By Richard Montgomery

Reader Question: I signed a contract with a buyer agent. We found a house and made an offer. The house failed the inspection, but the seller had the right to cure. I was not comfortable and walked away. Now my agent wants to enforce the buyer agency agreement. I talked to my attorney, and she questions the strength of my agent’s demand. The list was $172,900; the offer, $186,500. She said the purchase agreement was not well drafted. What do you think?

(Monty to Readers. I published this question last week. The answer this week is different, but both answers apply. “Agency” is a legal theory that is a part of real estate law. The reader’s predicament provides an example of the flaws in agency relationships in real estate. Read on to avoid them.)

Monty’s Answer: Your circumstances give rise to a discussion about the Laws of Agency. Agency relationships in real estate matters remind me of the cliché “It’s not all it’s cracked up to be.” While each state works independently to improve the rules, buyers and sellers are still often disappointed. You hired a buyer’s agent to protect your interests, and now that agent is threatening you for a commission for a purchase that failed. In fact, seller’s agents also litigate to collect fees.

“Caveat emptor”

Fifty years ago the principle of caveat emptor – “Let the buyer beware,” was the rule of the land. The Latin words mean it is the customer’s responsibility to determine a product’s suitability, condition, and quality before purchase. As consumerism evolved the Laws of Agency have advanced to level the playing field between buyer, seller, and agent through legislation and education. In my opinion, buyer agency today does not work much better than caveat emptor worked years ago.

How does one end up in this situation?

There was no discussion in your question about your agent selection, how you found the house, market conditions, or how you established the offering price. Some potential explanations on the value rationale:

• The market was blistering hot. Your emotions overrode the agent’s advice.
• Your agent demonstrated a higher value with adjusted comparable sales.
• There was a significant cash-back at closing in the contract for repairs.
• Your agent suggested the high price strategy to produce an accepted offer.
• You either did not know or forgot about the language in the broker agreement.
• Your agent gave you bad advice or was silent when helpful information was desirable.

What is the problem?

Many factors suggest agency issues connected to real estate transactions will continue into the foreseeable future. Here some reasons (in no particular order) customers, clients, and agents fall victim to disappointment, controversy, and litigation in real estate transactions:

• The real estate transaction is complicated.
• Many consumers are unaware of the risk potential in real estate transactions.
• Many real estate agents require more training, supervision, and education.
• Clients, customers, and agents do not operate on a universal ethical standard.
• Clients, customers, and agents do not absorb data and make decisions uniformly.
• The real estate transaction process evokes misunderstandings.
• Most agency related errors are hard to bring to hearings and enforcement.

How can the consumer prevent conflict like this?

You can avoid these issues, but not because of Agency Law. Here are six tips a buyer or seller can perform that will make a substantial difference in the outcome of your real estate transaction.

1. Educate yourself as to the steps to take, why they are necessary, and the best order to take them before you make an offer, or place your home for sale.

2. Interview three vetted real estate agents before selecting one. Keep in mind that hiring an agent because they “seem like a nice person” or “attend our church” is not a good reason to hire one.

3. Utilize the agents to gather information for you that you need to make decisions.

4. Understand the home evaluation process so that you can be confident in your decisions. Do not abdicate this task to an agent. An agent presenting you a few MLS data sheets is not enough.
5. Read the contracts. You will be asked to sign many documents. Knowing what the fine print means by reading each document before you sign it is necessary.

6. Remember the agent climate. The industry is internally focused, highly fragmented, lacks productive agent training and supervision, has low entry level requirements, and a job that virtually guarantees a shortage of time. The perfect elixir for errors.

“Richard Montgomery gives no nonsense real estate advice to readers most pressing questions. He is a real estate industry veteran who has championed industry reform for over a quarter century. Send him questions at DearMonty.com.”