Using a Real Estate Broker
A good broker makes it easier to buy/sell a home.
Whichever kind of home you decide is right for you, the chances are that you will use the services of a real estate broker to help you in your search and to guide you through the buying process. While it's possible to buy a home directly from a seller without using a broker, real estate brokers can provide a valuable service, especially to a first time home buyer.
For example, a good real estate broker will be familiar with all the properties for sale in the area you want to purchase in and in the price range you can afford. He may even be able to recommend other communities in the area which would suit your purposes but which you might not have considered on your own. Real estate brokers can provide information about taxes, schools and community services in the area of your choice, and they can provide guidance about financing your home purchase. If you are moving to a community in a new state, they can give valuable information about obtaining business and professional licenses, paying utility deposits, and may even be able to arrange discounts on moving company services.
However, unless you sign what's known as a buyer's brokerage agreement, it's important to remember that a real estate broker is considered by the law to be the agent of the seller, and has a legal obligation to get the best possible price for the seller's property. That means that you should be somewhat cautious about revealing too much information to the broker about your feelings about a particular property.
If, for example, you tell the broker that you love a particular house and would be willing to pay the asking price for it, you may find it impossible to make an offer below the asking price and have that accepted by the seller. A real estate broker is legally required to present all written offers to the seller, but he also has a duty to the seller to tell him if your offer is the best one you'll make. If the broker knows you are willing to go higher to get the house, he can't encourage the seller to accept your lower offer. If he did, the seller could sue him later for the difference between what you paid and what you were willing to pay. And since a broker's commission is typically a percentage of the sale price, it's against his own interests to suggest the lower price as well. So it's best to play it close to the vest if you are using the services of a real estate broker who works for the seller.
If you are selling a home, you don't need a real estate broker to do so. But unless you are willing to advertise the home yourself, conduct tours, qualify buyers, and arrange for the real estate contracts and closing, a broker's services can be a good investment. In most cases, brokers charge a commission to the seller of from 5 percent to 7 percent of the sale price of the property. However, some real estate brokers are now charging much lower commissions if you are willing to share some of the responsibility for selling your home, such as conducting open houses for prospective buyers. Some real estate brokers have even begun to charge a flat fee for the services they provide. And although some brokers would prefer that you not know it, real estate commissions are always negotiable. So if you live in a market where there's a lot of demand for houses, you may be able to bargain for a lower commission.
When you use a real estate broker to sell your house, you will sign what's known as a listing agreement, which gives the broker the authority to find a buyer and receive his commission. There are several kinds of listing agreements that real estate brokers use.
The listing agreement you are most likely to be offered by a broker is the "exclusive right to sell" agreement. With this agreement, you promise the broker that he will receive a commission if the house is sold by anyone during the term of the agreement. Under an exclusive right to sell agreement, you have to pay the broker's commission even if you sell the home yourself. It's easy to see why this is the listing agreement broker's favor the most.
A better agreement, at least from the seller's point of view, is the exclusive agency agreement. With this kind of agreement, you only pay the broker's commission if the sale results from his efforts. If you sell your house to your nephew or to someone else you find on your own without any input or assistance from the real estate broker, you owe him no commission.
An open listing agreement not only gives you the right to sell your house yourself, but it also gives you the right to list the house with other brokers as well. You only pay a commission to the broker who actually finds the buyer. Open listings are not looked upon favorably by most real estate brokers, and its unlikely you'll convince a broker to go for this kind of agreement.
In any case, you should try to avoid signing a listing agreement that lasts for more than 90 days. Most brokers will try to convince you to sign a six month agreement, and in sluggish markets they may even ask for a one year agreement. The problem with such long agreements is that they don't provide adequate motivation for the real estate broker to sell your home quickly. It's better to sign an agreement for a shorter term. If you think the broker is making a good faith effort to sell your property, you can always renew the agreement. That way, if you think the broker isn't trying hard enough to find you buyers, you aren't stuck for a long period.
While it's possible to cancel a brokerage agreement on the grounds that the broker isn't making a reasonable effort to market your property, your definition of "reasonable" may be different from the broker's, or a court's definition. Many lawsuits have been filed by brokers against homeowners who tried to get out of a too-lengthy listing agreement, and many of those lawsuits have been successful. Better to limit your relationship with any one broker to the shortest time period possible.
You'll also want to negotiate a provision in your listing agreement stating that no commission is earned by the broker until the sale of your property actually closes. In some cases, a defect in the title to the home made it impossible for the buyer to complete the purchase. In other cases, the seller changed his mind after the contracts were signed and refused to complete the deal with the buyer.
In many of these cases, the broker who arranged the sale was able to collect the commission he would have earned if the sale had been completed, because the listing agreement stated that the commission was earned when the broker found a buyer who was ready, willing, and able to make the purchase. While it's not likely that a broker will agree to a provision that deprives him of your commission if you simply change your mind about the sale, you shouldn't have to agree to pay the commission if the sale isn't completed through no fault of your own.
Copyright 1999 ProSe Associates, Inc. All rights reserved.
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