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Most real estate transactions involve at least one, and typically two, real estate agents. Most often, there is a real estate agent representing the seller and one representing the buyer. Sometimes, one agent can act in a transactional capacity, which means that an agent can represent both the seller and buyer in a transaction. We will devote a future blog to this specifically, but there can be some serious downsides to a transactional deal. Mainly, there would be no fiduciary duty between the agent and the buyer/seller. Losing this can be bad – so read our blog on “Broker/Agent Fiduciary Duty” when you see it. There can be financial benefit in this type of arrangement also – but you need to be informed on this whole topic. There is a good reason why almost 90% of real estate transactions in the US involve agents – they can be beneficial throughout a real estate transaction. Described below are some of the benefits of agents, but first, let’s have a brief look at a real estate agent versus a REALTOR®.
Real Estate Agent vs. REALTOR®
The main difference between an agent and a REALTOR® is that a REALTOR® must join the National Association of Realtors (NAR) and adhere to its strict Code of Ethics and Standards of Practice. This is not required of real estate agents. Agents must still obtain a real estate license from the State in which they practice, but they do not have to join NAR nor subscribe to its Code. This is not to say that an agent will not have the same high ethical standards as a REALTOR®, but they do not have to subscribe to them. Technically speaking, an agent may not be bound by the rule changes like a REALTOR® would be bound. Practically speaking, most consumers will be using a REALTOR®, and an agent may very well adopt the changes – it is just something to be aware of as you go through your real estate negotiation. There are about 500,000 agents in the US and about 1.5 million REALTORS® in the US currently. NAR governs most Multiple Listing Service (MLS) entities in the U.S. The MLS is where properties are listed for REALTORS® (and the public through various portals). In some states and regions, membership in the local NAR Board is an agent’s link to accessing the MLS.
The Benefits
For most consumers, buying or selling a home is the largest (and can be the most complex) transaction they will make in their lives. Almost nothing is as important as the place you will call home and share with your family and friends, hopefully creating many great memories along the way. For a purchase where you will spend most of your time, that averages over $400,000 and typically involves a loan that won’t be paid off for thirty years – you want to make the right decisions. Real estate agents (lumping both agents and REALTORS® in here moving forward) are professionals that understand the steps involved in a real estate transaction and can guide the unfamiliar consumer through oftentimes complex transactions.
Agents can help with the price of a home. For the seller, they can determine what amount you should list your home for based on its location and your home’s various attributes. Most likely, they will have been in many homes in your area, so they can oftentimes be a good resource to help you determine how your home compares to others in your neighborhood. For the buyer, they will be a resource to help you with how much you should pay for homes you may be interested in purchasing.
As noted above, selling or buying a home can be a complex process and it helps to have a professional guide you through that process. There are contracts to be signed, negotiations to be had, loans to be obtained, and many other milestones which must be achieved in a fairly short time. Agents know the process and that can be immensely helpful – the end goal is to get to the settlement table and get the deal done.
Agents can have a robust network of other agents, as well as buyers and sellers, that they can tap into to help sell your home, or to help find that perfect home for you. Networks in the real estate business are vital, and many of the most successful agents have big networks. If you sign with an agent that has a big network, you get VIP-type access to that network which can equate to pretty big benefits to the consumer.
When Agents May Not Have Your Back
If we have been effective in our message, by this point, you should realize there is a NEW first step in real estate transactions that should occur before you enter into a contract with your agent of choice. It is during this first step where the consumer and the agent are negotiating the terms of the representation agreement. The major terms are commission (payment) to the agent, the type of relationship between the broker and the potential client, and the length of the agent’s representation (don’t worry, we will cover the basics in a future blog post!). As you can imagine, the agent typically will want to get as much money for the services they provide to you, and it is in your best interest to minimize the amount you pay for obvious reasons. You need someone in your corner to help you negotiate with your agent before they represent you in the real estate transaction itself. You want an independent person who understands agent compensation and can help guide you in this first and crucial step.
ON a technical level, prior to the time of signing with a broker, the consumer and the broker do not have an express fiduciary relationship – meaning the broker/agent does not legally have your back. Once an agreement is signed, the fiduciary duty, and the resulting duties under it, kick in to the relationship.
One last technical note – the Listing or Buyer Agreement is between the consumer and the broker, who overseas the agent that you will probably work with on the deal. Many use the terms interchangeably, but they are not truly the same. Just be cognizant of that distinction.
As always, you should Negotiate the Comp!
