She's My Broker, Right? [Wrong]

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by Osman Parvez
---Let's say you walk into an open house.  You'll get a friendly greeting at the door, but here's something you likely won't get:  a disclosure of agency relationships.  

What's that, you say?     Read on.

The Price of Small Talk

Smart Realtors know better than to be pushy.   So, as you walk around,  you'll hear innocent sounding questions like, "what do you like about the house?"    Maybe she'll ask about your current living situation or how long you've been in Boulder.    Eventually, questions will pop up about other houses you've seen and your price range.    Perhaps she'll inquire about what you do.

The conversation will be warm and friendly.   It will sound like she's trying to help you find the right house, which may actually be true,  but what she hasn't told you is the terms of her engagement by the seller.   If she represents the seller on an exclusive basis (likely), everything you tell her regarding your price range and more will be used against you during a negotiation.   It's not even a choice, it's her fiduciary responsibility under that relationship.   Even if she's on a team with the listing agent and only helping her with an open house, the same rule applies (see:  Send in the C Team).

The consequences of accidental disclosure (by you) are anything but warm and friendly.    It could cost you thousands of dollars.

Qualification

One of the first things an experienced salesman tries to do is size you up. This is called qualification.   They want to know if you're a ready, willing, and able buyer.   If it turns out that you're not interested in the particular house and you haven't yet entered a buyer agency agreement with another Realtor, you're also a possible client.  

Getting to know the people who stop by an open house, including soliciting feedback, is an important part of the marketing services a broker provides.   It's not all shenanigans, just be careful what you say when you walk into an open house unaccompanied by your buyer's agent.

She's My Broker, Right?

In the vast majority of cases, the agent hosting the open house represents the seller.     Everything you've told them,  about your rental apartment and when the lease expires, about your job, about how long you've lived in the house, and about your price range will be used against you in negotiation.

OOPS...

The agent could be a Transaction Broker (i.e. neutral) or she might not even have any relationship with the seller.   She could just be another agent in the office who has agreed to host the open house.     It happens all the time, but walking in the door, YOU have no way of telling.

One of the most confusing and misunderstood areas of practicing real estate in Colorado is in regards to agency relationships and the timing of disclosures.    The type of relationship between the Realtor and thier client defines the duties and obligations of the agent, so understanding this is critical.   And by that, I mean it's critical for everyone - buyers, sellers, and Realtors.  I've been in many continuing ed classes where my fellow agents were very confused. Believe me, there are a lot of agents out there who don't understand the rules of engagement much less their fiduciary duties.    I'm glad they don't work for me.  The liability they take is unbelievable.

As a buyer, the smartest thing you can do is to keep quiet.  Instead of stopping by open houses, schedule showings with your buyer's agent.   There won't be a pesky seller's agent at the showing.    If you like the house enough to write an offer, let the seasoned professional who you've carefully vetted do the negotiating on your behalf.     When you're in an agency relationship, your agent has a legal duty to represent your interests and a fiduciary responsibility.   If you've chosen well, your agent can be a very effective hired gun.  And when you set showings through your Buyer's Agent (recommended), you won't find yourself wandering around an open house with a listing agent on your tail, asking you questions which could compromise your negotiating leverage.

Rules Not Meant to be Broken

The Colorado Real Estate Commission takes disclosure of relationships very seriously.   It's why there is a mandatory Definitions of Working Relationships Disclosure.    There's even an official position statement to help clarify (emphasis below is mine):

CP-31:   Position on Acting as a Transaction Broker or Agent in Particular Types of Transactions.

The public may enter into either a Transaction-Broker relationship or an Agency relationship with a Broker. Fundamental among the differences between Agency and Transaction-Brokerage is that an Agent is an advocate with fiduciary duties, while a Transaction-Broker should remain neutral, not advocate. However, in some situations the relationship of the Broker with a particular party or property may make a particular relationship inappropriate or problematic.  

Before acting as a Transaction-Broker in transactions where neutrality is difficult, the Broker should consider whether the Transaction-Brokerage arrangement is suitable, consult with the Broker’s supervising Broker and then make the necessary disclosures. 

[examples redacted] 

An agency relationship between a Broker and a seller or landlord, buyer or tenant, requires a written agency agreement. The duties of an agent go beyond facilitation of the transaction as a neutral party and  require representing the interests of the Broker’s principal over the interests of the other party. In certain circumstances, fulfilling the duties of an Agent including acting as an advocate may be difficult. A Broker who enters into an agency relationship must fulfill the duties of advocacy, fidelity, loyalty and other fiduciary duties associated with a single agency relationship. In circumstances where the Broker may not be able to fulfill the duties imposed on an agent the Broker should consider whether the agency arrangement is appropriate, consult with the Broker’s supervising Broker and act accordingly.  

Unbelievably, the Commission left it up to the agent to decide when to disclose their agency relationship and even if they're too conflicted to be in an agency relationship.   This is why, as a buyer or a seller, you need to be very careful disclosing factors that could affect negotiation.    You should be especially wary of teams.   See Send In The C Team, for more details.

---Note: Our goal is to provide exceptional service to our clients. The ideas and strategies in this blog post are the opinion of the writer at the time of publication. Silver Fern Homes recommends careful and complete due diligence before buying or selling real estate or other investments. Consult with your professional advisers before making financial decisions. This article is not intended as legal, tax, or investment advice. Silver Fern Homes will not be held liable for investment choices derived from this article.---
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Please note:  My goal is to provide exceptional service to our clients. The ideas and strategies in this blog post are the opinion of the writer at the time of publication. Careful and complete due diligence is strongly advised before buying or selling real estate or other investments. Consult with your professional advisers before making financial decisions. This article is not intended as legal, tax, or investment advice. Silver Fern Homes will not be held liable for investment choices derived from this article.