Representation Agreements

Why Signing a Representation Agreement Matters!

When you’re looking to buy a home in Texas, one crucial question to ask is:

“Who are you talking to, and who do they work for?”

While it might seem like an obvious question, many people overlook its importance.

The Importance of Knowing Your Real Estate Relationships

In Texas, the Real Estate License Act (RELA) requires licensed professionals to provide a written statement about agency relationships to parties involved in a real estate transaction at the first substantive dialogue. This means that all licensed real estate professionals must give you information about the different types of relationships

and services they offer via the “Information about Brokerage Services” form (TAR 2501, TREC OP-K). You’ll find a link to this form on our homepage and often in our emails, along with a link to the consumer protection notice.

Why This Matters

Many people assume that the real estate agent they’re talking to is looking out for their best interests. Unfortunately, this isn’t always the case. Sometimes, the agent you’re interacting with may have a duty to act against your interests. For instance, a subagent or a listing agent working with the seller must prioritize the seller’s best interests, even if it means working against the buyer’s needs.

Breaking Down Real Estate Roles and Relationships

In any real estate transaction, there are two main parties: the buyer and the seller.

Buyer: The individual or entity looking to purchase a property.

Seller: The individual or entity looking to sell a property.

Now let’s discuss the professionals that can be involved:

Real Estate Agents: Licensed salespersons who have passed a state-administered exam. They arrange property transactions, connect buyers and sellers, and represent them in negotiations, but they must operate under a real estate broker’s authority.

Types of Agents in a Transaction

- Listing Agent (Seller’s Agent): Represents the home seller and works in their best interests. They owe fiduciary responsibilities to the seller under a listing agreement.

- Buyer’s Agent: Represents the buyer and helps them navigate the home-buying process. They owe fiduciary responsibilities to the buyer under a representation agreement.

- Subagents: A subagent works with a buyer as a customer* but owes fiduciary duties to the listing broker and the seller. This role often arises when a cooperating sales associate from another brokerage, who is not representing the buyer as a buyer’s representative, shows property to a buyer. For instance, you might encounter a subagent during an open house or when inquiring about a property through a sign or advertisement. The subagent is friendly and helpful, but their primary duty is to the seller, meaning they must prioritize the seller’s interests above yours.

*(Click here to learn more about the difference between a customer and a client)

Real Estate Brokers: A step above agents, brokers have passed a more difficult licensure exam and are held to higher standards of real estate knowledge. Brokers can work independently or employ agents. Every firm has one principal broker.

REALTOR®: This title is given to agents or brokers who belong to the National Association of REALTORS® (NAR) and adhere to its Code of Ethics. Not all real estate agents or brokers are REALTORS®.

Transaction Coordinators: Transaction coordinators assist real estate agents and brokers by managing the administrative tasks of closing a real estate transaction. They ensure all paperwork is completed accurately and on time, coordinate with all parties involved, and help keep the transaction process smooth and efficient. While they do not represent buyers or sellers, their role is crucial in ensuring that the transaction progresses seamlessly from contract to close.

The Key to Understanding Representation Agreements

Understanding that all representation agreements are signed with the broker, not the individual agent, is crucial. The broker then appoints an agent to represent the client’s interests. This structure allows a broker to potentially have both the buyer and the seller as clients in the same transaction. In such cases, the broker must ensure that both parties are treated fairly and honestly, adhering to the intermediary rules if representing both sides.

Understanding Intermediary Relationships

In Texas, a broker can represent both the buyer and the seller in the same transaction under an intermediary relationship, recognized by statute since 1996. There are two types of intermediary relationships:

The broker represents both parties without appointing separate agents. This can be challenging because the broker must remain neutral and cannot advise either party.

“No one can serve two masters, for either he will hate the one and love the other,

or he will be devoted to the one and despise the other” – Matthew 6:24

The Risks of Being an Unrepresented Buyer

Some buyers choose to navigate the home-buying process without formal representation, either because they think it will save money or because they don’t realize the benefits of having an agent. However, unrepresented buyers face significant risks and miss out on many benefits:

- Lack of Negotiation Support: Without an agent, buyers must negotiate directly with the seller or the seller’s agent, who is obligated to act in the seller’s best interests.
- Limited Market Knowledge: A buyer’s agent has access to market data and can provide insights into fair pricing, neighborhood trends, and potential issues with properties.

- Legal and Contractual Issues: Real estate transactions involve complex contracts and legal requirements. A buyer’s agent ensures that all paperwork is correctly completed and submitted on time, helping avoid legal pitfalls.

- Experience: Even if you’ve bought and sold several homes, your experience is limited compared to that of a seasoned real estate agent. Navigating a real estate transaction without professional representation is like a child going up against a professional athlete.

- Scheduling Showings: Unrepresented buyers often waste a lot of time contacting each listing agent to schedule showings for each home they want to see. A buyer’s agent handles these logistics efficiently.

- Industry Contacts: Buyer agents often bring with them a network of trusted industry contacts like lenders, title professionals, home inspectors, insurance agents, electricians, roofers, contractors, and more, which can be invaluable during the home-buying process.

- Emotional Support: Buying and selling a home can be an emotional process. A good agent provides an objective opinion and helps keep emotions from clouding judgment.

- Access to Historical Data and Tools: Agents often have access to historical sales data, comparative market analysis tools, and other resources that an average person may not have. This information can be crucial for making informed decisions about buying a home.

Dealing with Investors: A Unique Challenge

In today’s competitive real estate market, buyers and sellers often find themselves up against professional real estate investors. These investors are highly experienced, knowledgeable, and well-funded, allowing them to move quickly and decisively.

Why This Matters: Investors often use tactics that can be overwhelming for unrepresented buyers or sellers. They might make cash offers with quick closing times, employ aggressive negotiation strategies, or leverage their market knowledge to outmaneuver less experienced participants. Dealing with experienced investors is like a novice going up against a professional athlete. Investors’ knowledge, experience, and resources can make the process daunting for unrepresented buyers and sellers. Having a professional agent on your side can help level the playing field by providing expert negotiation skills, market insights, and strategic advice.

How Buyers Might Encounter Subagents

One common scenario where buyers might encounter a subagent is during an open house. Imagine you’re touring a house that interests you, and the agent hosting the open house is very friendly and helpful. They answer all your questions about the property, offer to show you similar listings, and might even suggest ways to make an offer. This agent might seem like they are there to help you, the buyer. However, unless you have a signed Buyer Representation Agreement with this agent, they are likely a subagent who owes their fiduciary duties to the seller.

What Does Owing Fiduciary Duties to the Seller Mean?

When an agent owes fiduciary duties to the seller, it means they are legally and ethically obligated to act in the seller’s best interests. These duties include:

- Loyalty: The agent must prioritize the seller’s interests above all others, including their own.

- Confidentiality: The agent must keep the seller’s information confidential, such as their motivation for selling or their bottom line price.

- Disclosure: The agent must disclose to the seller any information that might be beneficial to them, such as a buyer’s willingness to increase their offer.

- Obedience: The agent must follow the seller’s lawful instructions.

- Reasonable Care and Diligence: The agent must use their skills and expertise to promote the seller’s interests.

- Accounting: The agent must account for all funds and property entrusted to them.

This means that while a subagent might treat a buyer fairly, they cannot act in any way that would harm the seller’s interests. For example, they cannot advise the buyer to offer a lower price or negotiate terms that would be less favorable to the seller.

The Importance of a Buyer Representation Agreement

A Buyer Representation Agreement ensures that your agent is legally committed to representing your best interests. Without this agreement, you might end up working with a subagent who owes their duties to the seller, not you.

Another Confusing Role: The Builder's Agent

Another role that can be confusing for buyers is that of the builder’s agent or sales representative in new construction home sales. These agents do not have to be licensed by the state and often come across as very friendly and helpful, leading many buyers to mistakenly think they are there to help them. In reality, the builder’s agent works for the builder and is dedicated to representing the builder’s interests.

Builder’s agents are highly knowledgeable about the homes they are selling and can offer a wealth of information about the construction process, available upgrades, and financing options. However, their primary goal is to secure the best deal for the builder, not the buyer. They might not disclose the potential downsides of a property or negotiate on your behalf to get the best price.

Common Myths and Misconceptions About Real Estate Representation

There are many myths and misconceptions about real estate representation. Let’s address some of the most common ones:

(Click to see the Reality)

Myth: “I will get a better price on the home if I deal directly with the builder’s representative.”

Reality: Builder representatives are hired to secure the best deal for the builder, not the buyer. They are not there to represent your interests. Having your own agent can help ensure that you get a fair deal and that your interests are protected.

Myth: “Builder reps are fair and impartial.”

Reality: While builder reps might be friendly and helpful, their primary duty is to the builder. They are not impartial and will prioritize the builder’s interests over yours.

Myth: “A REALTOR® cannot help me buy a new construction home.”

Reality: REALTORS® can represent you in the purchase of new construction homes. They can help negotiate better terms, ensure you understand the contract, and protect your interests throughout the process.

Myth: “I will save money if I deal directly with the listing agent, and the listing agent will represent me, too.”

Reality: The listing agent’s primary duty is to the seller. They cannot fully represent both the buyer and the seller without conflict of interest. You may end up compromising your interests in the process.

Myth: “The listing agent can fill in the paperwork.”

Reality: While a listing agent can handle paperwork, they are not representing your interests. It’s important to have your own agent who can ensure that all documents are in your best interest and fully explain what you’re signing.

Myth: “I don’t need a REALTOR®. I can get all the information I need off the internet.”

Reality: While the internet provides a wealth of information, it cannot replace the expertise, experience, and personalized service of a professional REALTOR®. An agent can provide insights and market knowledge that you won’t find online. Additionally, Texas is a non-disclosure state so those public sites on the internet will not have accurate information about the purchase price of recently sold properties in the area.

Myth: “If I don’t use a REALTOR® to buy a house, I will get the REALTOR® commission off the price of the home.”

Reality: The seller typically pays the commission fees, which are built into the sale price of the home. Not having your own agent usually doesn’t reduce the price but rather means you don’t have representation.

Myth: “Working with more agents means more options.”

Reality: Real estate agents work hard to build client trust and relationships. Working with multiple agents can create conflicts and reduce the level of service and dedication you receive. It’s better to choose one agent you trust who can provide comprehensive support.

Conclusion

Understanding the roles and relationships in a real estate transaction is crucial. By signing a Buyer Representation Agreement, you ensure that you have an agent dedicated to representing your interests throughout the home-buying process. Choosing to remain unrepresented can expose you to various risks that can be mitigated by having a professional advocate on your side.

For more detailed information, feel free to reach out or explore the resources available on our website like this FAQ on Representation in Texas. We’re here to help you navigate your real estate journey with confidence and clarity.

<<< Selecting the Right Buyer’s Agent —– Arrange Financing >>>

Looking
to
Buy
a
Home?

First Name

Last Name

Email Address

Phone Number

Property Type

Min. # of Bedrooms

Max # of Bedrooms

Min. # of Bathrooms

Max # of Bathrooms

Min. Sqft

Max Sqft

Area of Interest

Comments/Message