutually decide to revoke the agency.
- Rejection of the agency agreement by the broker.
FSBO "For Sale By Owner" or FSBO is a seller who handles the sale of his property himself. If a seller handles the sale of his own property, he saves the real estate commission.
Fiduciary duty The responsibility of brokers and the licensees they employ to act with greatest integrity, carefulness, and loyalty in their clients' best interest is their fiduciary duty.
Retainers A retainer is money you pay to a real estate professional to represent you. The fee acts as an up front payment for the service the licensee will perform for you. The retainer
- May be required by the licensee.
- Is often one-half of one percent of the upper end of the projected purchase price range.
Example: The buyers want a property in the price range of $175,000 to $200,000. You pay a retainer of one- half of one percent $200,000, computed as follows:
0.5 X 0.01 X $200,000 = $1,000
- May be used as partial payment toward the commission the licensee requires.
- May be rebated to the buyer at the end of the transaction by the buyer's broker.
- May be kept by the licensee if you do not purchase a property.
- Is usually only part of the total amount paid to your buyer's broker.
Example: Your broker charges a regular 3% commission on the $200,000 property you decide to purchase.
0.03 commission X $200,000 = $6,000 commission
$6,000 - $1,000 = $5,000
Commission - Retainer = Amount due to broker
(Saul Klein is CEO ofReal Estate Electronic Publishing Company, home of RealTown.)
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