Why Do Agents Always Want Me To Sign Something?

This blog is more directed towards buyers as opposed to sellers. After all, sellers must sign a listing agreement with a firm before their home is put on the market.

Buyers on the other hand, start their home search, probably online, and then venture out to view homes of interest in-person. Inevitably, the buyer will need to contact a real estate agent to gain access to those homes, unless of course, buyers take note of scheduled open houses and then visit those “open homes” without the assistance of a real estate agent.

It goes without saying, but yes, I’ll say it anyway, unless the buyer knows an agent they’d like to work with, there’s always this initial sense of tension between buyers and agents that don’t know each other when they first meet. This friction will even occur at open houses.

Take the following scenario. An agent is holding an open house and is anxiously awaiting the arrival of visitors.  Upon entering the home, the buyers and the agent introduce themselves.  At this point, one can imagine the thoughts going through each of their minds. Depending upon first impressions, the buyers could be thinking, “Gosh. I’m going to have to make this quick, this person is a little sketchy. In fact, I’m not quite sure we should be here alone with this character.” The agent on the other hand is thinking, “Gee. I wonder if these folks are already working with an agent? Wonder what their buying timeline is?”.

Let’s dive a little deeper into this scenario. First of all, the buyers are happily, I hope, looking for their next home and as such, are probably in a good mood, and have decided to visit open houses during their “free” time on a Saturday or Sunday.

Agents are working at open houses. In fact, good agents are ALWAYS working. What does working mean to real estate agents? An agent’s most important work activity is the continuous, day in, day out, 24×7 generation of leads. Without leads, an agent will not survive. Let me just rephrase this a bit – “Without the generation of quality leads, an agent will not survive.”

Let’s face it. If you work for a company and you are not part of their sales force, it is NOT your responsibility to generate a customer. Customers of your company already exist and your responsibility is to support that customer in some way shape or form. Your function could be billing, marketing, technical support, product support, inventory replenishment, administrator, research, product design, etc. etc. I’m sure you get the point.

As independent contractors working for themselves, real estate agents do not automatically have “built-in” customers. It’s up to the agents to generate their own customers to earn a living. No customers : no money.

It’s very important that we set that stage because buyers as mentioned previously, are looking for homes during their “free” time however, real estate agents’ main professional objective is to minimize the amount of time they work for free.

So of course, the agent will ask the buyers, either during the introduction or sometime shortly thereafter, whether the buyer is currently working with an agent.

If the buyers are already working with another agent, then all bets are off for the agent standing there in the flesh. A real estate agent is prohibited from working with a buyer who is already represented by another agent. However, if the buyers are currently unrepresented, then they are “open game” to the agent.  The agent may start building rapport with the buyers and eventually take them on as clients.

Hence the reason real estate agents will at some point, ask the buyers to sign something. The first document or brochure, depending upon how it’s presented, is the Working With Real Estate Agents Brochure. This is NOT a contract. This is a document required by the North Carolina Real Estate Commission that explains how an agent may work with clients. That’s all, it’s strictly informational in nature.

The next document an agent will ask you to sign is a buyer agency agreement. This is where buyers get all “weirded out” and perhaps rightfully so. (Please excuse me a bit, I’ve never written nor said “weirded out” in my life but inexplicably, these are the words that came immediately to mind.) This document serves as a sort of employment contract between you and the agent. It lays out, amongst other items, the duration of the agreement, compensation the agent expects to earn, buyer’s duties, and the firm’s duties.

Many buyers will not and have no intention of ever signing the buyer agency agreement. Well, if the buyer, for one reason or another, is not comfortable working with that particular agent, then by all means, do not sign an agreement with that agent. Simple enough.  I guess the main reason the buyer doesn’t wish to sign is because they don’t want to be tied to one particular agent – they want to shop around. Again, the buyer has all the right to do that. But buyers, keep in mind, as you bounce from agent to agent, you will continually be asked to sign a buyer agency agreement; hence the title of this blog, “Why do agents always want me to sign something?”.

And here’s why agents always ask you to sign. The buyer agency agreement is the only guarantee that an agent will ever get paid.  And by the way, it’s not a 100% guarantee either.

Buyers who do sign a buyer agency agreement with an agent become a client of the agent’s firm with the agent having primary responsibility for following through with the firm’s duties.  The signing also establishes a fiduciary relationship between agent and client.  The client / agent become one-in-the-same and work together to successfully close on a home. And it isn’t until closing that the agent finally gets paid!

In an agent’s mind, a buyer who will not sign a buyer agency agreement may be an extremely low quality lead.  Essentially, there’s a high probability that this lead will waste an agent’s time, money, and other valuable resources without ever buying a home from this agent. In essence, the buyer becomes a low priority for that agent.

Can you blame the agent? Why would anyone work for free?

The Offer To Purchase

The “Offer To Purchase And Contract” (Standard Form 2-T, aka OTP, dated 7/2018) is 13 pages long and updates tend to happen on an annual basis. Old timers in the real estate industry remember when the contract was 1 page! So let’s take a look at some of the “finer” points of the contract. I say “finer” points because I am not going to discuss the obvious.  Also, in this particular blog, I’ll be examining the OTP from the perspective of a seller.

I’ll start with page one so feel free to follow along by downloading your own sample copy by clicking here. Italicized words are defined within the actual OTP.

Remember, as a seller, this will be the form a buyer’s realtor will review, complete, and submit to us on behalf of their buying client.

Let’s begin on the bottom of page 1:

“Should Buyer fail to deliver either the Due Diligence Fee or any Initial Earnest Money Deposit by their due dates, or should any check or other funds paid by Buyer be dishonored, for any reason, by the institution upon which the payment is drawn, Buyer shall have one (1) banking day after written notice to deliver cash, official bank check, wire transfer or electronic transfer to the payee. In the event Buyer does not timely deliver the required funds, Seller shall have the right to terminate this Contract upon written notice to Buyer.”

What makes this paragraph so intriquing is the fact that agreed upon due diligence (DD) money is due upon the effective date of the contract.  So, in essence, as soon as we are under contract, the money is due.  Going under contract may happen so quickly that the delivery of the DD money may not take place until hours to days later. If the due diligence fee has not been paid by the effective date, the seller can send written notice to the buyer to deliver the funds. Then, the buyer has one banking day to deliver the due diligence; otherwise, the seller may terminate the contract by delivering notice to the buyer’s agent.

If I am representing a seller in an attempt to secure the best terms possible for my selling client AND we happen to receive a much superior offer over night for example, I may recommend my seller client send the written notice to deliver the funds if due diligence money has not been paid.

Although I mentioned I would not be covering the obvious, I feel obligated to suggest to all of my sellers to pay particular attention to section 2: Fixtures and Exclusions. I have seen so many problems and arguments develop because the seller was legally obligated under this paragraph to leave an item for the buyer and either forgot or neglected to read and follow the instructions in this paragraph. For example, bathroom mirrors were always a hot button between sellers and buyers. In past years, only bathroom mirrors that were attached to the wall automatically conveyed with the property.  During the final walkthrough before taking possession of the property, a buyer would exclaim, “where are the bathroom mirrors?”.  Well, it would turn out the bathroom mirrors were taken by the sellers because they weren’t attached to the walls but perhaps they were just hanging on a picture hook.  Today, ALL bathroom mirrors convey so if a seller has a keepsake bathroom mirror they’d like to take with them, my suggestion would be to swap it out with a replacement mirror BEFORE putting the house on the market.  Alternatively, the seller has the option of identifying and items that do not convey by listing them in subparagraph (d).

Let’s jump to subsection 4(c). The buyer has agreed to purchase the property as is, in its current condition.  So, the buyer signs the OTP knowing the home is being sold as is UNLESS the seller and buyer agree to negotiate for repairs or improvements to the home.  The seller is NOT required to negotiate for repairs. However, at least in our MLS, it is common practice for the listing agent to indicate in the listing that the home is being sold “as is”.  Knowing that the seller will not do any repairs allows the buyer to take that information into consideration while deciding on the terms to offer the seller.

Section 4(f) reads:

“(f) Buyer’s Right to Terminate: Buyer shall have the right to terminate this Contract for any reason or no reason, by delivering to Seller written notice of termination (the “Termination Notice”) during the Due Diligence Period (or any agreed-upon written extension of the Due Diligence Period), TIME BEING OF THE ESSENCE. If Buyer timely delivers the Termination Notice, this Contract shall be terminated and the Earnest Money Deposit shall be refunded to Buyer.”

The due diligence period begins on the effective date of the contract and ends on an agreed upon date.  During that time frame, the buyer may back out of this contract. In doing so, the buyer forfeits the due diligence fee they paid, if any.  From both a seller’s and buyer’s perspective, the negotiated due diligence fee is a vitally important and strategic contract term and therefore, should be negotiated appropriately.

Sections 5(a)(b) This answers the question, “How does the buyer intend to pay for the property?”. Depending on current market conditions, these two sections alone may determine whether a seller decides to accept an offer or not.  For example, in a highly competitive seller’s market where multiple offers are common, an offer contingent upon the buyer selling their own home would most likely not be accepted by the seller.

Sections 5(d)(e) It’s a best practice to complete and provide copies of both disclosures prior to the buyer making an offer. Otherwise, the door is left open for a buyer to terminate the contract AND recoup their due diligence money.

Section 8(c). Seller needs to understand they’ll need to keep ALL utilities on through closing or buyer possession.  There have been times where a seller had already moved out of the property and thinking they’d save some money on utility costs, they inadvertently turn off one or more utility services. Additionally, the seller will need to provide “reasonable” access to the property to allow the buyer to conduct their due diligence.

Section 8(d). There have been instances when a seller wasn’t aware of debris that had been discarded onto their property or debris that had been stored under the house inside the crawlspace.  Similarly, the seller may decide to leave patio furniture since they’re downsizing and the furniture just won’t fit in the new place. Well, the seller is obligated to remove ALL debris and personal items from their property prior to the date the property will be made available to the buyer.

Section 8(i). Any amount in this field will be paid by the seller at closing.

Section 8(m). In the event the seller and buyer agree that certain repairs will be done to the property prior to closing, these repairs must be made in a “good and workmanlike manner” and the buyer has the right to verify the repairs prior to settlement.  Many times, the seller has a relative or close friend they reach out to in order to complete those repairs. Just keep in mind, they need to be completed in a “good and workmanlike manner”.  Under most circumstances, the selected repair person will need to possess an applicable license for the repair they’ll be completing.

Section 8(n). If the seller fails to comply with any of their obligations under Section 8, or the seller materially breaches the OTP, the buyer can elect to terminate the contract and have both their earnest money and due diligence money refunded.  Additionally, the seller will need to reimburse the buyer for expenses incurred during their due diligence period and may be liable to pay court costs if legal proceedings are brought forth by the buyer

Section 10 has to do with a home warranty.  Sometimes a seller will offer one to incentivize a buyer and other times, the buyer will check the second box stating the buyer will purchase the home warranty AND the seller will pay for it at settlement.

Section 11 states the home must be in similar or better condition at closing as it was when this offer was made, reasonable wear and tear excepted.  Sometimes a seller will ask me what to do about small holes in the walls after the pictures were removed.  That would be considered reasonable wear and tear and can be left alone.

Section 13.  Most sellers are unaware there is a built-in 14-day “grace period” extending 14 days beyond the agreed upon closing date as long as the delaying party is acting in good faith and with reasonable diligence to proceed to settlement and gives as much notice as possible to the non-delaying party.  If the transaction fails to close with those 14 days AND there is no agreed upon extension of the closing date, then the delaying party shall be in breach and the non-delaying party may terminate the contract.

Well, we’ve touched upon many of the finer points of the offer to purchase and contract from the seller’s perspective, and as always, if you have any questions or concerns, please don’t hesitate to reach out to me.

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