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This is a really important concept to understand, and one that is required to be explained by a licensed real estate practicioner before a consumer is asked to sign anything.
When you hire an agent, you are really entering into a contract with the agent's brokerage; the agent themselves are authorized representatives of the brokerage. The contract, or agreement, spells out the nature of the relationship (called 'Agency'), in which the consumer is the 'principal', and the brokerage is the 'agent'. Each owes the other specific rights and each has specific responsibilities.
Often, the consumer is a wary of the representation agreement - especially buyers. They may fear that they are going to be forced to do something (e.g. buy or sell a home), or be trapped in a working relationship with someone that they end up being uncomfortable with. They may also be concerned that the 'fine print' is going to empty out their wallets whether they like it or not.
In actuality, the honest consumer has nothing to fear. These contracts, in a nutshell, basically say that if the consumer buys (or sells, as the case may be), that the brokerage will be authorized to act on their behalf, and will be entitled to be paid when and if a purchase or sale is actualy completed. It does not say anywhere that the consumer actually has to buy somehing. Or sell.
In fact while there is (naturally) some wording in the agreement that 'protects' the brokerage, the reality is that the primary burden lies with the brokerage and their representative. This is not spelled out explicitly in the agreements, but the 'Agent' owes the 'Principal' some very specific obligations, called 'fiduciary responsibilities' - and this is what you should be aware of as a consumer. We've listed them here for your reference.
Accounting
The agent must, on request, provide details of all funds held in trust and all monies handled on behalf of the principal. The brokerage is required to maintain accuracy, following all provincial regulations and generally accepted methods of accounting.
Confidentiality
An agent must not use information acquired as the principal's agent for any purpose likely to cause the principal harm or to interfere with the principal's business. This duty though, should not be confused with a real estate professional's responsibility to disclose any known material facts about the property to persons other than the principal. The obligation to disclose material facts, including defects, is part of the duty of honesty, which does not depend on the existence of an agency relationship.
Competence
An agent must have sufficient knowledge and skill to carry out the required duties. In representing a principal the agent must exercise a degree of care and skill that might be expected from an person in that trade or profession.
The Code of Ethics and Standards of Business Practice of the Canadian Real Estate Association, among other things, sets out the need for the agent to discover facts relating to every property to avoid error, misrepresentation or concealment of pertinent facts. It also imposes the obligation on the agent to render skilled and conscientious service.
Good Faith/Full Disclosure
Good faith can best be described as honesty of intention, and abstention from taking advantage of another. The agent must disclose anything that could affect the principal, any personal interests that the agent has in a transaction, and any 'hidden' or 'secret' profits the agent might be making.
The agent must also disclose all known relevant and material information that pertains to the scope of the agreement, including anything that might influence the value or desirability of a property. If the agent is not sure if something is important, they must tell the principal, and let the principal make the decision.
Loyalty
Loyalty is typically viewed as the most important duty owed to a principal. The agent must place the interests of the principal above all else except the law. The duty of loyalty obligates the agent to act at all times solely in the best interests of the principal, excluding all other interests, including that of the agent. In other words, the agent should always be thinking about the client, and not about the commission cheque.
Obedience
Real estate brokerages, as agents, are under a duty to the principal's lawful instructions, whether the agent agrees with them or not. It doesn't matter if the agent uses reasonable judgement while ignoring the principal's instructions. The consumer is the boss.
When the time comes to sell your home you may wish to interview more than one agent. Even if you have a specific agent already in mind, it's still a good idea to have more than one agent in to see you and your home. Personality and comfort are definitely important - after all you will be working with the individual you select for a while, and a good relationship can help ease some of the stress that home-sellers naturally feel. However, there are technical aspects to the job of selling a home too, and while we can't tell you how to decide who you are comfortable with, we can help you assess a prospective agent's abilities. With that in mind, here are some key topics you should cover with any real estate professionals you interview.
This is a natural one - most people want to know what kind of costs they will incur. The commission that an agent charges is actually made up of two parts: the commission that will be paid to whomever represents the buyer, and the listing commission.
Buyer agent commission is important, and you should learn what is common practice in your local marketplace. Discuss Buyer agent fee strategies with your agent - there is no set fee and some approaches may work against you.
The listing side commission is driven by competitive pressures. One key suggestion is, if the agent you like best, or feel would do the best job has the commission structure that is least appealing to you, it doesn't hurt to let that agent know that you have obtained a better price from someone else, and then give them the chance to offer a more competitive rate. They may not be able to do so, but you have nothing to lose by asking. Also, it's worth asking the agent what kind of discounted rate they offer under specific circumstances. What if they also represent the buyer? What is their 'double-end' rate? If they are part of a team, does the discount apply to all team members, or just to that specific agent? What if you are going to buy your next home through them? Does that affect their rate? In fact, many of the ads one sees that refer to 'commission as low as' may require precisely this kind of circumstance. Clear and precise definition of what the commission will be under which circumstances is definitely important. Just keep in mind that commission is only one part of the picture, and is not the only thing that affects how much money is left in your pocket when all is said and done.
Handling negotiations is one of the key areas for a real estate professional to shine. And of course, one of the main outcomes in negotiation is the price. The percentage of the asking price that a seller receives from a buyer (once a deal has been reached) is frequently referred to in real estate as the 'sale-to-list' ratio. Comparing the market average sale-to-list during a given period for all sellers to that of the agent you are interviewing makes for a useful comparison.
For instance, let's say that the market average sale-to-list lastyear was 97%. An agent who achieved an average of 98% might be a better choice than one who achieved an average of 97% or less. This is in fact just as important as the commission - after all, both are based on the final sale price. If you had to pay half a percentage point more in commission to get the agent with the best track record, and you then got a 1% higher sale price, you'd be ahead by one half percent - about $1,400 for the average sale in our market last year. No one can guarantee that they'll always achieve a higher than average sale-to-list ratio, but it's worth asking about anyway. The past is usually a pretty good indicator of future performance.
Days-on-market (or DOM for short) is another pretty common term in real estate. It refers to the number of days it took from the first day on market for a seller to obtain a firm sale (no conditions). Again, looking at the average length of time it has taken other people to sell in your area can be quite useful. This can help you set a reasonable expectation for yourself and to plan accordingly. Perhaps more importantly, comparing an agents past performance against the market can tell you something about the accuracy of their pricing strategy, and the effectiveness of their marketing program(s). The closer your asking price is to what the market (think prospective buyers in this case) feel is a good price for what you have to offer, the faster the offer likely will come. And of course, the agent's ability to draw attention to your property factors in pretty significantly.
Yet another key metric to consider is the percentage of the prospective agent's listings that actually sold. When a property reaches the end of its listing period without selling, the listing is said to have 'expired'. This regularly happens with over 25% of the listings in the Barrie and area real estate market. Again, comparing a specific agents performance to the market average is worth doing.
This one is pretty straight forward - the question is "what are you going to do to draw attention to my home?". Key things to consider are
Like every other kind of work, the number of times we have performed our jobs is pretty important - at least, it is if we are building on our experiences and making a determined effort to learn from them. With real estate, the main question is not "how long have you been an agent", but rather, "how many clients have you had, and how many deals have you done?"
A significant number of agents in the Barrie area do less than 5 deals per year. That's not a lot of learning opportunities. Part of the value an agent can add is the experience that comes with putting deals together - which in turn often means having successfully handled the problems that occur regularly in the normal course of these very significant transactions.
At the other end of the spectrum from the agents doing only a handful of deals per year are the 'top' agents - people who are doing 2 or even 3 deals every week. That might not sound like a lot, but remember that those deals required interview time (to get the listing), which in turn required market research, time completing paperwork, creating ads, arranging signs, coordinating photos, and so on - or meeting buyers, finding and showing properties, drafting offers, coordinating home inspections, financing.... the list goes on.
The point is, it doesn't leave a whole lot of time for focus on any given listing - or for taking a quick breather and thinking - what have I learned from this one? Remember, keeping you safe from trouble is a big part of an agent's job. And let's face it - when human beings get extremely busy, they are more prone to mistakes. Somewhere between the 'super agents' and the low-performers is the right balance between knowledge, experience, attention to detail and client care. Its really just a question of what makes sense to you.
Finally, like any interview, a little reference checking is a good thing with agents. Testimonials from past and repeat clients are worth asking for. Of course, no one is likely to hand over anything but complimentary feedback for your perusal - but its still a good idea. The more references an agent can produce, the better.
Coming soon.