When you decide to purchase or sell a home, you are faced with the question of how you can go about finding a real estate agent without being a target for unscrupulous behaviour. While the answers to these questions may vary depending on your circumstances, needs, desires, and circumstances, it’s important to be aware of how to handle potential issues with your real estate broker. In most everyday situations, individuals are under no obligation to keep someone else’s interest in mind and can better handle one another at arm’s length. Unfortunately, that rarely takes place in the real world, so it’s important to be aware of how to avoid unscrupulous behaviour by real estate brokers.
Kickbacks and Dodgy Deals
One of the most common ways how real estate agents make money off of a property sale is through kickbacks. It’s a scam in which the real estate broker collects a commission for selling a house for a higher price than what it’s worth. This happens in a variety of ways, but the basic idea is that the seller signs over the deed of the property to the real estate broker in exchange for a down payment. At the closing, the seller will be reimbursed with a large part of the closing costs. Unfortunately, kickbacks are not illegal, but it would be wise for buyers to inquire about them before signing any type of agreement. You should also ask your agent whether they will charge a commission upfront before providing any settlement services.
Another way agents can profit off of a transaction is through a “dodgy deal.” This is when an individual intentionally buys a home to pay less than its fair market value. Real estate agents often refer to these deals as “short sales” or “for sale by owner” (FSBO). This can be a risky strategy, as it presents buyers with an opportunity to save thousands of dollars, but some intentionally play the game to skirt financial disclosure requirements by deceiving buyers.
One of the most common ways that people get into short sales is through sub-prime lending. This involves taking out a mortgage at a much higher interest rate than you might normally pay. Many individuals fall into this trap when they take out a conventional loan to purchase their home. By taking out a high-interest mortgage, they can afford to buy a home at a reduced price because their income will cover the difference. However, when the mortgage is paid off and homeowners find themselves in default, their only option is to sell to stay current on their mortgage payments.
Listing agents can benefit from a case like this because they can charge more to sell a home to a buyer who intends to remain in the home for a long time. Unfortunately, they must disclose any problems associated with the deal to the listing agent who will then make the buyer aware of the potential pitfalls. These problems could include but are not limited to, overpriced materials, renovations that did not add value to the home, or other issues that would prevent the buyer from taking ownership of the home. Because these are some of the riskiest situations to sell a house through, listing agents must disclose this information if they want to see a return on their investment. It may cost them money to do so, but it will make the process much smoother for all parties involved.
Another issue that has arisen due to real estate agents without fiduciary responsibility is foreclosures. Foreclosures can happen to realtors as well as homeowners. When a homeowner defaults on a loan, a realtor is the next line of defence. The mortgage company will send a Notice of Default to the realtor. Once realtors receive the Notice, they must do what is required by law and contact the homeowner to determine the next step. If the homeowner does not respond promptly, the lender can then take over the property and sell it to recoup the outstanding balance.
Real estate attorneys can help borrowers deal with lenders when this occurs. They can draft and file a Purchase Agreement (PA) that protects the lender from default. The Purchase Agreement should contain a contingency clause allowing the lender to recover its loss in case of non-payment. A contingency clause is designed to provide security for borrowers by requiring the lender to pay an amount equal to the purchase price if the house is sold to cover the contingency. Although a contingency clause may sound cumbersome, many buyers find it to be an effective and convenient method of purchasing real estate.
Another factor borrowers need to consider is whether the real estate broker is properly compensated. The broker may receive a portion of the commission earned through the sale. This fee is typically 10% of the final selling price of the property. However, it may also be affected by the transaction fees deducted by the buyer. Brokers need to discuss these fees with their clients before signing the contract.