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Understanding dual
agency, mortgage pre-approval
Consumer Real
Estate News
The first step to buying real estate is to get a mortgage
pre-approved in writing; unless you are buying real estate for
all cash, you will most likely need a loan. For simplicity,
let's presume you are buying a primary residence single-family
house, condo or a small income property where you will be the
owner-occupant of one unit. These are the easiest properties
to finance. They also are usually the most profitable if they
are sound, well located and in an appreciating area with
rising values.
Before looking for a property, it is best to get pre-approved
in writing by an actual lender. Don't worry about shopping for
the best mortgage terms yet. You can do that later after
you've tied up a home purchase with a firm contract. The
important thing is to get pre-approved in writing so you can
shop with confidence as a very strong buyer..
Smart home buyers need a mortgage lender's pre-approval letter
before starting the home purchase quest. It will probably
include a few reasonable contingencies, such as (a)
satisfactory appraisal of the property being purchased, and
(b) re-verification of the borrower's employment and credit
report. The actual lender's pre-approval letter is often valid
for 45 or 60 days, and it can usually be renewed or extended.
Don't give up if you can't get a lender's pre-approval letter
or certificate. Today, there is a way for virtually every
person with a reliable income to buy a house or condo (even if
you have horrible credit!)
Apply Now!. There are many alternative home
finance methods, such as a lease-option to tie up a home while
you clean up your credit report over the next year or two;
seller financing; buying "subject to" an existing mortgage;
and assuming an existing mortgage (lenders are often far more
liberal about allowing a mortgage assumption than when making
a new loan).
THE SECOND STEP – FIND A HOME YOU WANT TO OWN AND UNDERSTAND
WHO REPRESENTS WHOM. With an actual lender's mortgage
pre-approval letter in your hands, now it's time to shop for a
house or condo. This might take a week or two. But some home
buyers take six months or longer. A savvy buyer's agent can
speed your home search if that buyer's agent is knowledgeable
about the local home sales marketplace.
With your pre-approval letter, you're a strong buyer. Buyer's
agents covet you! But it's usually best to work only with one
agent at a time. If that agent doesn't treat you right,
however, such as by phoning you several times a week about new
listings and price reductions, drop that agent and find a
better buyer's agent.
Unless a buyer's agent comes very highly recommended by a
trusted friend or business associate who has actually bought a
property through that agent, I suggest not signing a buyer's
agency contract with that agent. If you do sign such a buyer's
agency contract, I recommend it be for not longer than 30 days
(just in case the buyer's agent turns out to be a dunce!).
That leads us to the ultra-important topic of who represents
whom in the transaction. If the house, condo or other property
is listed for sale with a "listing agent," that agent
obviously represents the property seller. But who represents
the buyer? Without getting into a long boring discussion of
real estate agency (entire books have been written on this
topic!), there are several possibilities:
1 – Listing agent also represents the home buyer. This is
called a "dual agency." A dual agency can arise quite
innocently without much thought, such as when a buyer meets a
nice listing agent at a Sunday afternoon Realtor's open house.
Obviously, it is an inherent conflict of interest for one
licensed real estate agent to represent both the buyer and
seller in the same transaction. However, dual agency is legal
in all states (that's because the Realtors want it that way so
one agent can "double end" the transaction and not have to
share the sales commission with an agent from another
brokerage).
Or, suppose one licensed agent shows you a listing of another
agent who works at the same real estate brokerage. This is
also a dual agency because both agents work for the same real
estate broker. In some states, the agent who obtains a buyer
is called a "transaction agent" to avoid the dual agency
problem.
2 – Buyer's agent represents the buyer only. Sometimes called
a "buyer's broker," this situation is usually best for the
home buyer or investor. The reason is a buyer's agent can be
brutally honest with the buyer whereas a dual agent, or a
transaction agent, is limited as to what information can be
shared with the buyer.
THE THIRD STEP – UNDERSTAND WHAT SHOULD BE IN A WELL-WRITTEN
PURCHASE CONTRACT. Finally, we get to the "meat and potatoes"
of our topic. If you are working with a sharp buyer's agent,
he or she should have given you a copy of the printed purchase
contract that agent recommends. It might be published by the
local Realtor group. Or it could be from an independent forms
company. I hope it's not one of those dreadful stationery
store forms!
Please be aware if you are the buyer you have the right to
present your purchase offer on the form you want. Don't be
intimidated by a seller's listing agent who says purchase
offers must be made on a specific form. If the listing agent
refuses to present your purchase offer on the form you or your
realty agent prefers, just say, "Well, I guess I'll have to
file a complaint about this with the state real estate
commissioner for your failure to present all offers to your
principal." Smart listings agents soon become very cooperative
when they hear that.
If you have any doubt about the ability or the enthusiasm of
your buyer's agent to present your purchase offer fairly to
the property seller, be sure to include a phrase such as,
"This purchase offer to be presented to property seller only
in the presence of the buyer." That means you, the buyer, then
get to go with your buyer's agent when your offer is delivered
to the seller. But I suggest you do not use this phrase unless
absolutely necessary because buyer's agents are usually much
better negotiators when the buyer is not present. Remember,
your buyer's agent and the listing agent are usually highly
motivated to negotiate a successful transaction to enable them
to earn their commissions
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Thursday May 6 3:50 PM ET |
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