What You Do Not Know Can Hurt You
Most of us coming into the real estate market today are searching for information. We tend to look for information about homes, neighborhoods and financing. Consumers do not always ask the right questions because they do not know which questions to ask. Conversely, agents do not realize what we know and do not know. They are focused on determining what we want. DearMonty’s intention is to provide you with information on many important, rarely discussed subjects including the “rules of the real estate game”. Who sets the rules? What are rules meant to accomplish? Understanding these rules in advance should help you work more effectively within the system.
Who Sets the Rules?
The rules regarding real estate industry practices essentially come from four sources.
Department Of Regulation And Licensing (by state)
Real estate brokers and agents are granted a license by each state. It is the responsibility of this department to monitor brokers and insure that they maintain acceptable standards of conduct. This department and its citizen board (often comprised of brokers) not only grant licenses, they also administer tests, act on complaints and discipline licensees who are guilty of not following the rules. This is the principal source of regulation and is intended to protect consumers from incompetent, dishonest and illegal activity on the part of the industry.
The Federal Government
The federal government has the responsibility of enacting, educating and enforcing fair housing laws throughout the United States. The Fed is also involved in legislation regarding financing of real estate where government agencies such as Federal Housing Administration(FHA), and quasi-government financing agencies like Fannie May and Freddie Mac are involved. These laws are intended to promote equality and fair treatment of all consumers including “protected classes” of consumers when buying and selling real estate.
National Association of Realtors (NAR)
Usually, but not always, licensed brokers and agents are members of the NAR. The job of the NAR is to seek and educate members, lobby for legislation favorable to the interests of their members and to a lesser degree the interests of homeowners. They promote the value of their organization to consumers, drive leads to their members at Realtor.com and maintain a code of ethics for all members to follow. The rules they establish impact the procedure agents may utilize when dealing with the consumer.
Local And Regional MLS
While the MLS originally was organized by NAR, NAR distanced itself from MLS to maintain individual MLS independence and practice independent oversight and operations. A local MLS is separate from the local boards of Realtors. The local organizations establish and maintain rules that govern brokers in cooperative selling arrangements between members. Those MLS rules between brokers impact the consumer in the procedures that have to be followed when buying and selling a home or other property.
Here are some general rules that are beneficial to know beforehand. These are general rules that brokers and agents must follow. These rules have been established to promote order and protocols while promoting an orderly purchase or sale.
• An agent is not allowed to solicit listings while they are listed with another agency.
• Under a doctrine called “procuring cause,” the agent that was instrumental in introducing a property to a buyer is entitled to the sales commission.
• All documents must be signed by all parties involved with the transaction.
• Fixtures stay with the property unless the parties agree that the seller may take them. Personal property does not stay with the property. for information on the difference between fixtures and personal property refer to the fine print definitions in the listing contract or purchase agreement in your state.
• In addition to the sale price, the buyer and seller both incur additional customary closing costs, unless those costs become a point of negotiation or incentive one party offers another.
• Any agent that is a member of the MLS can show and sell any home listed by any other MLS member.
• In many cases, your agent will not know if there is another offer on a property.
• Although a property is listed for an established price, there is no law or rule preventing a buyer from offering to pay more or less than the listed price.
• When a home is listed, the listing agent is the only person that can consult with the seller unless the listing agent grants permission or the seller initiates a conversation with a third agent about his circumstances.
Rules Regarding Offers
Because making and receiving an offer is the most critical point in the transaction, most of the remaining rules relate to offers.
• The offered price and terms should only be known by the buyer, the agent who wrote the offer, the agent who presents it and the seller.
• Sellers should be notified of the existence of an offer as soon as it is signed by the buyer.
• Offers should be presented in a timely fashion and in person.
• Buyers should be kept informed as to the status of the offer.
• Although circumstances vary and sellers usually want a long time to deliberate and buyers want the seller to decide quickly, 24 to 48 hours is reasonable.
• All terms must be described in writing on the agreement.
• Pre-printed, state-approved state forms are the only legal way an agent can draft an offer.
• No offer is legally binding until a copy of the accepted offer is presented or mailed to the buyer.
• Either party may withdraw or modify an offer prior to acceptance by the other party.
• There is no legal priority as to which offer is considered or dealt with first. The seller can even choose to sell to a buyer who offers less.
• The broker is obligated to present “any and all offers” to the seller by law unless the seller instructs otherwise.
• Counter offers are in effect rejections and do not give a buyer priority regarding negotiations.
The information on this page is an overview of the key rules which brokers and agents must abide by and should help prevent misunderstandings. My experience is that these rules do not become a part of the conversation unless a misunderstanding over one of these rules arises during the process. You will probably learn about additional rules as you proceed with your transaction. Each region throughout the country may have variations of these rules. Ask your agent in the location you plan on transacting business if there are any additional rules. Your agent can answer the question.
Ask me your questions and I will answer them.