How do you choose a real estate agent? How much do you pay the real estate agent? Is the agent working for you or the seller?
When looking at a potential property to buy, you have to make sure the real estate agent is working for you, and not for the sellers of the property. In other words, it's fine to look at a property shown by the seller's agent, but you want to have your own real estate agent working for you the next time you take a look at the property.
In most states, agents must reveal which party he/she is working for. This information can be relinquished in your first meeting, during a phone call, or by E-mail. Just make sure to find this out before the agent asks about your specific needs and goals.
This crucial bit of information can make a significant impact in how the business relation will proceed and what kind of deal you’ll get. Therefore, it’s important to understand agent duties and loyalties before you even talk to real estate agents.
There are often subtle clues that can signify whether or not an agent is working for you. Some of these hints might come across as good sense but will really be warning indicators to stay away. And others will just blow over your head, unnoticed. To learn how to observe these clues and how to determine who an agent is working for, a distinction between the different types of agents must first be made.
Agent Fees: Usually, as far as payment goes, the agents spilt 6% of the total cost of the property, so 3% goes to the seller's agent and then 3% to the buyer.
Seller’s Real Estate Agents
These are the agents you see on “For Sale” signs, the agents you might assume are the obvious candidates to do business with. Actually, these agents are working for the seller and are contractually bound to get the best deal, which in this case is a higher price. After all, real estate agents make money based off of commission and rely on negotiating the highest price they can from buyers. Therefore, you should never assume that all agents are working for you. And this is exactly why you should never divulge all your secrets to an agent—it is the agent’s duty to relay your information back to the seller.
Agents who have the most listings in town might seem like a good bet, right? Actually, this might not be the case. Just think about it: How can one agent possibly keep up with so many buyers, especially those who want to buy multiple properties? Who do you honestly think this agent will be catering to? You, or the seller? Listing agents are always seller’s agents.
TIP: Get prices of similar homes in the neighborhood to make sure that you’re not being overpriced.
If an agent asks you to sign a buyer agency agreement before working with you, then tread carefully in this territory. Ask the agent to work with you under a buyer agency agreement based on a short amount of time—this will allow you to become familiar with the agent. Or request for a non-exclusive agreement, which will not bind you exclusively to the agent. If the agent does not cooperate with either of these alternatives, then leave.
Buyer’s Real Estate Agent
In contrast to a seller’s agent, a buyer’s agent signs a contract to work in the best interest of the buyer. A buyer’s agent will make sure to negotiate the best price, confirm that the property is inspected, and ensure that you get the representation you need. Furthermore, you can take comfort in knowing that whatever information you reveal to a buyer’s agent will remain confidential and will not leak out to anyone else.
By signing a contract, you are thus committed to working exclusively with the agent, unless you specify in the contract to include a “release clause.” If you find out later that you don’t like your agent, a release clause will allow you to exit the arrangement without any future problems.
You can negotiate the terms of the agreement with the agent, face-to-face, so that both of you know what to expect and will be comfortable with the relationship. The type of agreement that you sign will determine how the arrangement will work. A limited agency agreement might dictate what exactly an agent will be paid for. An example agreement might state that if you find a property on your own, then no commission will be paid. Often times, there will be a clause in the agreement stating that the agent will receive a commission, but if you think you can find a home without assistance, make sure to specify this.
Dual Real Estate Agents
A dual agent is a buyer’s agent who shows the buyer a listing held by his/her own real estate firm. In other words, this is an agent who represents both the buyer and the seller in the same transaction, which is an illegal practice in almost every state, except when both parties consent.
Dual agents cannot reveal to the buyer what the seller is willing to take and cannot divulge to the seller what the buyer is willing to pay. The agent is contracted to confidentiality and must inform both parties of his/her relationship to each client. This can be proven through written consents by each party.
But working with dual agents can be tricky. Some dual agents will appear to be working for you when in reality their loyalty is to the seller. When dealing with them, you should ask how he/she plans on being fair to both you and the seller. Also ask if the agent belongs to the National Association of Realtors (NAR) and of which local board he/she is a member. Afterwards, call the board to verify.
TIP: If an agent belongs to a local board, NAR membership is automatic.
You can also talk to past clients of the agent, asking several questions, such as:
- Do you feel that you were treated fairly?
- Did the agent fully explain his/her role in the beginning of the relationship?
- Would you recommend this agent?
The Right Real Estate Agent
Once you feel comfortable and feel you have the chosen the best agent, it’s a good idea to let him/her know what exactly you’re looking for. Reveal your goals and plans, the location you prefer, the type of property you’re looking for, ideal price ranges, and any other factors that will assist the agent in searching for property.
Be specific. This will most likely get you attractive deals and properties that are within the parameters of your goals, rather than properties that the agent is trying to unload. Essentially, you’re forcing him/her to find the property that suits you. You can make this process much easier by simply having a clear goal, rather than one that is ambiguous and vague. Not only will you get better results, but you’ll also help the agent do his/her job.
At the same time, though, you're walking on a tightrope to an extent. You should always keep some secrets. Perhaps you want to remodel the property to increase its value. Or maybe a new business or highway will be built and will increase the property’s value that you know about. The idea is to provide enough information so the agent can help you effectively, but also keep some things to yourself.