From Real Estate Game Changers
by Faun G. Hauptman
One of the questions I frequently receive as a real estate broker, from both foreign and domestic buyers, is “how does this work in the U.S.?” What many Americans and foreign buyers fail to recognize is that the history of this country and the immense power held by each individual state, has created a system of real estate law and practice that varies drastically from one state to another.
To illustrate, I’ll share this story. I have sold the house next door to my own, on three separate occasions. First, my husband and I owned it; we then purchased the house next door and sold it a few months later. That buyer, about 18 months later, was relocated with his company to another state, and naturally, he asked me to sell it for him. Those buyers kept the house for about a decade, and recently, I sold the house again, for them. And even though I only owned that house myself for about two years, you might say I’m an expert in that property.
Getting back to the varying laws from one state to another. The buyers who kept the house for a decade are both attorneys from New York. After they bought it, we became next door neighbors and began a long friendship. Shortly after they moved in, we were talking one day and Mr. Neighbor made this comment to me: “wow, here in Colorado, you guys (real estate licensees) have a lot of responsibility. It’s like you’re attorneys. You write contracts, you close the deal. In New York, the licensees only show the property, and when the buyer says “buy,” the deal gets turned over to the attorneys who draft the contract and negotiate the entire deal. The real estate agents don’t handle any of that.”
As an extreme example, this illustrates my point. Real estate law and practice varies dramatically from one U.S. state to another. Some states only license salespersons; others, like mine, license every person as a Broker, but have different levels of Broker that carry different responsibilities, and capabilities.
About 25 years ago, a small number of states, Colorado included, began experimenting with the concept of buyers having an Agent fiduciary. Prior to this, all licensees involved in a transaction were considered to be agents, or subagents, for the seller. This meant that buyers had no true representation in the most important and expensive purchase they will likely make in their lifetime! Consumerist sentiment and legal theory led lawmakers to begin to change state laws, to allow buyers to engage an expert to represent their interests. About half of all states have legalized fiduciary level service to home buyers now, which is a huge step forward for buyers who know it exists, and use it to their advantage. But buying a home in a state that doesn’t, or failing to engage an agent fiduciary in a state that does, will make establishing a trust relationship more difficult. And, just as when selecting an attorney or other fiduciary for your legal, financial, or other important matters, who you select is extremely important because you are going to be in a longer-term relationship with that individual.
Without an understanding of fiduciary versus non-fiduciary service, a buyer coming to my market from the East Coast, might be remiss to trust their Broker. If I’m showing a property and a buyer says “I would like to buy it,” and then I whip out a contract and start drafting it (said for visual reasons, we actually now use electronic contracts here), she might think, “this is NOT how real estate is done in this country, and this woman is acting like a lawyer and that’s not legal!” She might even fire a perfectly competent agent, all for doing exactly what Colorado license law not only allows a licensee to do, but requires!
This is why it is important to research and understand local law and practice. Consumers need to understand what is “usual and customary” in the place where they are currently buying or selling, because it looks different in all 50 states, and even from one market to another within each state. There are a handful of Federal laws and regulations, mostly relating to lead paint, equal housing opportunity, and mortgage loans, that impact every transaction in the U.S. But the process of hiring a real estate agent and buying or selling a home will be done very differently from one state to another. Having this awareness up front, and looking for an agent who will explain in detail how real estate brokerage is done in their jurisdiction, will be your first notion that he or she is competent and trustworthy.
Once you know whether your state allows an agent to act as your fiduciary, the next step is to understand what that means. If you engage a fiduciary, that means that the person must act in your best interests at all times, they must be your advocate, seek a price and terms that are favorable to you, and be loyal to you. And that kind of relationship requires that you trust they will perform those duties. Mutual trust and loyalty work both ways. So it is in your best interests to not only find an agent you can trust, but one who trusts you too. Establish mutual trust and loyalty early in the process so that you can have open and honest communication throughout the home buying or selling journey.
Photo by Joey Csunyo (@joey_csunyo) on Unsplash