After concluding the agency relationship, when may the broker disclose confidential information?

Residential real estate has many different players, including property managers, appraisers, contractors, home inspectors, mortgage loan offers, government agencies, prospective buyers and sellers, and real estate agents and brokers. However, the workhorses of real estate transactions and the actors that coordinate the process are real estate agents.

If you are among the many people out there who have decided to become a homeowner, a real estate agent will be pivotal to this major financial undertaking. A good agent will help you find a suitable home, negotiate on your behalf for the best price, oversee property inspections and facilitate the purchasing process.

But how do you tell apart an agent has your best interests in mind from those pushy ones seeking to make you pay more than you should increase their commissions? Choosing a reputable, competent and trustworthy agent is an important aspect of the home buying process. Herein is a comprehensive guide on agency relationships to help you sift through average agents, avoid bad agents, and select an excellent agent deserving of their commissions.

Agency Relationships

One of the fiduciary duties of real estate agents is to properly represent their clients by agreeing to an agency relationship. An agency relationship is formed when buyers or sellers and their agents sign an agreement or disclosure form.

The disclosure or agreement states that the real estate agent is acting on your behalf and in the best of your interest. This includes providing exclusive representation and keeping your information confidential. It used to be that many agents working with home buyers would actually represent the sellers' interests to increase their commissions.

Consumer protection laws in many states require agents to provide buyers and sellers with the aforementioned disclosure form detailing their fiduciary duties. However, keep in mind that the laws regarding the legal responsibilities of real estate agents differ from state to state.

As a buyer, you can choose the type of relationship with your agent. There are two broad types of agency relationships – single agency and dual agency.

Single Agency

Single agency refers to when an agent represents one of the two parties in the transaction, being solely responsible for representing their best interests. There are two types of single agency relationships, one with the buyer and the other with the seller.

As a buyer, the real estate is solely responsible for representing only you. The agent doesn’t represent the seller even when the seller pays a portion of the commission. You will sign a buyer’s broker agreement with your agent.

On the other hand, in a single agency seller relationship, the agent solely represents the seller's interests. A seller signs a listing agreement with their listing agent. The agreements in both types of single-agency relationships detail the agents' duties to adhere to. These duties usually include disclosing all material facts, performing care and due diligence, and ensuring transparency and honesty.

While beneficial in many aspects, single agency relationships are susceptible to conflict of interest. Conflict of interest, in this case, arises since the commission is related to the percentage of the property purchase price.

Some agents don’t accept commission from sellers and opt to sign a contract where you pay them a retainer (that may or may not be refundable) that you apply towards the fee owed when they locate a suitable home. An effective method of dealing with this conflict of interest involves offering your agent a lump-sum commission and a bonus only if they get you a great deal.

Dual Agency

In a dual agency, the buyer's agent and listing agent come from the same brokerage. This relationship only needs the real estate brokerage to be the same and other variables, such as office location and familiarity, to be irrelevant. There are two types of dual agency relationships.

A dual agency with two agents occurs when a buyer's agent and seller's listing agent are from the same brokerage. In this case, they must work on behalf of their clients and not the brokerage. Real estate agents in this relationship have to follow their duties due to this common association.

A dual agency with the same agent occurs where one agent represents both the buyer and the seller. This dual agency relationship is rare due to the difficulties in representing the best interests of both parties in the transaction. Due to this conflict of interest, many agents opt to specialize in representing either party, but not both.

Dual agency has two inherent problems. First, an agent can share confidential information with other agents in the real estate brokerage. Secondly, agents can push their in-house brokerage listings to earn higher commissions. Dual agency is a state-by-state issue. Both parties must agree to dual agency in writing in some states after the agency status is disclosed in advance. Click here to learn more about who's who in the homebuying process!

How Real Estate Agents Get Paid

Real estate agents get paid a commission when a property is sold. Conflict of interest between you and your agent arises due to this payment method, especially if you select the wrong agent. A great agent represents you with your best interests in mind first and foremost. With such agents, this conflict of interest isn't a major issue.

The sellers' and buyers' contracts with the agents determine the agent commissions. Generally, commissions are determined as a percentage of the property sale price. Commissions on homes range between 4 and 7 % of the home sale price.

Precisely who pays the agent can be a bit tricky. The standard practice is that the seller pays the commission. Sellers often wrap the fee into the price of the property. As a buyer, you ultimately end up paying the commission indirectly. The collective cost of the commission comes out of both party’s pockets.

Real estate commissions are always negotiable. The fee is usually split evenly between the seller’s and buyer’s agents. However, the contract may stipulate one agent receives more of the fee than the other. Interested in learning more about the home buying process? Click here!

Conclusion

Overall, real estate agents offer a valuable service to both property buyers and sellers. A great agent can help you navigate one of the most daunting and complex financial transactions.

A great agent is knowledgeable, experienced, and personable, educates you on the purchasing process, has exceptional negotiation and communication skills, and is lawful, detail-oriented, transparent, and honest. Such real estate agents deserve every bit of the commissions they get paid.

Interested in learning about becoming a resident in Florida or moving there? Read more.