The agent is considered in law to represent the principal and to bring the principal into legal relationships with other parties. The needs of individuals are so complex that, to a large extent, such needs are fulfilled not by their own efforts but by the efforts of others on their behalf. If someone acts on behalf of another, he/she is considered in law to be an extension of that person. The law governing relations between these individuals and other persons is referred to as the law of agency.
Agents owe principals (e.g., clients) their primary allegiance, including such duties as good faith and full disclosure, competence, obedience, and accounting. Classifications and terminology regarding these duties, generally fall under the term fiduciary responsibilities and vary somewhat in printed materials. Fiduciary duties are best explained as follows:
Disclosure The agent must disclose to his/her principal any information relevant to the transaction in which the agent has been engaged to assist. This includes any facts affecting the value or desirability of the property and all known relevant and material information.
Competence The agent must exercise a degree of competence when representing his/her principal such as would be expected from an average person in that occupation or profession. In all agency relationships, the law sees the agent as an extension of the principal. Thus, the principal is liable for the agent’s actions. Therefore, the agent will be under a duty to use superior skill and knowledge while pursuing the principal’s affairs. An agent who claims to be a specialist must exercise competence in that specialty.
Obedience An agent is obligated to obey the principal’s lawful and reasonable instructions, even if the agent doesn’t agree with them.
Accountability An agent is obligated to account for all monies or property entrusted to his/her care that belongs to the principal, i.e., safeguard any money or documents relative to the principal’s transactions or affairs.
Confidentiality An agent must not use information acquired as the principal’s agent for any purpose that is likely to cause the principal harm or to interfere with the principal’s business, now or in the future. The duty of confidentiality should not be confused with a real estate professional’s responsibility to disclose known material facts about the property to non-principals. The obligation to disclose such facts, including defects, is based on the professional’s duty to treat all persons fairly and honestly.
Loyalty The most important duty an agent has toward the principal is loyalty. The agent must place the interests of the principal above all else except the law in carrying out his/her functions as an agent.
Agents owe third parties (e.g., customers) the ethical duty to be honest, the legal duty not to misrepresent, and the responsibility to exercise due care when answering inquiries or giving information. In real estate, the agency relationship can be established between the agent and either the buyer or the seller. The relationship can arise out of an agreement either expressed or implied, or written or oral. Agency relationships should be in writing and real estate brokerages should ensure that all activities fall within the limits of that authority. Agency will be implied when agents treat customers as principals (clients), even though no written agreement/contract exists.
Ask yourself if your last Agent measured up to these standards.
(Anything is Possible!!!) There are numerous situations of potential real estate offers that are as weird as the people who dream them up but here are the most common situations.
Single Offer On the Table
...is always the best case scenario for a Buyer because both parties can comfortably negotiate on hopefully reasonable terms and there is no competition to muddy up the waters.
Usually everybody walks away a winner in these situations.
Multiple Offers (More than one) In the event there are competing Offers, it is customary for each Buyer's Agent to register their signed offer by telephone with the reception front desk of the Listing Agent. In this way the order of registration is assured and followed for presentation in sequence later to the Seller.
Each Buyer's Agent has an opportunity to present their Offer according to the local board rules and regulations. The rules may vary in the various jurisdictions but commonly the Buyer's Agent may attend unless specific written instructions from the Seller are provided by their Agent to the contrary.
Many consumers are confused about the various offer situations and options. For more information on this one, please refer to the Q & A button on the HOME page marked "Multiple Offers".
Sequence of Events In any event, the Seller may examine all of the Offers in order first and has 3 choice of action.
The Seller may reject all offers, or may send all offers back to be improved upon and risk losing all, or decide to negotiate with one offer (not necessarily the best price**)hopefully through to final acceptance and completion.
In the competitive arena of multiple offers, it is customary for all of the Agents to agree to return at a specific time with their improved offers if possible. At that time only the offers on the table will be considered by the Seller.
Although the Seller may be very excited about multiple offers, it wouldn't be the first time that a Buyer offer was chosen for perhaps the wrong reasons** and the deal ends up some months down the pipe not closing for a variety of reasons.
Caution should prevail in a multiple offer scenario in every regard imaginable.
The basic fundamental principles should still be adhered to when looking at the disclosed capability of the potential Buyer, no matter what is offered. The key word here is "disclosed".
Anyone can get caught up in a bidding war only to find that they cannot qualify for the mortgaging or they fail to sell their own home by the completion date or a variety of other things. These situations will leave the Seller in a most precarious position and all the of the competing Buyers would have moved on and bought elsewhere.
The bottom line is - there is more to an offer than just the price and all circumstances surrounding an offer should be carefully considered by both the Sellers Agent as well as the Serller before a hasty decision is made.
If the listing Agent is doing their job properly, they should be asking all the questions that could cause a worst case scenario down the road to completion. It is better to know the true facts now... not later.
If you have any doubt or feel there are slippery answers to valid questions, follow your own instincts. That's why you have them.
Bumping An Existing Offer (Escape Clause) The hypothetical situation is that an existing listing is sold conditionally upon perhaps the sale of the prospective Buyer's home or some other undertaking. If the condition is for more than 10 days then the Seller's Agent should recommend an ESCAPE clause be inserted into the offer so that the property can still be available for sale but subject to the first refusal of the first Buyer, PROVIDED THEY MEET THE CONDITION.
Wouldn't you want the clause for the Condition on the sale of the property to state that the back-up should actually be sold before they can firm up the deal???
If there is no escape clause, the property is virtually off the market until or if the condition is met because very few Agents will waste their time to show a conditionally sold house.
If the original offer is properly constructed and the conditional clause outlines specifically what the Buyer is undertaking then, in the perfect world, that is what should happen before the offer is "firmed up". However this is not what always happens.
Most conditional offers clause's allow for the Buyer to waive the condition whether it is met specifically or not. The Buyer's Agent makes them this way so he can get his Buyer to sign the waiver if indeed they are bumped. Then everyone hopes and prays the back-up house does indeed sell.
The first and most basic fundamental rule any competent Agent will ensure for their Seller is that once a conditional offer is accepted then it will obviously take a firm offer to bump it out of the way. To do otherwise is only inviting catastrophe later.
This means that when a second offer comes in on the Seller's property then it is definitely sold that day whether it be the offer in place or the one bumping it.
Pretty much common sense but watch for the RED FLAGS.
There is no doubt that if one can sell their principle residence without paying a commission the extra savings would feel better in their pocket.
Both Seller and Buyer feel they are saving something. But are they?
There are circumstances and times when selling privately is so easy and then there are times when it is not.
Hot Market In a hot market everyone gets caught up in the frenzy of escalating prices but the only way to know what your property will go for is to expose it properly to the market place. That means listing it for sale on the local MLS (Multiple Listing Service) with an experienced Realtor.
Not only are all the eligible Buyers informed about the availability of the property but through the services of their own Agent they can be guided through the organized process in which there is protection for all consumers.
Down Market When the market is down and listings take months to even get viewings never mind offers, selling privately is almost never a consideration.
No matter what you are think your property is worth, there is almost no one who will agree with you.
Conclusion In either type of market, You may be tempted to just get a free evaluation from the local Realtor and then sell the place to your relative or friend for around that price. If you want to maximize the equity, this may not be the best way to do so.
From a Buyer’s perspective, a hypothetical price is more apt to be an unrealistic one in relation to the prevailing conditions.
The services provided by the local Realtor are like any other service in any other business and is only as valuable as the recipient believes it to be. There are some things that are best left to those who do it every day.
The basic rules of the transferring of property rights from one owner to another are quite simple. Aside from the parties involved it is the professionals hired to do a job that may complicate the transaction if you don’t choose them with care.
The business of real estate is not something most people dwell on from day to day unless they are thinking of buying or selling.
The Standards of Business Practice and Code of Ethics laid down by the Associations have changed dramatically over the past 10 years in preparing members of the real estate community and the public, for a level of professionalism that is expected by the consumer in today’s fast paced and high tech world.
Your first step should be to check out AGENCY1o1 to learn about hiring an Agent for the job of marketing and selling your property plus the different types of agency a Realtor is required to offer you.
It is your choice how you may prefer to be represented.
Next go to PROCESS1o1 to see how a typical offer transacts including negotiations, and strategies.
Today, all of the real estate Association's "Code of Ethics" clearly state that not only is any member of the public dealing in Real Estate entitled to a choice of representation but in all cases the Agency's who are involved in the transaction must disclose whom they are working for and have written acknowledgement by all of the parties prior to presentation of any offers.
THIS IS A BIG DEAL!
The process of any Offer negotiation is unique to that particular transaction so in all judgment here please consider the following as providing a general guideline only.
With a planned strategy, the terms of the Offer are decided by the originating Buyer and is the first to sign the Offer which is usually drafted by the Agent who can be acting for either or both Buyer or Seller. See AGENCY1o1.
In the case of the prospective Buyer there is a specific a time period in which the Offer is to be considered legally binding once signed and cannot be revoked. This is called the Irrevocable Date and if the Offer is acceptable to the Seller in the current form then it must be acknowledged within that time frame.
Depending on the protocol of the local marketplace, the Buyer's Agent will usually attend at the Seller's home at the invitation of the Seller's Agent to present the Offer and the rationale of the Buyer's position.
Note: The attendance of the Buyer's Agent may be disallowed by the Seller in the form of written instructions to their Agent, in which case the Offer may then be communicated by fax and/or presented solely by the Seller's Agent in person to to the Seller.
Because of the advent of the specific Agency requirements by Realtor associations it is becoming more commonplace these days for the Buyer's Agent to not be in attendance at Offer presentations, however most MLS rules may still provide for it.
The Seller's Agent must disclose on the MLS listing that there is a separate collateral agreement to this effect and the Buyer's Agent is entitled to receive a copy of same.
It is pertinent to remember that separate agreements for anything pertaining to the listing between the Seller and their Agent must be in writing and disclosed in this manner. This includes side agreements for commission reduction and registrations of offers before specific dates.
If the latter procedure is used and the Buyer’s agent may attend the Offer presentation at the table, the Seller's Agent will explain the content and terms of the Offer to the Seller. The Buyer's Agent then has an opportunity to expound on the merits of the prospective Buyer's position and voice instructions provided by the prospective Buyer.THREE OPTIONS
1/ The Offer is rejected.
2/ The offer is accepted.
3/ There is a Counter Offer back to the prospective Buyer.
The Counter Offer is then from the Seller to the prospective Buyer in the form of a 'sign back' which changes some of the terms while usually still working within an Irrevocable Date time frame. The Counter Offer is returned to the Buyer's Agent.
It is up to the Buyer's Agent to communicate the details of the Counter Offer or 'sign back' to the prospective Buyer, preferably in person for their consideration.
The prospective Buyer has the same options as the Seller and may choose to reject, accept or counter offer
This process may go back and forth any number of times until either a stalemate results where no one will move further in the negotiations of terms or acceptance is agreed upon.
In the event there are competing Offers, then each Buyer's Agent has an opportunity to present their Offer in order of registering them with the Listing Broker.
The rules may vary in the various jurisdictions and board rules but commonly the, Seller will examine all of the Offers first and again has a multiple choice of action.
The Seller may reject all offers, or may send all offers back to be improved upon and risk losing all, or decide to negotiate with one offer hopefully through to final acceptance and completion. Purchasing Over the Asking Price In multiple offers scenarios where more than one prospective Buyer is submitting an offer and the market is hot, any rules of the process are no longer in focus and usually the highest bidder takes the prize.
The best approach in this situation depends on the level of burning desire a prospective Buyer chooses to demonstrate in order to acquire the property. If it becomes a "must have" priority then be prepared to make your offer as attractive as possible to the Seller.
If the Agent for the Buyer is doing their job properly, they will be continually talking to the Seller's Agent and/or the Seller if possible, to ascertain the mood and circumstances of the competition. It is amazing how talkative people can be when the energy level peaks during the throws of a multi-offer competition.
Armed with as much 'inside' information you can determine and if you really want the property then Your Offer should be at or significantly over the asking price.
Other carrots would also include an early possession date and no conditions whatsoever.
In addition, the exclusion of some chattels (ie: appliances, garden tractor) and maybe if you are ravenous enough about the property, even a cash bonus to be paid to the Seller on acceptance.
As a last resort, some Buyers have even included a clause that states in part:
"The Buyer hereby agrees to increase this Offer by Two Thousand Dollars ($2000.) over the best offer presented by the current competing bidders provided the Seller agrees to the Buyer reviewing all offers to determine same."
Caution must be used when constructing this clause so that the Buyer is protected from unscrupulous Seller's Agent who may introduce a fake Offer at the last minute to boost up the top price to which the Buyer may now be obligated to accept.
In any case, although each transaction is unique, soon it becomes obvious that a property is actually worth what a prospective Buyer is willing to pay and what a Seller is prepared to accept.
That alone is what drives the real estate market prices. Low Ball Offers The truth is... that any offer that is significantly below the asking price probably indicates one of three things.
ONE The offer reflects the price range that this particular Buyer is prepared to negotiate to buy the property. His Agent should be able to competently clarify these intentions.
TWO The prospective Buyer is trying to determine exactly how desperate the Seller is and probably will not pay what the property may be worth to the Seller.
When you find the Buyer's Agent running down the property to get the value down close to the offered price, it is a good indication there will be no meeting of the minds.
This is where a good Sellers Agent will earn his fee or blow the deal.
THREE This is only one of several low offers this person has submitted to various other Sellers because he just can't afford to buy in this price range. He is always looking for a unadvertised bargain and his Agent is wasting his own time as well as everyone else’s.