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Are You a Client or a Customer?

Written by on Wednesday, 21 June 2000 7:00 pm
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The real estate industry sometimes uses language that appears at first glance to be clear, but do you as a consumer know what some terms really mean?

At first glance, the words client and customer seem pretty clear-cut, but they mean completely different things to a REALTOR®. It also means a tremendous difference in how seriously you are taken as a buyer.

Clients and customers receive vastly different types and levels of service. After you read why, you'll know absolutely whether you want to be one or the other.

First, let's start with a little history. Realtors have always worked with home sellers to list their homes for sale on the market. Along with this service comes the responsibility to advertise the homes, network with other Realtors to find a buyer, negotiate the sales contract and guide the sellers to successful closings. Because of the time and expenses incurred by the agent and broker which will not be reimbursed until the closing of the home, sellers have always been required to sign a listing contract. This contract enables the agent/broker enough time to properly market the property, find a buyer, negotiate a contract and get the property to closing within the time frame allowed. It also protects the agent from home owners who wish to use services without compensating the professional.

The real benefit, however, is for the home owner. Once the home owner has signed the contract, the agent/broker has the fiduciary responsibility to get the highest price possible for the home and to protect the seller's interests above all else. The agent also must follow state-mandated regulations as to ethics and legalities that are enforceable by state councils in conjunction with the agent's local Realtor association. In other words, the contract is legally binding, with the agent's reputation at stake.

Now that a contract has been signed, the home owner is the client of the agent/broker, and enjoys the full privileges of a close, working relationship.

Buyers have historically worked with agents, too, but it wasn't until fairly recently that they have been asked to sign buyer's representation agreements. This is a change that has come about because of two reasons: abuse to buyer's agents and increased consumer awareness.

Without a contract, the buyer's agent was particularly vulnerable to working without getting paid. Too often, buyers would ask them to show them house after house, and then buy from another agent. One favorite buyer trick is to attend open houses without their agent and tell the listing agent they aren't working with anyone. Buyers mistakenly believe that they are learning about more homes without an agent at their side, or that they may possibly get a better deal. The truth is - they don't. They usually pay more for the home than they have to when they buy from the listing agent directly. The listing agent has a contract to get the most for the seller, remember?

Then consumer awareness dawned. Buyers began to realize that whoever represented them at the closing table was on the side of the seller, not their side. They realized that they deserved to have a true advocate, and the buyer's agent was born.

Good agents don't want to work for free, so the buyer's representation agreement was created. Again, it is a protection for the agents, but it generates much more benefit for the buyer. The main advantage is that an agreement releases the agent from a fiduciary responsibility to the seller and enables the agent to pursue the buyer's goals without any othe agenda. It's as valid a contract as that between the seller and listing agent.

Once the contract is signed, the agent goes into motion searching the MLS for homes, and seeking homes through other avenues - foreclosures, FSBOs, and REOs. At negotiations, the contracted buyer's agent becomes a bulldog for the buyer, unrestricted by responsibility to the seller or seller's agent. Buyers under contract are more empowered to make demands, get a better price and better terms of sale.

Despite these advantages, some buyers are still reluctant to sign a representation agreement. They don't want to be "tied down" or they foolishly think that getting several agents to work with them will get them a better home or deal. That's a strategy that backfires. Part of the strength of the industry is the agent communication network. A buyer working several agents becomes a joke and is not taken seriously by anyone.

Without a contract, the buyer is clearly not a client. He/She is a customer. If you think being a customer is as important as being a client, look at what happens when a good listing comes on the market. Agents tell each other about listings first, many times before they are even entered into the MLS. In a hot market, which buyers do you think agents will call to grab a desirable property - the uncommitted, disloyal buyer (customer) or the contracted buyer (client?) What would you do if your livelihood depended on picking between such buyers?

If you've ever driven a favorite neighborhood and seen a Sold sign stuck in the yard of a desirable property that you didn't even know was for sale, now you know why your agent didn't pick you - because you didn't pick him or her.

A contract makes a difference in other ways. For example, there are things the seller may not want disclosed to the buyer such as their urgency to sell, which could compromise their bargaining position. An agent who then discloses this information is in ethical violation and can be brought before the state review board on charges. Some offenses are serious enough to have licensure to practice revoked.

But the buyer has no such protections without a contract. Anything you say to an uncontracted agent may be passed along to the seller. Why? Because, in most states, any agent who works for the buyer without a contract automatically becomes a sub-agent for the listing agent, and is therefore working on behalf of the seller.

Surprised? It's all spelled out - in the listing contract and in the buyer's representation agreement.

A contract makes the difference in whether you are a customer or a client in the real estate transaction. Which do you want to be?

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  About the author, Blanche Evans

Individual news stories are based upon the opinions of the writer and does not reflect the opinion of Realty Times.
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