You’re thinking of buying a home.  You know that it’s not like going to Target and just selecting something off the shelf and walking up to the check-out clerk and giving them your money.  You know that there are a few key people involved in buying a home, but maybe you’re not really sure just who these key people are and how many of them you really need and where they come form.  Let’s take a look at the major players in a real estate transaction.

Let’s start with you – the Buyer.  I’d say you’re pretty key to a real estate transaction!  Wouldn’t you?  You want to buy a home.  Somebody owns that home – a Seller.  Another key player.  So the Buyer and the Seller are obviously key players and they are known as the “Parties” to the real estate transaction.

You and the Seller could put together a transaction on you own, just the two of you.  A Buyer with Money.  A Seller with a Home.  That’s all that’s required.  But normally there are other people involved.  Real estate transactions can be somewhat complicated and usually there’s an element of tension between the seller and the buyer.  As a result, other people get involved to make sure the transaction moves forward and comes to fruition, which is, of course, what both Parties want.

Other professionals who get involved in a real estate transaction include real estate agents, loan officers, title examiners, and closers.  These people also can be key players in your transaction but they are not Parties to the transaction.  Do you need these other players?  Usually you do.  Why do you need them?  What do they do that’s good for you?  To answer those questions let’s see what role each one plays in your real estate transaction.

The Seller-Buyer Relationship

Even though you’re a nice guy, and even though the owner of the home you want to buy is also a nice guy, in a real estate transaction an adversarial relationship exists between the seller and the buyer. It certainly should be, and normally is, a civil relationship.  But adversarial just the same.  While you both want the best deal possible, “best deal” is defined by your own personal perspectives.  The seller wants to maximize his equity, which means he wants to get as much for his home as possible.  You, on the other hand, want to get into the home with the lowest possible payments, which means you want the best price and terms you can get.  So there are two opposing sides to a real estate transaction – the seller’s side and the buyer’s side.

Real Estate Agents and Representation

When a homeowner wants to sell their home and they want to “list” their home on the MLS, they call upon a Realtor.  The Realtor lists the home for sale and places it on the MLS data base.  That Realtor is called the Listing Agent (also called a Seller’s Agent) and the company he is affiliated with is called the Listing Broker.  By law, the Listing Broker and the Listing Agent represent the Seller.  The listing agent is on the side of the seller.  His goal is to achieve the best results for the seller.  Usually that means the highest price possible along with terms favorable to the seller.

When a home buyer wants to look for and buy a home that is listed on the MLS, he could also call a Realtor.  The Buyer can ask the Realtor to treat him like a Customer, or he can ask him to treat him like a Client.  If the Buyer wants to be treated like a Client, he is effectively asking the Realtor to represent him.  If the Realtor agrees to this request, the Realtor becomes a Buyer’s Representative (also called a Buyer’s Agent) and the Realtor’s broker becomes a Buyer’s Broker.  The Buyer’s Agent is on the side of the buyer.  His goal is to achieve the best results for the buyer.  Usually that means the lowest price with terms favorable to the buyer.

A buyer can purchase a home using the services of the seller’s Listing Agent.  (It’s not a very smart thing to do, but it’s not illegal.)  But in that case the buyer would only be a customer of the Listing Agent, and would not be represented by that agent.

Representation is a pretty serious thing in real estate.  By law, a representative (also called an agent) owes several Fiduciary Duties to his Client, and only owes a customer the duties of honesty and fairness.  In other words, while a listing agent must be honest and fair when dealing with a buyer, that listing agent does not, and can not, work in the best interest of the buyer.  He can only work in the best interest of the seller.  (There is such a thing as Dual Agency, but I’m not going to go there at this time, and my advice to you is to not go there either.)

The Open House Bait

If you go into an “open house”, the real estate agent in the home works for and represents the seller.  Even if he is not the actual Listing Agent, he is still a Seller’s Agent and when you walk in the home you are his customer, not his client.  Likewise, if you go into a home builder’s model, the sales person you meet works for and represents the builder (the seller).  Thus that agent is a Seller’s Agent and you are his customer, not his client.

The agent in the open-house and the sales person in the builder’s model work in the best interest of the sellers.  It’s legal for you to purchase a home from them, but you are literally “on your own”.  Without your own Buyer’s Agent you don’t have anybody in your corner looking out for you.

I'm not suggesting that a listing agent or a builder’s agent is going to rip you off or be crooked.  All agents are bound by law and ethics to be fair and honest. But when it comes to the negotiating and advocating that takes place – or Should take place – during a real estate transaction, the listing agent or the builder’s agent can not serve your best interests and those of the seller’s at the same time.

Dual Agency

Minnesota law allows a real estate agent to represent both a seller and a buyer in the same transaction.  This is called Dual Agency.  For dual agency to be legal, both the seller and the buyer need to sign disclosure forms acknowledging that they are aware of and agree to the dual agency relationship with the real estate agent.  I can’t imagine why a seller or a buyer would do this, unless they don’t really know or understand the ramifications.  Sure the dual agent told them he’d be honest with everybody.  But agency and representation isn’t just about honesty.  It’s about advocating for your client.  A dual agent can not advocate for either party.  All a dual agent can do is facilitate a transaction.  A dual agent can’t negotiate for or promote the interests of either party.

Allow me to quote the attorney for the Minnesota Association of Realtors: "... with dual agency ... there are conflicting duties to the seller and the buyer.  Because Minnesota law does not provide much guidance in resolving the dual agency conflicts, agents must often make difficult risk assessment judgments as to what course of action to follow when these conflicts arise."

Now, do you want a conflicted agent making risk assessment judgments on your behalf?

So guess who benefits the most from dual agency?  Yeah, think about this for a minute.  Can’t work in the best interest of the seller.  Can’t work in the best interest of the buyer.  Gets double the commission.

Helping You Is Not The Same As Representing You!

As a buyer, if you allow a seller’s agent to convince you he can “help” you buy a home, you will either be unrepresented or you’ll be represented by a dual agent.  In either case you will not have the full representation you should and can have from a Buyer’s Agent.

Agency Disclosure

Let’s review:  a Seller and a Buyer are the Parties to a real estate transaction.  Real estate agents are often involved in transactions also.  A Realtor can be a Listing Agent, representing the seller, or a Buyer’s Agent, representing the Buyer.  A real estate agent can also be a dual agent if both the seller and the buyer agree to this relationship.  But it’s a bad idea.

When you first meet a real estate agent who you might do business with, before any substantive discussion takes place between you and the agent, Minnesota Law requires that agent to give you an Agency Disclosure form.  The form lists the possible relationships you could have with a real estate agent and describes each in detail.  It also lists and defines the Fiduciary Duties owed you by your agent.  This form is a disclosure; it’s not a contract.  It’s an educational piece.  You’ll be asked to sign it only for the purpose of acknowledging that it was given to you.  If an agent gives you that disclosure form and then immediately asks you to sign a representation contract, run away!  There’ll be plenty of time to sign representation contracts after you clearly understand your choices.

Other Key Players

Who else is a key player in your real estate transaction?  You’ll most likely get a Mortgage which means you’ll interact with a Loan Officer from a mortgage company.  And once the negotiations between you and the seller have taken place you’ll hire a Home Inspector.  Then, when you prepare for your closing, a Title Company will examine the title to the property you want to buy.  And finally, a Closer will pull all the paperwork together and make sure your new mortgage and the deed to your new home are recorded at the courthouse.  These are all very important players in your real estate transaction.

As your Buyer’s Agent I’ll help you understand how all these people fit into your transaction.  And I’ll introduce you to professionals who I believe offer the best services available to home buyers here in the Twin Cities.