With the proliferation of real estate websites, from Loopnet to Realtor.com, it’s easy to find property you wish to purchase, for you business, residence, or as an investment, on a self-serve basis.
Real estate transactions can be tricky, however. Even if it’s not your first rodeo as a buyer (or tenant), you may be going up against a seller who has done many real estate transactions, or negotiates deals on a daily basis. Furthermore, they are likely represented by their own agent who may have handled hundreds, or even thousands of transactions.
While that agent may be very nice to you (and they should, as you are about to put thousands of dollars in their pocket), make no mistake, they are very serious about getting the best deal for the seller they represent. No matter how pleasant they are to you, there is only one person they are looking out for, and that is the person on the other side of the table: the seller.
The seller’s agent is well trained and likely very experienced in knowing everything they can legally and ethically do or say to induce you to pay the highest price possible, or give the best terms possible, to the seller. They will likely have an array of assertions, and apparent proof to back them up, about how much you should pay for their seller’s property, why you shouldn’t require them to make repairs, or provide any guarantees. Why they should pick the title company, why your due diligence need only be minimal, and why you should offer more than the asking price to beat out any other offers that have, or may, come in.
Well, who’s looking out for you? Loopnet? Zillow? Realtor.com? Sure, they may have some nifty articles on generic negotiating tactics, or which party should handle what in a transaction. But they’re not proactively strategizing for you in this deal. They’re not researching the property, and the seller, to determine motivations, negotiating points, and so on.
So, like many people, you call a Realtor®. “Sure,” they’ll help you find the ideal property. They’ll arrange for showings, or site visits. Sometimes, they’ll even put together comprehensive analysis reports on properties you’re interested in. They’ll submit your offer or LOI to the seller’s agent, and they’ll hold your hand through closing – all paid for out of the seller’s agent’s commission. Problem solved, right?
Now, here comes the catch: By default, under Texas law, the real estate agents involved in a transaction, even if one has been “working” with the buyer and is not the agent listing the property for sale or lease, both represent the seller’s (or landlord’s) interest.
“A subagent can assist the buyer, but does not represent the buyer and must place the interests of the owner first.”
Imagine going to talk to an attorney about a lawsuit in which you are the defendant. Imagine having them give you fair and honest advice on handling your case with the other plaintiff. Then, when you arrive in court thinking that they’re going to represent you, you find that they’re sitting at the table with the plaintiff and their attorney, with all of your information, and you’re on your own to defend yourself.
Sound unethical? Well, maybe a little. However, there was a 1-page form they handed you when you first came to meet with them, which you either didn’t pay much attention to, or didn’t understand what was on it. This form advised you of the various roles and responsibilities of each involved party.
As in most places, real estate agents in Texas are required to treat all parties in a transaction “honestly and fairly.” But, by Texas law, “A license holder acts as a subagent when aiding a buyer in a transaction without an agreement to represent the buyer.” Here’s where it gets interesting: “A subagent can assist the buyer, but does not represent the buyer and must place the interests of the owner first.”
This means that they are not bound to keep any information you disclose to them confidential with regard to the seller. So, if you tell a subagent who is assisting you that you are approved for more financing than the amount you want to offer, that subagent has an obligation to share that with the seller’s agent.
How do you fix this, and obtain your own fiduciary representation? It’s simple: by Texas law, “The broker becomes the buyer/tenant’s agent by agreeing to represent the buyer, usually through a written representation agreement.”
You simply ask the broker you wish to have represent you (as long as they are not already representing the seller you wish to purchase from) to enter into a Buyer/Tenant Representation Agreement with you.
In Texas, unlike many other states, all of the basic agreements involved in a real estate transaction, either residential or commercial, are created by the Texas Real Estate Commission’s attorneys (TREC), and their use is mandated in most cases. Similarly, the Texas Association of Realtors (TAR) provides standardized representation agreements between agent(s) and sellers, landlords, buyers, and tenants.
So, there is no fear of unscrupulous agreements with random, unscrupulous terms in them. To verify the authenticity of any TREC agreement, you may simply look it up on the TREC website and use the reference numbers at the top or bottom of it. The same is true with any agreement provided by TAR.
I always present the buyers and tenants I help with the proper representation agreement, upfront, so that I am able to provide them with full confidentiality and fiduciary representation. My clients know that I am on their side and represent their interest and only their interest.
What happens if your Buyer’s Representative doesn’t do a satisfactory job of representing you? Buyer’s Rep Agreements are usually pretty easy to get out of. Most Realtors® don’t want to hold a client to an agreement if they are unhappy anyway – this can lead to that client filing a complaint with TREC and generally makes for a bad relationship. There is usually protection in the agreement, if you buy a property that the “unsatisfactory” agent spent time finding, showing and negotiating for you. But, there is also a provision which allows either the agent, or you, to terminate the agreement upon giving written notice (an email will suffice) to the other party.
It has never happened to me, personally. But, in the event I did have a client who was just not happy with the representation I was providing, I would much rather terminate the agreement than force the continuation of a hostile relationship.
Today’s technology makes it infinitely easier to “do-it-yourself,” but the cards are stacked against you when you’re going “solo” into a transaction against a well represented opponent. And many folks will tell you that the worst position to be in is not knowing what you don’t know.
The Texas Real Estate Commission’s Information About Brokerage Services (IABS) form is the form that any agent should hand you immediately upon having any conversation about real estate.
You can view this form at: www.northaustincomercial.com/iabs
There is even a place to sign this form (although it is not required that you sign it). However, even if you do sign it, this form does not obligate the agent assisting you as a buyer to any more than treating you honestly and fairly. Their loyalty is still required to be with the seller.
Article 9 of the Code of Ethics requires that, for the protection of all parties involved, Realtors® ensure that all agreements related to real estate transactions be in writing.
Anyone wanting more information, or a sample of a Buyer’s Representation Agreement, may email me at brian@northaustincommercial.com. For questions on specific TREC agreements, you may email information@trec.texas.gov or call (512) 936-3000.
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