Buying a Home in The Woodlands, Texas? Read this first!
If you are considering buying a home in The Woodlands, Texas, or anywhere in the state of Texas, then I have great news: I am about to impart the most fundamental knowledge you need before you begin. Yes, I just made that seemingly pretentious claim, but I believe it can stand up to scrutiny! Read on to see if you agree...
Please take a few minutes to review the "Information About Brokerage Services" form, also referred to in short hand as "IABS". <--Click the image to the left to download a PDF copy of this notice from the Texas Real Estate Commission (TREC) website. This notice describes the types of real estate brokerage services available to buyers, sellers, tenants, and landlords in Texas, and it provides an important summary of the broker's responsibilities when representing a client (or clients) in a transaction. TREC requires that this notice be delivered to unrepresented prospects (those who haven't entered into a representation agreement with a broker) upon first "substantive dialog" with a real estate agent or broker.
"Substa- wha...?" Yes, I'd better translate:
Put simply, "substantive dialog" begins when you change the topic from social pleasantries to the details of a particular real property; when, for example, you transition from, "It is hot out there today!" to "...so, what can you tell me about that house on East Road?" For the purpose of this phrase, "dialog" broadly includes conversations that occur in person, on the phone, by e-mail, or through other electronic venues.
Think of this notice as your "Texas Real Estate Miranda Rights" - yes, it's that important! It should be read in full, and any questions you have regarding the legal or financial consequences of accepting or declining representation should be addressed to a real estate attorney.
"Miranda Rights? Attorneys? Sounds like a TV courtroom drama!"
Sadly, you're right. Courtrooms are often the final destination of a dispute when the rights of one or more parties are not respected. The sale of real estate is serious business, and it must be conducted by all parties with a sincere effort to fulfill their obligations and maintain honesty at all times. The obligations of parties to one another are set forth in contractual promises and written notices so that the black-and-white reality of their agreements can't be denied or misrepresented. The enforcement of contracts and regulations by the courts ensures that we have legal recourse for seeing our agreements through to the final handshake.
But what does all this have to do with a notice form called the "Information About Brokerage Services"? Why does the content of this notice matter so much to a prospective buyer?
Since you may be preparing to contact brokers, agents, and the sales representatives of home builders, here are a few important highlights that I've extracted from the IABS (emphasis and bracketed text is mine):
IABS, Paragraph 1, excerpts:
...the broker who lists the property for sale or lease is the owner's agent [listing broker]...
...A broker can assist you in locating a property, preparing a contract or lease, or obtaining financing without representing you...
Put another way, brokers work with customers and for clients. Brokers may offer assistance to anyone, but they represent only the interests of their clients.
IABS, Paragraph 2:
IF THE BROKER REPRESENTS THE OWNER
The broker becomes the owner's agent by entering into an agreement with the owner, usually through a written listing agreement, or by agreeing to act as a subagent by accepting an offer of subagency from the listing broker. A subagent may work in a different real estate office. A listing broker or subagent can assist the buyer but does not represent the buyer and must place the interests of the owner first. The buyer should not tell the owner's agent anything the buyer would not want the owner to know because an owner's agent must disclose to the owner any material information known to the agent.
Mr. or Ms. Buyer, when you speak with the owner's agent or subagent, it's as if you are conversing on an old-timey telephone party line: you are talking to Neighbor Tom (Owner's Agent) but Neighbor Margie (Owner) is listening in! These warnings may seem like "just common sense" to a buyer, but there are a hundreds ways to misspeak and share too much information. It is essential to understand the full weight of this warning before you contact a listing agent to "ask a few questions about the house". Remember: Brokers owe honesty to all parties, but the special fiduciary duties owed by the broker to his or her client are exclusive to that type of relationship. You can't expect the owner's agent to give you fair treatment.
Now you may be wondering: "Who's going to represent my interests and keep my information confidential?" The notice goes on to address this:
IABS, Paragraph 3:
IF THE BROKER REPRESENTS THE BUYER
The broker becomes the buyer's agent by entering into an agreement to represent the buyer, usually through a written buyer representation agreement. A buyer's agent can assist the owner but does not represent the owner and must place the interests of the buyer first. The owner should not tell a buyer's agent anything the owner would not want the buyer to know because a buyer's agent must disclose to the buyer any material information known to the agent.
The Takeaway: If you don't have an oral or signed Representation Agreement with a dedicated buyer's agent, you are a customer, and you do not have the benefit of an agent working for you and placing your interests first. Brokers and their agents may assist you, but they do not represent you.
So how could a misunderstanding about brokerage services and fiduciary duties cause a buyer trouble? Here's one example:
Joe Buyer calls the number on a "For Sale" sign and Sally Agent answers. After a few pleasantries, Joe tells Sally that he'd like to know more about the features of 1234 Main St.; he also informs her that he is not yet working with a buyer's agent but "will contact one soon". Sally informs Joe that she represents the Seller- but she fails to relate the details of the "Information About Brokerage Services" notice or explain the duties she owes to the Seller. Joe then says, "The house is listed at $110,000, and I'm pre-approved for $120,000. I'm ready to buy today. Do you think the Seller will look at a lower offer from a pre-approved buyer?" Sally encourages Joe to contact a buyer's agent and have him or her assist Joe in submitting an offer.
Because Sally Agent has a duty to disclose to her client all that she knows about Joe, she calls Lisa Seller the same day to inform her that Joe is interested and can afford more than the list price. 2 days later, Joe's newly-hired agent submits a $105,000 offer- but Lisa immediately counters at her listed price. Joe gives up on negotiations and accepts the counter, paying $110,000 for the home.
Do you see how easily a few words can harm a buyer's interests?... But the fault was not solely the buyer's. Joe Buyer was unrepresented at the time he called Sally Agent, and Sally was made aware of this. As soon as substantive dialog began, Sally should have disclosed the details of the IABS form; and she ought to have said, "Joe, you shouldn't tell me anything you would not want the owner to know." Joe hoped to capitalize on his pre-approved, ready-to-buy status by gaining an insight into the Seller's willingness to negotiate, but instead, he published crucial details about his financial strength that were better left unmentioned. If Joe Buyer were later to realize that Sally failed to disclose the required notices contained in the IABS, he might pursue a legal remedy for Sally's negligence, which, he could claim, impaired his ability to negotiate.
Moral of the Blog Post: Start your home search by finding a good buyer's agent to assist you. Have your agent contact listing agents and builders, keeping you safely out of compromising conversations that can harm your chances of negotiating the best deal. Rely on your agent's resources and insights to review local market values, find an exceptional home, strategically negotiate the purchase, and successfully complete the closing process.
If you are preparing to buy a home in The Woodlands, Montgomery County, or surrounding areas, I can provide the experience and service you need to see you through the process. We can enter into a written agreement for me to represent you, and then we can begin your home search. I have many tools and resources that streamline the process and provide quality results. If you are looking for a home in a different part of Texas, I strongly suggest working with a trusted buyer's agent. Through my networking connections I can refer you to an agent in your area. However I can be of service, connect with me online to discuss your real estate needs!
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David Companik, REALTOR® | Keller Williams Realty - The Woodlands
HAR.com Client Experience Rating: 4.98 out of 5
Connect with David online:
1401 Woodlands Parkway, The Woodlands, TX 77380