Vocabulary: Agency & Agency Relationships

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The term “agency” is used in real estate to help determine what legal responsibilities your real estate professional owes to you and other parties in the transaction.

▶️The seller’s representative (also known as a listing agent or seller’s agent) is hired by and represents the seller. All fiduciary duties are owed to the seller, meaning this person’s job is to get the best price and terms for the seller. The agency relationship usually is created by a signed listing contract.

▶️The buyer’s representative (also known as a buyer’s agent) is hired by prospective buyers to and works in the buyer’s best interest throughout the transaction. The buyer can pay the agent directly through a negotiated fee, or the buyer’s rep may be paid by the seller or through a commission split with the seller’s agent.

▶️A subagent owes the same fiduciary duties to the agent’s customer as the agent does. Subagency usually arises when a cooperating sales associate from another brokerage, who is not the buyer’s agent, shows property to a buyer. The subagent works with the buyer to show the property but owes fiduciary duties to the listing broker and the seller. Although a subagent cannot assist the buyer in any way that would be detrimental to the seller, a buyer customer can expect to be treated honestly by the subagent.

▶️A disclosed dual agent represents both the buyer and the seller in the same real estate transaction. In such relationships, dual agents owe limited fiduciary duties to both buyer and seller clients. Because of the potential for conflicts of interest in a dual-agency relationship, all parties must give their informed consent. Disclosed dual agency is legal in most states, but often requires written consent from all parties.

▶️Designated agents (also called appointed agents) are chosen by a managing broker to act as an exclusive agent of the seller or buyer. This allows the brokerage to avoid problems arising from dual-agency relationships for licensees at the brokerage. The designated agents give their clients full representation, with all of the attendant fiduciary duties.

▶️A transaction broker (sometimes referred to as a facilitator) is permitted in states where nonagency relationships are allowed. These relationships vary considerably from state to state. Generally, the duties owed to the consumer in a nonagency relationship are less than the complete, traditional fiduciary duties of an agency relationship.

Real Estate Vocabulary

Whether you are in the market to buy or sell, you should brush up on your real estate lingo. Here are some very common terms used in the real estate industry.

Property listings

• MLS (Multiple Listing Service): Distributes local and regional listing information on a website for real estate agents and brokers.
• Listing: The actual property being sold or a contract established by the seller with the broker giving permission to sell their home.
• Listing Agent/Broker: Is responsible for selling a piece of property on behalf of the seller.

Market knowledge

• CMA (Comparative Market Analysis): Comps used by agents to establish the FMV (Fair Market Value) of a home by comparing its features and amenities to other properties in the area.
• Cost Approach: Method used when there are no comps in the area, or not enough of them to assess the value of the home in question.
• Sales Comparison Approach: Method by which agents compare recent home sales to establish the FMV of a home.

Real estate financing

• Carry Cost: A tool used by banks to determine what percentage of a buyer’s income can cover the cost of a bank loan.
• LTV (Loan-to-Value Ratio or Debt-to-Equity Ratio): After determining the carry cost, banks estimate how much the buyer must put down on the purchase of the house by calculating the amount of the loan against the carry cost.
• DTI (Debt-to-Income Ratio): The percentage of the buyer’s income that is left after calculating their monthly loan payment amount against their income.
• PIR (Price-to-Income Ratio): A general measurement of affordability in the area, which compares median incomes to median home prices, represented in a percentage. Lenders use it to determine if a buyer’s income is sufficient to cover a loan.
• Pre-Qualification: With calculations based on DIR and PIR, a mortgage lender can estimate the size of the loan for which the buyer qualifies.
• Commitment Letter: A pre-approval that a lender gives a buyer, notifying them that a portion of the bank loan will be funded by the state.
• Pre-Approval or Approval Letter: Issued by the lender, pre-approval is a provisional acceptance and approval of a specific loan amount for which the buyer has qualified for the purpose of purchasing a home.

Purchase process

• Offer: The price the buyer offers to pay the seller. If it’s accepted, the seller’s legal team drafts the sales contract.
• Counteroffer: If the seller rejects an offer, the buyer can make a counteroffer to try to meet the seller’s demands. The seller may also issue a counteroffer after receiving the buyer’s initial offer or counteroffer.
• Earnest Money Deposit (“Good Faith” Deposit): A buyer can submit a deposit with their offer to show that they are serious about buying the house.

Disclosures

• Disclosure and Informed Consent: Establishes the relationship between client and agent in writing, and discloses the agent’s ties to a broker or agency.
• Property Condition Disclosure Form: The seller produces the property condition disclosure form to the buyer, disclosing any defects or damage to the structure or surrounding areas of the property.
• Truth-in-Lending Disclosure: The bank’s legal obligation to respond to a buyer’s loan application, detailing the loan repayment schedule and amount, plus fees and interest, within three business days.
• Title Insurance: The buyer typically pays for title insurance to protect the lender or homeowner from any undisclosed ownership claims or fraud related to the property in question.

Contract preparation

• Conditions: Items included in a contract that create a legal obligation which, if unmet, would cause the contract to be null and void.
• Contingency: Contingencies create obligations and conditions in a contract which, if unmet, would allow one party to seek compensation or restitution for the failure.
• Riders: Issues that are listed as an addendum to the contract. Riders do not negate or nullify the contract, but add additional language—or obligations to either party.
• Adjusted Sales Price: The final price listed in the purchase agreement after adjusting for any financial deductions or concessions from the seller.

Escrow and closing

• Escrow: A trust in which any money, documents, or other interests are held to secure the home purchase. Typically, the seller’s agent or attorney posts the items in an escrow account.
• Closing Costs: The fees that the buyer pays to close the deal. These include costs like broker commission, attorney’s fees, taxes, title insurance, etc.
• Seller Contribution: The portion of the closing costs that the seller pays to the buyer.
• Closing Statement: A detailed accounting of all of the money transferred and received in the deal.
• Delivery and Acceptance: The official letter of transfer of the title to the buyer.

 

 

Information from RealEstateExpress.com