Saturday, January 27, 2007

real estate agent: friend or foe?

Property Transactions

So you want to buy a house. You get online and find your way onto the listing service, a searchable database that lets you put in your parameters and then shows you all your options, usually with pictures and detailed descriptions of all the available properties. You find one you really like (you probably find, like, fifteen you only *sort* of like, but they're the only ones you can afford and they involve compromises you're willing to live with, but for the sake of simplicity, we'll pretend you find just one that you really like), so you write down the contact info for the agent representing that property and you give her a call.

Boy is she nice! She offers to pick you up and drive you to the house to look at it! When it turns out that your perfect house isn't so perfect after all, don't worry, she's got a list of ten other places in the same price range, near that neighborhood, with similar amenities. She drives you around for two hours and even offers to stop somewhere to get you some coffee. At the end of the day, you still haven't found the right house, but you had such a lovely time with that real estate agent! She gives you her card when she drops you off at your house and smiles warmly and commiserates about not finding the right place, but she assures you she'll keep be keeping her eye out for places you'd like.

You go inside, smiling, looking at the card, feeling comforted by the knowledge that you're in good hands. You've got your very own real estate agent, looking out for you.

Not so fast, there, buddy. She's nice and she's helpful and all that stuff, but let's get one thing straight. She is NOT "your" real estate agent. Yes, she said she'd help you, but it's not *you* she's really helping. It's the seller. That's right. Real estate brokers are agents of the SELLER, no matter what. It doesn't matter if you called her and you enlisted her to help you find a house. It doesn't even matter that she has never in her life met the seller of any given house before, she is still the agent of the seller.

I should back up and explain that "agent" is actually a term of art. Saying that the real estate broker is an "agent" of the seller is saying that she owes a financial duty to the seller, resulting from their principal/agent relationship. Even though she's nice and she drove you around all day, she is not your "agent" and she doesn't owe you any financial duties. At the end of the day, her only obligations are to the sellers of the houses, not to you. You have no agent, you're on your own.

What's that mean for you, practically speaking? It means that the agent is only looking out for you to the extent she is required by law. It means, she will not be negotiating good contract terms for you and you might even find yourself with contract terms that are specifically better for the seller. It means that you do not have an advocate, combing through the complicated documents and noticing where there are problems.

Want an example? Here's an example. Risk of loss. When a land sale contract is signed, even before the buyer gives up the money and the seller gives up possession of the property, something magical happens called "equitable conversion." Equitable conversion says that, as soon as the contract is signed, the money magically becomes the seller's and the property magically becomes the buyer's, even though they haven't actually changed hands yet. It might take days or weeks for the money and the land to change hands, but thanks to equitable conversion, the ownership has switched.

That's all fine and good, but what if lightening happened to strike the house after the contract was signed but before the seller moved out and the buyer moved in? The house burns to the ground, it was nobody's fault. Who bears the loss? According to equitable conversion, the BUYER does even though she wasn't in possession yet. Why? Because the property became hers as soon as the contract was signed.

Well that hardly seems fair. Can't that be stopped? Why yes, it can be stopped by adding language to the land sale contract that would allocate the risk of loss to the seller until actual possession changed hands. No biggie, it would probably just take up one line of the contract. But do you think that nice real estate lady is going to put that line in there for you? No ma'am she is not. Why? Because that line is in YOUR best interest and she is bound to do what is in the SELLER'S best interest.

So do you see now why the real estate lady isn't so great after all? And is there anything you can do to stop this inequity? Yes. You can get a lawyer. Your lawyer will be YOUR agent. Your lawyer will advocate for you and negotiate a contract to benefit YOU, not the seller. Your lawyer will also send you a bill (unlike that nice real estate lady whose bill will be sneakily tacked onto the fees that are paid by the seller, but with YOUR money after you pay for the house). If you don't want to bother with a lawyer, you would do well to educate yourself as much as possible so you don't have to rely just on the real estate lady to help you navigate through the process. And just remember, no matter how nice she is, she is NOT working for you. She is working for the other guy.


Blogger sanam arzoo said...

real estate agent( they are called that here)were voted the most intrust worthy profession in the place, that's pretty impressive.I have experience with them we are a full time commercial studio. I just stumbled upon your blog and wanted to say that I have really enjoyed reading your blog posts. Any way I'll be subscribing to your feed and I hope you post again soon.A fantastic presentation. Very open and informative.You have beautifully presented your thought in this blog post.

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