One of the things that you should hear about fairly early from any real estate agent in Arizona is some explanation of the concept of agency. In fact, you should see a document with a title like this one – Real Estate Agency Disclosure & Election (READE Form).
The READE form is not an employment agreement, but a disclosure and election of the agency relationship that a buyer or seller will have with the broker in the transaction. The READE form should be executed in every transaction. As the READE form makes clear, regardless of whom the broker represents in the transaction, the broker will exercise reasonable skill and care in the performance of the broker’s duties. Further, the broker is obligated to be honest and truthful to both parties and disclose all known facts that materially and adversely affect the consideration to be paid by any party.
So, why is this important to you?
Buying and selling real estate is different from most other purchase/sale deals that you may be involved with in life. When you go to buy a car at the dealership, you know exactly for whom the car salesman is working. The same is true of most other sales situations in life. In real estate, the concept of agency changes things.
The simplest way to state why understanding agency is important to you is to just say that you should always know for whom the REALTOR® standing/sitting in front of you is working. You cannot assume that just because you jumped into the car with a REALTOR® and went to see a house, that REALTOR® is working for you. In fact, it is safer to assume that any REALTOR® whom you meet is working for someone else (normally a seller), if you have not signed a contract to have them represent your interests.
Again, you may ask – why is this important? The main reason to understand who the agent is working for is so that you do not put yourself at a disadvantage. The real estate agency relationship is a fiduciary relationship. That means that the agent owes their loyalty to the person for whom they are working. You may unknowingly be telling agent things that put you at a disadvantage for negotiating the best deal for yourself.
For instance, on the way to see the house(s) you may engage in what seems like small talk and disclose to the agent exactly what is motivating your buy and how much you are willing to spend. You won’t walk into a car dealership and blurt out – “My old car was just towed to the junk yard and I have $3,000 that I could put down on a new one. I need a car today.” That is no different than telling an agent who represents the sellers that – “I have to find a place by the end of the month and I can afford to spend up to $200,000.” If the house that you are looking at could have sold for anywhere between $180-200K, guess where you’ll be told it’s priced?
So the bottom line is that you should not share any information about your motivation to buy or sell or your financial situation, until and unless you have a clear agency relationship on your behalf with the real estate agent. It’s not that real estate agents are out to do you any harm, most are honorable, fair and honest people; but, they are also business people who have to be working for one side or the other in any transaction – you just need to know which side they are on at the time.
What kinds of agency are there?
Basically, a REALTOR® can be either a buyer’s agent or a seller’s agent. On rare occasions the agent may become a dual agent. I’ll explain.
The Seller’s Agent – A seller’s agent, under a listing agreement with the seller, acts solely on behalf of the seller. Seller’s agents will disclose to the seller known information about the buyer, which may be used to the benefit of the seller.
The Buyer’s Agent – A buyer’s agent, under a buyer’s agency agreement with the buyer, acts solely on behalf of the buyer. Buyer’s agents will disclose to the buyer known information about the seller, which may be used to benefit the buyer.
In both cases, the agent has the following fiduciary duties to his clients:
- Obedience: The agent must obey your instructions, as long as they are not illegal.
- Loyalty: The agent must be loyal and keep your best interests ahead of those of any other party, including himself.
- Disclosure: The agent must disclose material facts to you. Material facts are those that, if known by the buyer or seller, might have caused you to change your purchase or sale actions.
- Confidentiality: The agent must not disclosure anything that he learns about you, your business, your financial or personal affairs or motivations.
- Accounting: The agent will accurately report the whereabouts of all monies pertaining to the transaction and their ultimate disposition is a fiduciary responsibility.
- Reasonable Skill & Care: The agent is expected to have a certain level of knowledge and be able to advise and guide you through the process without harm.
Dual Agent / Limited Representative – Sometimes an agent who has listings may also have buyer clients who want to see those listings. In those cases the agent might become a dual agent. A real estate licensee can be an agent of both the seller and the buyer in a transaction, but only with the knowledge and informed consent in writing, of both the buyer and the seller. In such situations, the agent will not be able to disclose all known information to either party. As a dual agent, there will be conflicts of loyalty, obedience, disclosure, and confidentiality.
The obligations of a dual agent are subject to any specific provisions set forth in any agreement between the dual agent and the seller and the buyer.
How do I make sure my best interests are represented?
The employment contract between a buyer and an agent is called the Buyer Broker Agreement, and a sample can be found here.
The Buyer-Broker Agreement is designed to be used when a buyer employs a broker to work with the buyer exclusively to locate property and negotiate terms and conditions acceptable to the buyer for the purchase, exchange, option, or lease of the property. By executing the Buyer-Broker Agreement the buyer agrees to work exclusively with the broker and be accompanied by the broker on the buyer’s first visit to any property. The buyer acknowledges that the broker may not be compensated by the builder, seller or seller’s agent if the broker does not accompany the buyer on the first visit to a model home, new home/lot, or “open house.” The buyer also agrees to act in good faith, provide the information necessary to acquire the property and conduct any inspections/investigations that the buyer deems material and/or important. Further, the buyer acknowledges that pursuant to Arizona law, sellers, lessors and brokers are not obligated to disclose that the property is or has been: (1) the site of a natural death, suicide, homicide, or any other crime classified as a felony; (2) owned or occupied by a person exposed to HIV, diagnosed as having AIDS or any other disease not known to be transmitted through common occupancy of real estate; or (3) located in the vicinity of a sex offender (“Stigmatized Property Notice”).
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