Real Estate

So in the first part of the series on intermediary we spent playing out a brief scenario set that introduced everyone to the concept of intermediary. Today we’re here to re-cap, and then outline important things to consider when doing deals with intermediary involved.

Here are some of the things we learned in yesterday’s post, “Inter-what? Intermediary in Texas Real Estate“:

• All representation agreements (listing agreements and buyer representation agreements) are between the client and the broker, not the agent.
• Real estate agents act with the authority of the broker, but they may be the only name/face/contact clients ever have within a particular brokerage.
• When a buyer represented by Brokerage A seeks to purchase a home that is listed by Brokerage A, a potential conflict of interest (the intermediary situation) arises.
• Brokers may appoint representatives (agents) to each party separately – intermediary with appointments but disclosure and written approval of all parties is required.
• Brokers may engage in intermediary without appointments in situations where there are not separate people (agents) that each party is willing to have as a representative, and disclosure and written approval of all parties is required.
• In intermediary without appointments, the Broker (and their agent) may not represent one side over another, and cannot give advice – therefore they end up not truly “representing” either.

Let’s take these one at a time.

Intermediary with Appointments

Why consider this option?

You keep your agent: From the realistic perspective, customers have their relationship with an agent – an individual person – rather than with some broker executive or nebulous brokerage company. Many brokers/brokerage sponsor tens and hundreds of agents, but I’ve yet to encounter someone who was so hell bent on working with a particular company that they had no regard for the individual agent’s knowledge, skills, personality, experience, or professionalism.

You can still be represented well: If you’ve told your agent your bottom line or confidential details, those bits of information stay with the agent. It’s not as if there are secret files in real estate offices where everyone spells out their clients’ secrets so that the true broker can read over them and have a monopoly on knowledge. Your individual agent, again, is the one down at ground level working for you – making calls, showing houses, negotiating, advising, calming you, and more.

Doesn’t limit you: If you have your house listed, but refuse to consider intermediary – then you’re essentially turning away potential buyers simply based on their agent (whom you may have never met). If you’re buying and refuse to look at properties listed by your agent’s brokerage, you are then saying that you might be willing to miss out on your perfect home.

Why be wary of this option?

People are human: Agents are social creatures, and they talk to other agents. The most common “other agents” that they see are those in their own office, and many agents bring up challenges with their own business in even casual conversation. But once agents are thrown in the ring together to work out a deal, suddenly they begin remembering every conversation they’ve ever had with their opponent. And there doesn’t have to be confidential information revealed for another agent to have unintentionally gained extra knowledge about you and your position.

Accidentshappen: Common space shared by brokerages can lead to a problem if even one piece of information is unattended. Common fax machines, stray pieces of paper left on the copier, or a single misdirected phone call can have unintended consequences. These types of problems are rare, but they can still occur.

Brokers are people too: If a major conflict should arise in a transactions, many times a broker (the real tried and true person) or sales manager is called in to help stand up for the agent from their company and that client. Even if each agent performs carefully, a conflict could still develop, and then who would the actual broker side with/support?

Intermediary without Appointments

Why consider this option?

You keep your agent: Maybe your agent is a family friend or someone who put in a lot of hard work and effort for your interests. You don’t have to give that up or alienate that person in order to get what you want out of the deal. Plus, they may have given you a lot of great advice and tips before you ever got to the point of needing an intermediary anyway.

Your agent has more knowledge: A listing agent on a property should know more about the inner workings of that property – upgrades, features, negotiability of sellers, etc. – than any stranger would. And more information could be helpful to a buyer, right? And the reverse is true – if your listing agent brings a buyer client to the table, at least you expect that agent has done some preliminary research and knows that the buyer is qualified and serious, right?

You get a better deal: If you’ve signed a listing agreement to pay, let’s say 6% commission, suddenly there is no “other agent” that your listing agent has to share with, you may be able to negotiate that agent down to a reduced rate. Or, if you’re buying – maybe you can capitalize on the seller’s reduced commission bill to get the house for a lower price or more in closing costs.

Why be wary of this option?

No representation: Even if you’ve bought and sold twenty houses, agents are still the experts. They know the current market conditions, legal obligations, challenges to transactions, ways to overcome obstacles, and they’re the ones you pay to get down in the trenches and push for your best deal. But the second you agree to an intermediary without appointments, you have to be ok with settling for a glorified paper pusher as an agent. Only you can decide if that’s what you really want.

Trying isn’t always enough: It is virtually impossible for a person to be totally and completely impartial – even a real estate professional. And while they may not directly express preference or reveal more to one side of the deal than to the other, they may inadvertently give away non-verbal clues, or voice inflections, or asking you the same question a few more times than usual to really drive a point home. And that’s just if they’re being ethical. Imagine the fun if an agent is not on the up-and-up and does actually cross the line?

Your agent is more motivated: Think about it- two birds, one stone. Of course they want to get a deal worked out. The NAR Code of Ethics requires an agent to put a client’s interests before their own, but unfortunately this becomes harder and harder for some agents to do when faced with the prospect of a double commission.

The moral of this story: be informed and be careful that you know what you’re getting into. Not every intermediary situation is bad, and not everyone is good either. Evaluate your wants, your needs, and your agent. Don’t be afraid to be educated.

image courtesy of William Brawley

A tricky little technicality that most buyers and sellers don’t know about real estate in Texas is that, while they may think they are working with a single agent as their representative, they have actually hired a brokerage. And that brokerage has allowed that individual agent to act on its behalf. However, all of the true power, all of the time, lies at the broker level. Why does this matter, you ask? Because of a little something we call intermediary. Here’s an example:

You’re looking to buy a house. You do your research and call up agent John P. Millionz with I-Rock-So-What Realty. When you sign your buyer’s representation agreement with Mr. Millionz, you’re actually signing an agreement to have I-Rock-So-What-Realty represent you (and then they, through a separate agreement, let Mr. Millionz be the one appointed to work directly with you). More than likely you will never hear from anyone at “I-Rock” other than Mr. Millionz, and you really would not have much reason to do so, provided Mr. Millionz is good at his job. The agreement says that “I-Rock-So-What Realty” (and in turn, Mr. Millionz) have a duty to represent you, to give advice, and to put your interests above those of any others. Awesome.

So you and Mr. Millionz go out looking at houses and right off the bat, you find your absolute dream home. Stop the wagons, call off the hounds – whatever it takes, you have to have this home for your very own. And then you see a sign that says “This home listed by Ivonna Spelt with I-Rock-So-What Realty.” From where you’re standing, you can clearly tell that your agent, Mr. Millionz, and the seller’s agent, Ms. Spelt, are two different people, and for that reason there should be no-problem with Mr. Millionz representing you, and Ms. Spelt representing the sellers and everyone coming together in a glorious action that makes you the happiest you’ve ever been in your whole life.

But wait…let’s go back. Remember that all written representation agreements are between a client and a broker? So the truth of the matter is that I-Rock-So-What Realty represents you and I-Rock-So-What Realty represents the seller. How can they put your interests in front of the seller’s interests (whom they have also agreed to put above all else)? Enter the conflict.

Well, Texas Real Estate law has made a provision for this called intermediary. So long as all parties are informed and agree in writing on this potential conflict and each opposing side has an individual that the broker can appoint as a representative (Mr. Millionz to you, and Ms. Spelt to the seller), everyone can sign a disclosure form and truly work as two separate but equally represented sides that come together to consummate a real estate transaction.

Ok. Starting to make sense, so let’s go back into our pretend scenario. You’re out looking at houses with Mr. Millionz and a lightbulb clicks on in his brain. He’s got the perfect house for you. One problem – it’s one he’s listing. Remembering the “broker level” agreements from before, you think…hey…no problem. I-Rock-So-What Realty can just assign us each a different agent. Wait a minute. There’s only one agent. Can he truly represent both you and the seller? What if he knows the seller’s bottom line already? Can he tell you? What if he knows you love the house and will pay anything for it – will he tell the seller? What a pickle you’re suddenly in.

Texas real estate does still have an option for this type of scenario. It’s called intermediary without appointments. That means that, in essence, the broker (I-Rock-So-What Realty) represents no one. The broker and its agent (Mr. Millionz) must disclose material facts and obey the law, can’t disclose confidential information, but also can’t give advice. They can submit offers, counter offers, negotiate repairs and do contracts. It’s a slippery slope because the agent must be very careful not to give an advantage to one side over the other. But it’s do-able.

Does your brain hurt already? Well, just remember that this is the kind of fun technical madness that your real estate agent is trained and paid to help you sort out. If you’ve ever found yourself in a situation with intermediary that you don’t quite understand, feel free to give us a call.

image courtesy of familymwr