Knowing a few simple things about the real estate industry can help make your next home purchase more enjoyable. This is a behind the scenes look that can help you determine the rights and wrongs of home shopping.
Locating the perfect home has become easier than ever before. There are now thousands of real estate websites loaded with home search tools to assist in the effort. Some have better and more reliable information than others. At some point, you may decide to contact a real estate agent to get information or see a particular home. Before you make that call or send the first email, there are some rules of the road that will help you better navigate the real estate industry.
Some real estate home search websites make it easy to contact the actual Listing Agent of a property for sale. They supply phone numbers, email addresses, information buttons and even forms for you to supply your contact information so the Listing Agent can contact you. Other sites do not make it that easy. These sites are often selling advertising space to real estate agents. These agents are not the listing agent of the home. The hope for the agents who are not the listing agent is that you will call them to purchase the home you inquired about or maybe another home. They hope to provide a service known as home buyer representation.
So what should a prospective home buyer consider when trolling for homes? Who should you contact about the home you want to see? Should it be the listing agent or a buyer agent?
Home Shopping Rules to Consider.
If you’re just curious and looking for information on a particular home, you may want to contact the Listing Agent. The listing agent is the person or people that likely know the most about the property and circumstances of the sale. If you want to preview the home, consider using a buyer agent. The buyer agent can represent your interests if you decide to acquire the home. In either case, it is best to understand the difference and how it may affect your rights.
As the prospective buyer you hold power you may not know exists. Let’s call it the power of the purse. A fee for service, otherwise known as the commission is at stake. While the seller, in most cases, pays the whole commission, it is the buyer that chooses who represents them in a real estate transaction. If you choose the seller’s agent that person will get the whole commission. Choose a buyer agent and the fee, or commission, will likely be split between your agent and the seller’s agent.
The innocent actions of a prospective home buyer that can lead to chaos.
The decision on who gets paid might be determined without a buyer being aware of it. Who the buyer contacts first and who shows them a certain home may dictate that decision. It is time to speak of something known as “Procuring Cause”.
So what is Procuring Cause, you ask? Good question. Many people in the real estate industry are not even sure. To say that the ethics and rules of procuring cause are a complex issue to the real estate business is an understatement.
Appendix II to Part 10 of the (Realtor) Code of Ethics and Arbitration Manual gives a basic definition of procuring cause. It is as follows “the uninterrupted series of causal events, which results in the successful transaction (purchase of property).” Neither showing the property nor having a buyer’s representation agreement with the purchaser automatically demonstrates procuring cause.” In a nutshell, no one action ensures that the Realtor® is entitled to compensation (commission) after a sale.
Following is a list of factors that can lead to a condition of procuring cause:
- Who first introduced the buyer to the property, and how was the introduction made?
- Was the series of events starting with the original introduction of the buyer to the property and ending with the sale hindered or interrupted in any way?
- If there was an interruption or break in the original series of events, how was it caused and by whom?
- Did the action or inaction of the original broker cause the buyer to seek the services of the second broker?
- Did the second broker unnecessarily intervene or intrude into an existing relationship between the buyer and the original broker?
Procuring cause is not a law but part of the Realtor® Code of Ethics. When one becomes a Realtor, they agree to a certain code of honor. Procuring cause is part of that code. While it is not always fair, it is the most effective way of dealing with a dispute resolution that has to do with feelings and money.
Where Does this Leave the Buyer?
A situation involving a condition of Procuring cause does not mean that a buyer loses the right to have representation; they just may end up paying for it themselves. Let’s look at the following example.
A buyer calls the sellers or listing, agent. The agent shows the home to the buyer. The agent follows up with the buyer or vice versa. The buyer decides to purchase the home but wants to hire a buyer agent to represent them. The buyer’s agent submits an agreement to purchase the home to the seller’s agent. The buyer’s agent is made aware that the buyer has previewed the home with the seller’s agent and completed a series of acts that led to the buyer’s interest in the property. The seller’s agent claims they were the procuring cause and were due to the full commission being paid by the seller. The buyer is now confronted with paying the agent they choose to represent them or deciding to use the seller’s agent to complete the transaction.
In some cases, the seller’s agent will make a deal with the buyer’s, hand-picked agent regarding the commission. More times than not, I have seen the seller’s agent take 25% of the buyer’s agent fee. In other words, if the commission being offered by the seller to a buyer agent is 3% of the sale price of the home, the buyer’s agent is offered 2.25% commission. The other .75% would likely go back to the seller’s agent. To be clear, this means that the buyer’s agent is working for less money.
Avoiding the Issue
It is helpful to determine whether you are willing to work with the seller’s agent or strictly want a buyer agent to represent your interests. It is also good to understand the difference in agency relationships. To better understand the Pennsylvania Real Estate Agency Act and preview a copy of the Pennsylvania CONSUMER NOTICE CLICK HERE.
If you decide to hire a buyer agent, it is best to have that agent involved in all contacts with any other agent. If you are still shopping for an agent and making property inquiries consider the following:
- When making a call or sending an email relating to a property ask the agent who responds if they are the listing or seller’s agent.
- When scheduling to see a home, let the real estate agent know you have not chosen an agent to represent you at this time. Especially important if you are communicating with the listing agent.
- When open housing, let any attendant know you are not working with an agent if asked and let them know you are shopping for an agent. Open houses are a good place to meet real estate agents, and you may find one that suits your needs.
Simply make it clear that YOU, the BUYER are a free agent if you are not ready to work directly with anyone. It will go a long way.
NOTE: If you have chosen your buyer agent and are visiting open houses without them, it is good practice let the attending agent know you are represented. If the attending agent asks you to sign in, do so and also put your agent’s name down.
The Systemic Anomaly of the Real Estate Industry.
If you have ever watched the movie The Matrix, you understand the problem with the Matrix was “Choice”. As with real estate, the same seems to be true. The systemic issue is not just a buyer’s choices but the order in which they are made. One choice leads to the buyer and their chosen agent both getting what they expect from each other. The other may lead to chaos in the form of a possible dispute over money and who is entitled to it.
Remember, Realtors are people too. No one truly likes to put forth effort and not be honored for it. In the case of a real estate transaction, the effort equals commission. It is for this reason that the industry even exists. It is wise to understand whose time you are using before sending that email or placing that call. It may seem harmless enough but when money and feelings are at stake little good can come out of the confusion.
Making the Choice.
Many real estate agents, who represent sellers take calls, answer emails from prospective buyers and show them homes. In most cases, they do so without claiming procuring cause. The job for most listing agents is to sell the property they have listed. While it is both legal and possible to represent both the buyer and seller in a real estate transaction, it can be challenging.
Having a great buyer agent can be extremely rewarding. The buyer agent can assist in finding the right properties to investigate. Opportunities will be more abundant, time saved and information more reliable than an online search.
Buying a home has become increasingly complicated. It is, therefore, imperative to have an agent that understands the rules, regulations and competent practices associated with purchasing real estate. A great Buyer Agent has great contacts. You may need advice from a mortgage lender, home inspector, contractor, conveyancing, etc.
The message here is simple. Buying a home may be the most important thing you do. Where you live shapes much of your life. It influences the people you meet, friends your children will grow up with, the way you drive to work and so much more. It is a time when you need someone who is not going to sell you anything but be a competent advisor. It is a time when you need someone who will apply reason, experience, and knowledge.
Finding the right real estate agent may be more important than finding the right home. Someday you may want to sell that home and find another. The effort you exerted to find the right agent can be something that lasts a lifetime.
Knowledge is Power!