Harras Bloom & Archer LLP Blog

Friday, March 25, 2016

Selecting A Real Estate Agent

By: Lynn Cosma Wenkert

Selecting the right real estate agent can make the difference between having a smooth transition into your new nest, or suffering anxiety until the ink on the deed has dried.

In New York, we basically have three types of Real Estate Brokerage Agreements, each creating different responsibilities of the Agent to the Seller and the Buyer.

The Seller's Agent is the most common brokerage agreement, and provides that the Agent will act on the Seller's behalf to market and locate a purchaser for the home at  a price and pursuant to conditions which are acceptable to the Seller.  The Agent's duty and loyalty are to the Seller, and a Seller's Agent may not represent the Buyer's interests. A Seller's Agent is obligated to (a) exercise reasonable skill in performing their duties, (b) deal honestly, fairly and in good faith, (c) to the best of their knowledge, disclose material facts affecting the value of the property, except as otherwise provided by law.  For example, an Agent would be required to disclose that the premises had undergone cleanup for an oil spill, but a disclosure that the Seller's were under duress to sell quickly due to an imminent job relocation would be a breach of the Agents duty of confidentiality to the Seller.

The Seller's Agent Agreement is usually exclusive for a six month period.  This is done to ensure that the Seller's Agent will get a fee upon the sale of the home, in order to compensate them for their services and expenses in marketing the home, such as advertising, open houses, photos and internet exposure.  Another agent who wishes to show the home to a prospective Buyer must do so through the Seller's Agent.

The Seller's Agent agreement also creates obligations on behalf of the Seller to the Agent.  The Seller agrees to pay the Agent's commission which ranges from four to six percent depending upon the market and any unusual conditions which may apply to the Sale.  It may also specify that a commission is earned upon any sale made during the term of the agreement. The Seller may wish to make an exception, or agree to a reduced fee,  for specific prospects cultivated by the Seller prior to the agreement. While the Seller's may have shown their home to the neighbor's newly wed children, it may be the Agent's “For Sale” and “Open House” signs which spur them to make an offer, rather than risk the loss of a convenient baby sitter.  The agreement may also provide that a commission will be due on any sale, concluded after the expiration of the agreement, which is made to a party introduced to the premises by the Agent. In such circumstances the Seller may seek to limit the post agreement period during which the commission can be claimed and or agree to reduce the amount of the commission which will be due.  This would be particularly important if the Seller intends to list with another Agent, in order to avoid the possibility of having two commissions due.  It should also be noted that it is the Agent's obligation to find a Buyer and bring about a meeting of the minds.  The Seller should be comfortable with the terms of sale offered, because a refusal to sell to a Buyer ready willing and able to buy, can result in an Agents claim for a commission.  After all, its not the Agent's fault that, due to global warming the Seller has decided that their current climate suits them just fine.

The Buyer's Agent agreement is an arrangement which has gained popularity in recent years.  It essentially provides that the Agent will represent the Buyer in finding and negotiating the purchase of a home.  The duty of loyalty is to the Buyer alone, and not to the Seller.  The Buyer's Agent is obligated to  (a) exercise reasonable skill in performing their duties, (b) deal honestly, fairly and in good faith, (c) to the best of their knowledge, disclose facts materially affecting the Buyers ability or willingness to proceed to closing, which are not inconsistent with the Agent's duties to the Buyer.  For example,  providing the Seller with a copy of the Buyer's pre-approval letter is acceptable,    but revealing that the Buyer's earn their income through nefarious but legal means may be actionable.

The Buyer's Agent agreement provides that the Buyer is responsible for payment of the Agent's commission unless the Seller has agreed to pay the fee. While this type of agreement gives the Buyer the benefit of an agent who is protecting only their best interests, it can also shift responsibility for payment of the commission.  In any negotiations, the Buyer should attempt to have the Seller agree to pay all commissions due.

It should also be noted that the scenario of the Seller negotiating through a   “listing broker” and the Buyer negotiating through a  “selling broker”, is not the equivalent of the Buyer having a Buyer's Agent, unless a Buyers Agent agreement has been executed.  Absent such an agreement, the listing and selling brokers or agents, are considered co-agents or co-brokers, and both are obligated to act as agents of the Seller. A fact which is often misunderstood by the Buyers.

The third type of agreement is a Dual Agent Agreement.  This is an agreement in which Seller and Buyer agree to allow the Agent to represent both parties. This can  arise in a situation where a Buyer does not have a Buyer's Agent, and sees the home through an open house or responds directly to a Selling Agent's advertisement.  The Agent who is representing both Buyer and Seller, can not have an undivided loyalty to either. This can limit the Agents ability to maintain confidences, and advocate as strongly for a party as they would as an exclusive agent.  The Agents focus becomes negotiating a deal acceptable to both parties, as opposed to negotiating the most favorable deal possible for a particular party. Buyers and Sellers should evaluate the benefits and pitfalls carefully be fore entering into a Dual Agency agreement.

Entering into an agreement with your real estate Agent is a commitment with obligations on both sides, which usually lasts for at least six months.  Before signing the Agent's agreement you should be sure that it reflects your understanding with the Agent, sets forth the acceptable parameters of any purchase or sale, and incorporates any special services or requirements to which you and the Agent have agreed. The agreement should specify the steps, methods and frequency of the tools the Agent will use to market the home. The commission rate should be stated, as well as any factors which might reduce the amount of the fee earned, such as a sale after the expiration of the Agreement.  Your Agent should be someone with whom you are comfortable and can communicate freely.  It is also beneficial to use an Agent with experience in your neighborhood.  They will be more familiar with recent area sales and in a better position to give you realistic expectations for your sale or purchase.

Buying or selling a home can be a stressful experience.  The stress can be alleviated if you have carefully selected an Agent who understands your needs and will aggressively represent your interests.

Harras Bloom & Archer LLP is known for providing sophisticated legal representation to sophisticated clients serving Nassau County, Suffolk County, Queens County, New York City and surrounding areas.

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