This chapter may be “No, really…?” to some readers. But I include it because most of what Realtors do is behind the scenes, out of the public’s eye. Showing property, writing contracts, putting the sale into escrow, and waiting for your commission check is only the tip of the iceberg. If you’ve been a Realtor for a while you may not need this refresher.
I remember my first day “on the job.” I was lost. A bare desk top with a phone, no structure to my day. But you won’t have to suffer that angst because you’re special—you own a sphere of influence, and because of that your broker-partner will have plans for you.
First, let’s understand how a real estate company is structured and what makes a great Realtor.
Licensees (you) must work for a broker (your boss) to stay legal with the state department of real estate. (See Appendix IV, “Contact Information for All State Departments of Real Estate”; if you’re listening to the audio version of this book, all the appendices are located online at http://bit.ly/2nv9DN6.) The brokerage belongs to the local association of Realtors, which belongs to a regional Multiple Listing Service through which you’ll get lots of information, including listings of all properties on the market. Most real estate companies insist that their agents become members of the state association of Realtors and the NAR (National Association of Realtors). That is, basically, the structure.
Within each office is likely to be a transaction coordinator. While the broker/manager is responsible for the legal and ethical activities of his agents, the TC makes sure you get all the forms completed and properly signed.
The National Association of Realtors says that there were 1,327,880 Realtors in the United States as of March 2019, but this shouldn’t concern you because you will leapfrog over hundreds of competitors by teaming with a top producer. You won’t be going it alone, as I did when I began 30 years ago. You will avoid most of the pain and suffering experienced by new agents and will expedite your own success.
Becoming a real estate agent was one of the best moves I ever made. I will never “age out.” I used to be very shy. No more. I meet interesting people all the time and am constantly learning. I am never bored. If you come from a traditionally staid profession or one without much customer contact, not to worry. People skills can be learned. You get feedback really fast in real estate.
Your business will be solving people’s problems. It’s all about what you can do for them—resolve their housing challenges. You’ll need to be fairly flexible with your time in order to accommodate clients’ schedules, but having a partner can mitigate that hassle. You’ll meet many potential clients, and your mentor will help you separate the wheat from the chaff. You will develop organizational skills suited to your new calling. Embrace sticky notes and typed to-do lists. Partnering with an already successful Realtor will make the process much easier.
Before you go out and sell houses, you’ll need to understand for whom you’re working—the differences between agency, subagency, dual agency, and fiduciary duty. It’s confusing at first but will become second nature to you quickly. This subject will be beaten to death in your licensing classes, but for an overview, the National Association of Realtors distinguishes among the various forms of agency as follows:
“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 work 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.4”
Depending on where you work, your state may designate subagency as not applicable.”
The above is a good explanation of agency. Fiduciary duty, which all agents owe to their respective clients, is defined by the NAR as: loyalty, confidentiality, disclosure, obedience, reasonable care and diligence, and accounting.
It’s very important that you understand for whom you are working. Don’t stray to the dark side because there are consequences.
As a new agent, you’ll more likely begin working with buyers rather than with sellers because, frankly, buyers are not usually as discriminating about their agent’s qualifications as are sellers. Listing (seller’s) agents are required by the Multiple Listing Services and their brokerages to have the seller sign a contract (the listing agreement). There is a contract for buyers, the buyer’s brokerage form, which commits the buyer to his agent for a specified period of time, but buyers are reluctant to sign these and most agents will work without one. My advice about this is just prove you’re indispensable by working hard for your buyer.
Before actually showing any property, you, as a buyer’s agent, should get the buyer preapproved for financing, not just prequalified. A prequalification can be done over the phone; a preapproval requires a complete loan application, credit check, and verification of income. Buyers who aren’t preapproved won’t compete well; the listing agent either will think they’re just getting started (and have an education ahead) or won’t be convinced that they’re serious.
Occasionally a buyer will come to you with preapproval in hand, having already established a relationship with a lender. There are lenders and there are lenders, and you need to be confident in that preapproval before spending your time and money showing property. Until you have a few sales behind you and are fully knowledgeable about the loan process, get your mentor involved. Mentors recognize red flags and will have their own favorite lender whom you can go to if issues come up.
Buyers will undoubtedly have lots of properties they want you to show them, but you should pull your own list from Multiple Listing Service based on their actual price range and choice of area. I run a line listing of every property on the market within a 5 percent price range and explain which we should view and why we don’t need to see the others. It shows clients that you’re not missing anything. Once they’ve seen the inventory they’ll learn how realistic their wants are.
The buyer’s agent locates and shows property. Once the client chooses a home, good practices include:
- taking the buyer by the hand, figuratively speaking, and knocking on doors surrounding that home to ask neighbors if there is anything a buyer should know about the neighborhood and that property. Some sellers are absentee landlords and don’t have much to disclose; others can have selective memories.
- pulling comparable sales to determine a realistic offering price, but reminding the buyer that he or she may have to exceed that amount if there’s competition.
- advising the buyer to consult governmental agencies that might have influence over a buyer’s plans for the home, or, if there are geological concerns or natural hazards to be aware of.
- preparing a buyer’s net sheet so that he understands what his costs will be.
Then you’re ready to write the purchase agreement. It’s a good idea to include a cover letter to the seller emphasizing why your client would be the best choice (motivation, desirable financing, mellow about inspections). The seller will want to choose the candidate who will pay the highest price and cause the least grief.
Once you get the offer accepted, you open escrow which is the neutral third-party through which all the money flows and title is insured. Next, you’ll be responsible for lining up inspections and being present at them with your client. You will get written reports, but there’s nothing like being at the inspection in person and seeing firsthand what the issues are.
You’ll receive a package of disclosures from the seller. Your client will read and sign them, but you must read them, too, so that you can recognize red flags and advise your client on whether to have any additional inspections. The inspections you arrange are largely determined by where the purchase occurs, but in California the basic ones are the pest inspection, home inspection, roof inspection, and often a sewer lateral inspection (depending on the age of the home).
A note about showing rental properties: Most agents won’t do it, because rentals entail a lot of time and don’t pay as well as sales. However, it is advisable to show rentals to a relocation client (someone moving to your area for work). The client may purchase a home once he or she gets settled, and you will be top of mind, already having provided service to them, proving your value early on, one step ahead of the competition. Just be sure to stay in touch. If you don’t want to show rentals, explain that you’ll give the caller a list of all the rental properties on MLS and that it’s best to contact the rental listing agent directly. Rentals are the only scenario where I condone dual agency (the agent working for both sides). They’re much less litigious than sales, and if the listing agent doesn’t show the property it may not get shown.
The nice thing about working with buyers is that they stay in your area. They send you referrals.
Sellers typically interview three Realtors, want to see how many homes you’ve sold and where, and what your marketing plan is. Listings are very competitive. Teaming with an established agent will get you over this hurdle because your partner will provide all the credentials.
Once the listing appointment is set, you and your partner will meet with the sellers and:
- tour the property
- discuss the marketing plan
- discuss comparable sales in the area
- recommend improvements to increase the value of the home
- establish an asking price
- do a seller’s net sheet, so the seller understands the expenses and how much the sale will net
- possibly leave with a signed listing agreement
This meeting should take no longer than an hour and a half—two hours if you actually do the listing paperwork. This isn’t a social call, and confining it to under two hours conveys that it’s business and that you have other business to do.
Once you get the signed listing agreement, these are some of the things that need to be done and that you may be asked to do (with some coaching from your partner):
- Monitor the property improvements, staying in touch with the clients to encourage them and make sure progress is happening. Help them if snags come up.
- Order any presale inspections and be present at them.
- Provide the disclosure package to the seller for him or her to complete. I always sit with my clients to explain these; an ounce of prevention is worth hours in court.
- Photograph the property.
- Create the home brochure and make sure that the flyers never run out.
- Install key boxes and order yard sign.
- Place open house advertising and hold the open house and brokers’ tour.
- Follow up with agents who show the home.
When you receive offers, you and your mentor will:
- Review all the offers ahead of time, asking the buyer’s Realtor any questions that arise.
- Compile info on the latest sales and listings in the neighborhood to advise the seller about the current market.
- Assemble all the documents needed to complete a response to the chosen offer.
- Rank the offers in order of desirability and present all offers to your client. This is usually done in person unless the seller is out of the area.
- Once the seller has accepted or countered an offer, present it to the buyer’s agent and get the signed acknowledgment.
When the purchase contract is ratified, either the listing agent or the buyer’s agent opens escrow. But there’s still lots ahead for the listing agent to do. It’s best to note all contract dates on a calendar so that no deadlines are missed. You will need to:
- Provide the completed disclosures to the buyer’s agent.
- Monitor the buyer’s financing progress, assuring that the appraisal gets done on time.
- Ensure that the buyer orders and responds regarding his own inspections within the contractual time frame.
- Oversee any repairs that are agreed upon.
- Accompany the seller to the escrow company or attorney’s office where the closing papers will be signed.
- If your real estate company doesn’t employ a transaction coordinator to assure that all necessary documents are signed and in the file, you will need to go through your file and get any last-minute signatures. Most companies will not pay you until your file is airtight.
Don’t be overwhelmed! Remember, you are teaming with a mentor, someone who will take you by the hand (because you carefully auditioned potential mentors) and explain what you should do every step of the way. And you may be asked to perform only some of these tasks.
To make it easier on yourself, ask your mentor up front to give you a package of all the forms you need to be familiar with; there are dozens. Get yourself a latté and plan to spend a few hours reviewing them, especially the listing agreement, agency disclosure, and purchase agreement. California has so many disclosures that it’s almost impossible to buy a home without knowing everything about and around it. That should be a comfort to you. Just be sure your seller fills the forms out truthfully and your buyer reads them thoroughly (as should you).
Watch every word you say in the presence of others. The federal Fair Housing Act prevents Realtors from discriminating on the basis of national origin, religion, family status, color, race, sex, or disability, and some states don’t allow discrimination against service animals.
Being a licensed Realtor has fringe benefits, but don’t abuse them. Often (sad to say), listings are held off the market, not put on MLS. We call these “pocket listings.” This hardly serves the seller client, but buyer’s agents who know about them can get a good deal that way because there is less competition for those properties. If you care about your reputation (and fiduciary duty), you will not buy one of those listings for yourself. And for certain, don’t represent both the buyer and seller in the same sale. Your reputation is worth more than a commission.
Of course, agents can buy property for their own investment at a discount because they receive the buyer’s agent’s side of the commission. But depending on how often you do that, it may trigger “dealer status” with IRS, which could put you in a higher tax bracket. IRS considers how many acquisitions and sales you make over a period of time, among other things. IRS Publication 334 goes into this in depth, but flippers beware. If you plan to flip a number of properties, do speak to your tax professional.
Whether licensees represent a client or purchase or sell homes for themselves, they must disclose that they are licensed. The other party must be made aware that someone with superior knowledge is involved.
Often when I close an escrow I hear from my clients, “I had no idea how much is involved in selling (or buying) a home.” And you may feel that way, too, right about now. But remember—you won’t be doing it alone. You will be guided and assisted by an experienced professional. Your hourly pay will almost assuredly be much greater than for any other gig job.