Critical First Decisions in Buying and Selling

CONTENTS
I. Decision Number One: Should I be Represented by an Attorney?
The Cost of Attorney Representation is about the same, for so much more.

II. Decision Number Two: Choosing a Real Estate Agent
There are different forms of Real Estate Agent Representation
Real Estate Commissions

III. Next Issue: What Should I Expect from a Real Estate Agent?
He or She should work for YOU
Legwork
For Sellers: Marketing Skill
For Buyers: In-Depth Knowledge of the Marketplace

IV. Other Professionals

V. Horror Stories: Things that Can (and Often Do) Go Wrong

I. Threshold Issue Number One: Representation by an Attorney

Q: Why would I want to be represented by an Attorney?

Answer: Many consumers like to have a measure of control over their affairs, and are not shy about asserting themselves in everyday transactions from purchasing a television to contracting for carpet cleaning. And yet, when they endeavor to enter into perhaps the very largest, most important financial transactions of their life, at some point they find themselves having multiple important decisions already having been made for them, without their preferences even being considered.

Such major decisions include the kind of agency representation they are being given by their real estate agent, i.e., are they fully represented or are they paying the same amount for a form of limited representation.

Likewise, they are also seldom consulted on the Contract form chosen upon which to write their deal. And most unfortunately, at the point where people discover that they need an attorney to represent them, major, pivotal decisions which will affect their ability to enforce their rights have already been made, often in a fashion which does not serve their best interest.

Another important consideration in buying and selling real estate is the emotional aspect. You may be surprised at how emotional the process may become. The very best Realtors are highly skilled marketers. To some of them, your emotion is a tool that can be used to “close the deal.” To you, as a buyer or seller, emotion can be the enemy. Emotion can cause mistakes, sometimes, debilitating financial mistakes, the effects of which may last for many years. A good real estate attorney (like a good Realtor®) will remind you at the beginning to recognize your emotional involvement in the process, and make appropriate allowances for it.

Q: How does the cost of an Attorney compare with using a Title Agency?

Answer: When it comes to closing a real estate transaction, the cost is frequently the same. We pledge that we will charge the same (or less) than any title company to close your deal. Title insurance is by far the largest cost element in most transactions, and the rates for title insurance are set by statute in Florida, so they are the same for attorneys and title agencies. The other fees are generally equivalent, whether the work is done by or under the supervision of an experienced, licensed attorney, or a title insurance agent, who is required only to have a high school diploma, attend forty hours of training, pass an examination and a background check that is much less rigorous than that to which prospective attorneys are subject.

In addition, you will have many questions and more than a few concerns as you go through “the process.” Remember, only an attorney can give legal advice. Others may pretend to be “experts” in negotiating and/or closing real estate contracts, but only attorneys are licensed to give legal advice. Real estate attorneys typically have special training in negotiating, and many actually teach the subject to real estate agents.

II. Decision Number Two: Selecting a Real Estate Agent

Q: How Do I Select a Real Estate Agent?

Answer: First, you should only engage a real estate agent who is a Realtor®.

Realtors® are agents and brokers who belong to the National Association of Realtors® (NAR), the Florida Association of Realtors® (FAR), and their local association of Realtors® and the Multiple Listing Service® (MLS).

Many buyers and sellers seek out referrals to top Realtors from someone experienced in the relevant marketplace. We can suggest Realtors® who will honor your preferences in agency representation, and are best suited for you as a buyer or seller, as appropriate.

Q: I’ve heard a lot about Transaction Brokers. What’s that all about?

Answer: The practice of real estate brokerage in Florida used to follow the general principals of agency law, in that an agent represented one party or the other, and owed full duties to that party, whether he or she was a buyer or seller in that transaction. Of course, duties of honesty and fair dealing applied to all parties to the transaction, regardless of who the agent represented.

Florida law now assumes that, unless some other form of representation is undertaken in writing, a real estate agent practices a “limited” form of agency known as “Transaction Brokerage,” in which his or her duties are generally the same toward each party. In the common parlance of many agents, they don’t represent one party or the other, they represent “the transaction,” seeking only to get the deal written and closed, without regard to getting the best deal for their “customer.”

Many consumers feel that the bottom line is that, under transaction brokerage, they pay the same amount for less representation. Is that truly what you want? Their are agents who will represent only you, if you look for them. We know where to find them.

Q: What about Commissions? Are they negotiable?

Answer: Real estate commissions are completely negotiable. There is no such thing as a “standard” commission. Federal antitrust law prevents competitors from setting standard rates. Rather, they must compete in the marketplace, each independently setting their own rates. Experience has shown that most agents are willing to negotiate their commission. Any agent who tells you that his or her firm’s commission rate is “standard in the area” is misleading you, and skirting federal law.

III. Next Issue: What Should I Expect from a Real Estate Agent?

Ethics
He or She should work for YOU
Legwork
In-Depth Knowledge of the Marketplace
Skill at Negotiating & Contracting
For Sellers: Marketing Skill
For Buyers: Time and Patience

Q: What does it take for a Real Estate Agent to be considered ethical?

Answer: At a minimum, they should be a member of the Realtor® organizations, and thus responsible for following the Realtors® Code of Ethics. But that is just the start. The Code of Ethics (and Florida law) has a critical shortcoming: if the Real Estate Agent is acting in a non-agency capacity, i.e., as a transaction broker (which is now presumed by Florida law), they no longer have a duty to act in the best interests of any customer. Their only duty is to act honestly. That is a far cry from a duty to “protect and promote the interests of their client.” Perhaps in the case of buyers and sellers who have been involved in multiple real estate transactions that is reasonable, but when dealing with first-time home buyers or sellers, the public should be able to expect more. First timers especially should be fully represented by an agent acting in an agency capacity.

IV. Other Professionals

Q: How do I know who the most professional practitioners are?

Answer: The sorry truth is, unless you have a trusted friend or relative in the business, who is himself a good judge of such things, you don’t. All real estate agents are not created equal. Nor are all mortgage brokers, termite inspectors, or home inspectors.

When we make a referral to a mortgage broker or other professional, we consider that we are placing our own reputation at risk based on that vendor’s performance. We choose the most reputable professionals based strictly on their competence. We do not accept referral fees, gifts, “favors” or other consideration. Knowing that our clients are properly served is all we expect from vendors, but the least that we demand.

Home Inspection Services: Most contracts for HI services provide no warranty of any kind other that a return of their fee.

V. Horror Stories

The Kinds of Things that can Go Wrong (and All Too Often DO!)

These are situations which we have personally seen (recently!), usually as a result of the lack of skill or attention to detail on the part of a real estate agent who was either inexperienced, lazy, or fixated on his or her commission, and mishandled the deal.

Seller sued after closing because of dispute between Real Estate Agents (based on commission language the agents put in the Sale contract!!!) They shouldn’t do that, but neither the Buyer or the Seller had the contract reviewed by an attorney.

Sale closed with encroachments, with seller claiming an easement over subject property (in a sale which should have never closed!). The Seller sued the Buyer after Buyer refused to acknowledge easement. The Buyer wasn’t represented by an attorney, or this deal would never have closed. The Buyer, in effect, bought a lawsuit!

In another recent transaction, the Buyer tried to cancel the contract based on issues with the condition of the property (which he was entitled to do). However, his cancellation was ineffectively written, and tendered too late (because his real estate agent didn’t read the contract form which SHE CHOSE, and she therefore calculated the cancellation deadline incorrectly). As a result, the Seller has the right to sue the Buyer for specific performance. Although the Seller doesn’t currently plan to sue, if the property ends up getting sold for less money than the contract price, the Seller will have up to five years to sue that Buyer for the difference, along with attorney’s fees and any other damages.

The Multiple Offer Situation: This is a situation fraught with danger, but also full of opportunity for the seller if handled correctly.

Multiple Offer situation Take 1: Seller winds up bound to sell the property to two different buyers. This is something, of course, which you can’t do, so one of your would-be buyers will be happy, and one will be very angry, and a lawsuit (which you will likely lose) may very well be the result.

Multiple Offer Situation Take 2: Seller, though several Buyers are competing with each other for the property (which should result in the Seller getting the very best price for the home, perhaps more than asking price even!), Seller winds up with both Buyers leaving in disgust, and the property not getting sold at all. Skill in negotiating and drafting is of paramount importance.