Does your agent represent you with utmost care?
Originally appeared in Bay Area News Group publications on November 25, 2016
You should carefully read all agreements to assure they adequately express your understanding of the transaction.
– Agency disclosure form
California real estate licensees have a fiduciary duty to act in their client’s best interests. Despite that, many agents, including those who do a substantial amount of business, will not be able to tell you their four basic duties per California Civil Code Section 2079. These include integrity, honesty and loyalty. Notably, first on the list is utmost care and I observe the absence of this duty in case after case as a Bay Area and Northern California real estate expert witness.
I have lost track of the number of times, as a listing agent, I have seen buyers’ agents submit contracts, when there are multiple offers, without ever checking with me about how many other offers their buyer is competing against. It is sad that you can pay tens of thousands of dollars more than you had to because your agent not only failed to use utmost care, but, rather, used no care.
Conversely, I have represented buyers in sales where listing agents were negligent. Not long ago, I wrote an all-cash, quick close offer for my buyer on a property that had other offers. After reviewing comparable sales, my buyer made a bid well above asking price. Based on the strength and cleanliness of her contract, it was reasonable for us to expect a counteroffer even if another offer was higher, but had a financing contingency.
I was surprised when the listing agent called and said the seller was going to accept another contract and wanted to know if my buyer wanted to be in back-up position. When I asked why there had not been a counteroffer, I was told the agent assumed (mistakenly) my buyer would not raise her offer to a certain price. After much discussion, my buyer received and accepted the counteroffer and closed the escrow. In this case, it is doubtful the seller knew that her agent did not take all the relevant steps and was careless in initially recommending the weaker offer.
The average buyer does not have the expertise, time or patience to review each contract clause to understand how it can impact him. Typically, buyers believe their agent will make sure to properly handle this important document and prepare it in a way that is best for the buyer. This is often an erroneous assumption.
A common contract practice is also one of the most deleterious in our continuing seller’s market. Specifically, I am referencing how contract contingencies are taken too lightly. Contingencies are conditions that must be fulfilled for the contract to continue. They protect the buyer and, when used correctly, allow him to withdraw from the purchase without penalty. Examples are appraisal, financing, inspection and document approval.
When multiple offers occur, many agents routinely write contracts that omit all contingencies. Some tell their buyer that offers with contingencies will probably not be accepted, but the real estate salesperson may fail to explain in detail risks the buyer is taking by not having contingencies. Competent agents make sure their buyers are clear on the gamble.
Contingency-free contracts are extremely dangerous for buyers because they waive protections they may later discover were needed. For example, I have seen many scenarios where the buyer who did not have inspections finds after close the property needs extensive repair work that was never disclosed to him. If the buyer needs a loan and does not get it, his lack of a financing contingency could cost him his deposit or possibly much more if the seller was financially damaged when escrow did not close.
Sellers can also be harmed when their agent does not make sure to highlight detrimental or questionable contract clauses. Never take for granted that your agent has used utmost care with the contract.
It does not make sense for a buyer to pay as much for a home with serious, expensive problems as he would for one without these issues, yet this happens frequently because the buyer did not understand what he was buying and his agent did not help him explore the repair costs. These deficiencies may include drainage, foundation, pest control, sewer lateral, framing and roof. Electrical, heating and plumbing tend to cost less, but, at times, can be significant.
Part of the buyer’s agent’s job is to assist the buyer in quantifying fix-up costs, with bids from tradespeople, plus give the buyer an idea of how much updating might involve. Too many agents fail to carefully outline this for their buyers.
Listing agents need to be equally careful in assessing the property’s condition in order to adequately advise the seller on the asking price. Customarily, this involves a pest control inspection and a pre-sale general home inspection. Many listing agents, however, skip this second, crucial inspection.
Without fully verifying condition prior to pricing and marketing, sellers’ agents set up the unenviable possibility that the buyer, after his own inspections, will request a large price reduction or credit for problems the seller never knew existed. Sellers, appropriately, tend to get very upset when this happens.
The rarely considered question buyers and sellers should ask themselves before committing to a particular licensee is, “Do I know if this agent is simply an order-taker or someone who will do the right thing and use utmost care in representing me?” The answer can be the difference between a successful transaction and years of grief and frustration.