How Does the Real Estate Agency Relationship Work in Silicon Valley?

Books could be written about agency law in California, but in this post I will try to make the explanation concise and understandable. Please know that agency is different from state to state, so your experience of it outside of CA may be very different from it here.

An agent is essentially a person who or entity which acts on behalf of another in a transaction involving a third party.  In most residential real estate transaction in Silicon Valley, real estate agents are involved.

An agent has not just a duty of “fair and honest dealing”, but much more. The agent has a fiduciary relationship with the client. That is, the agent (or agency or licensee) must do what is in the client’s best interest (even if it is not in the agent’s best interest). It is as if the agent is an informed clone of the client, almost like a power of attorney but without signing ability.  The agent’s job is to protect the client and to negotiate for the client the best possible deal, the smallest possible risk, and so on.

To non-clients (that is, to customers), the agent still has a duty of fair and honest dealing. So the agent should not lie or mislead, but the agent doesn’t have to educate or strategize for the other size. When a Realtor has an open house at his or her listing, for instance, he or she has an affirmative obligation to try to get the client’s home sold at the best possible price. The Realtor may not tell a buyer the lowest amount a seller might take for the property unless the seller has expressly given that permission (preferably in writing).

 

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Do You Need a Buyer’s Agent? Or Should You Find a Home, Then Use the Listing Agent?

curvy-roadA few years back, I took a client of mine to see about a half dozen homes in San Jose (Cambrian and Blossom Valley areas) and Campbell; all of them happened to be Open Houses situations filled with unrepresented buyers (people who did not have a buyer’s agent). We saw an incredible range of marketing styles on the part of the open house host. Some agents were so “sleepy” that they didn’t get up to greet us. Others were orchestrating traffic of such high levels that we felt like it was some sort of over-packed party. It was so busy that you could hardly even pay attention to the house.

In that last example, with the frantic levels of visitors to the property, the listing agents had grossly under-priced the house to attract attention. It did – there was virtually no place to park on the street!

Why would the Realtors under price a home by a very large amount? Here are a few reasons why they might:

  • traffic – the agent can bring a lot of people through the house (granted, many cannot afford what it’s actually worth)
  • that traffic can provide great leads to the agents for future buyers and sellers – the spin is “look how differently I market the home”
  • get a ridiculous number of offers on the home – with more offers, agents hope to get massive overbidding and sell at a premium (some of them, of course, will be lowball offers as they will come in at or close to list price, which is far below market value)

By creating an extraordinarily chaotic environment, the listing agents hope to motivate serious buyers so that they feel compelled to write their best offer. But if it’s under-priced by 25% or more, how many of those buyers will be able to compete or really understand the game at hand to write a viable offer on the home?

Those browsing Silicon Valley real estate & visiting open homes may not be armed with a good agent. In a scenario like the one I described above, hapless consumers may find themselves with an aggressive listing agent who’s (understandably) anxious to claim more clients. My client and I overheard a consumer speak with an agent and tippy toe around the subject of whether or not he had a Realtor. “You’re working with me, now!” exclaimed the hungry agent. It felt downright predatory.

Should the buyer work with that agent to write an offer on the home, or work with a buyer’s agent? Would you work with any agent who happened to have the listing or who held the home open? Would you feel like you and your best interests would be represented?

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