Q: We are just starting the process of buying our 1st home. We we found a house we really liked and wanted to put an offer in on Friday (New Years Eve). She said it would just sit all weekend because of the holiday. Also she didn’t offer us any advice on strategy or how much to offer. When I said to my mother (in front of my agent), “If we run short on the closing costs, can you help us out?” my agent didn’t tell us that we could actually offer more money for the house and ask the seller to pay for the closing costs.

Also my agent asked me to get in touch with my lender and get a pre-approval letter for the EXACT amount of our offer, and have it reflect our FICO scores. My loan guy is pretty awesome, and even called me back on a Sunday night. The earliest he could get me that letter was Monday morning. That is pretty much a 1-day delay every time I want to put in an offer. Is there any way around having the exact dollar amount of your offer on the pre-approval letter?
By the way, my agent was wrong. Someone put an (accepted) offer in on the house that we wanted on Sunday night, before we could get to her office on Monday. I want to use this as a learning experience, since I’m heartbroken about missing that opportunity.

There are a lot of questions built into this one email. I’ll break down the answers by category.

Agent Duties

The duties an agent performs depends on your relationship with the agent. This does not mean whether you are friends or not. In real estate there are two types of relationship you can have with an agent: customer or client.

CUSTOMER RELATIONSHIP

This is the default relationship a buyer will have with an agent. When you walk into an open house, you are that agent’s customer. When you call the agent who’s name is on the sign, you are a customer. It is basically the same relationship you would have in any other retail situation such as buying a car. The agent is obligated to present the property in the best possible light and to sell it for as high a price as possible. However, unlike those situations, a Real Estate agent is bound by law to provide the following duties to all parties (customers and clients) of a real estate transaction:

• The duty to provide brokerage services to you fairly and honestly.
• The duty to exercise reasonable skill and care in providing brokerage services to you.
• The duty to provide you with accurate information about market conditions within a reasonable time if you request it, unless disclosure of the information is prohibited by law.
• The duty to disclose to you in writing certain material adverse facts about a property, unless disclosure of the information is prohibited by law.
  • Material Adverse Fact: A “material adverse fact” means an adverse fact that a party indicates is of such significance, or that is generally recognized by a competent licensee (real estate agent) as being of such significance to a reasonable party, that it affects or would affect the party’s decision to enter into a contract or agreement concerning a transaction or affects or would affect the party’s decision about the terms of such a contract or agreement. For example: The agent knows that the furnace regularly goes “boom” when it first fires up, he must disclose it to everyone regardless of the wishes of the seller.
• The duty to protect your confidentiality. Unless law requires it, the broker will not disclose your confidential information or the confidential information of other parties.
• The duty to safeguard trust funds and other property the broker holds.
• The duty, when negotiating, to present contract proposals in an objective and unbiased manner and disclose the advantages and disadvantages of the proposals.

In other words, the agent is supposed to treat you honestly, fairly and do his job to the best of his abilities according to your direction so long as it does not violate the law. An agent in a customer relationship is not allowed to give opinions or advice. So, if you ask them how much to offer, the answer should be “list price” or he will suggest that you decide that on your own. It would be wrong for the agent to tell a customer that even though the asking price is $299,000 the seller would take $275,000 unless specifically directed to do so by the seller.

With regards to the amount of the offer or how to structure it, the agent was doing her job correctly if you were her customer (in which case, she would be the “Selling Agent” and not a “Buyers Agent”), but the fact that she wanted to wait out the weekend did you (and her) a huge disservice as you found out.

CLIENT RELATIONSHIP

To have a client relationship with an agent requires having a signed contract (Buyer Agency or Listing Contract) with you. This allows the agent to provide you additional duties as listed below:

• The broker will provide, at your request, information and advice on real estate matters that affect your transaction, unless you release your broker from this duty.

The broker must provide you with all material facts affecting the transaction, not just adverse facts.

• The broker will fulfill the broker’s obligations under the agency agreement and fulfill your lawful requests that are within the scope of the agency agreement.
• The broker will negotiate for you, unless you release the broker from this duty.
• The broker will not place the broker’s interests ahead of your interests. The broker will not, unless required by law, give information or advice to other parties who are not the broker’s clients, if giving the information or advice is contrary to your interests.
• If you become involved in a transaction in which another party is also the broker’s client (a “multiple representation relationship” (a different blog post for a different time)), different duties may apply.

Note the use of the term “broker” as opposed to “agent”. All contracts are considered to be the property of the broker (in my case, all my contracts are owned by First Weber, I am just the agent for those contracts). Technically, if you have a Buyer Agency contract with me, then all agents within First Weber are required to treat you as a client (exceptions apply – again, another post). It is the same with listing contracts except that with a listing contract, you are the client of every agent unless that agent has a Buyer Agency contract with a buyer.

If the agent in the question was a Buyers Agent then she blew it big time. She is obligated under the contract to offer advice on price as well as how to structure the offer to your best advantage.

THE DIFFERENCE

When you walk into an open house or call the agent who’s name is on the sign you are a Customer to that agent. That is not necessarily a bad thing, but the old adage “buyer beware” kicks in. You have to know what questions to ask the agent and what information to request. If you are the client of the agent, they provide this to you as a matter of course. You have a very knowledgeable coach in your corner who can direct the transaction smoothly and hopefully save you some money as well.

Submitting A Pre-Approval Letter

There is nothing within the contract requiring that they be submitted with a pre-approval letter. But, some sellers, especially banks selling foreclosures, won’t even look at an offer without an accompanying pre-approval letter. Your agent should know this prior to writing an offer. Furthermore, your agent should have asked you for a pre-approval letter before writing an offer (not to mention you should have gotten one before going out home shopping!).

The advice your agent gave was good, get the pre-approval for the amount you are offering, especially if it is required that you submit it with the offer. It doesn’t always help your case when you are offering $175,000 on a house listed at $200,000 and giving a pre-approval for $200,000. However, this advice tells me she was working as a Buyers Agent.

In my practice I will submit an offer for a Buyer Client and write into the contract that the buyer is pre-approved and will submit proof within 3 days of the acceptance of the offer. This protects you from the above scenario plus can buy you some time over a holiday weekend, such as what happened to you. I would not ask for or supply to the seller your FICO scores. They are immaterial to the transaction unless you are asking the seller to finance a portion of the sale price.

Learning Experience

Not to be smart, but if you feel the need to contact another agent (or agents) about a transaction, then you are working with the wrong agent.

At the beginning of your buying process your first step should be to sit down with a mortgage person to find out home much you can afford. Once you know this, go to some open houses and talk to the agents – interview them, ask questions. Are they interested in you? Do they know their stuff? Would you feel comfortable with them representing you in the biggest transaction of your lifetime?

Other good sources for agents to interview would be your mortgage broker, friends and family.

Don’t start calling names off signs for private showings since the rules within the REALTOR community make it tough for one agent to represent you on a home that you were already through with a listing agent. Open houses are the exception to that. Use those to find a good agent then stick with him or her. Have them send you properties, set up private showings and write your offer.

Getting pre-approved and finding an agent to represent your interests before going house shopping will assure a smooth, stress-fee real estate transaction from the first introduction through the closing.

Posted in: Home Buying
Tags: advice, agent duties, buyer's agent, closing costs, customer relationship, Home Buying, money down, offer, open house, pre approval letter, Real estate, selling agent