Why Brokers Need Agency Agreements

Agency Agreements

A recent exchange with a BiggerPockets investor who reached out for more information on an investment asset I analyzed and posted about brought my need to have an agency agreement in place before moving forward.  A common objection, the investor had pause and eventually chose not to continue over it, citing unwillingness to be bound to an exclusive agreement, despite my offer to make it property specific to alleviate the greater portion of said exclusivity. Understandable to a point, it's important to delve into why a broker may require it. 

Agency Law

Concerned over the limited data which included projected income, rehab and more, the investor who is considering buying out of state had a need to be in receipt of actual income and expense data, pictures and more exact rehab estimates before offering. It's important to note, it was disclosed this was a third party listing in the posting, which did and normally does not offer the data requested. 

Therefore, to fulfill the customer's need for said information, the broker/buyer agent must reach out to the selling agent for said information when Section VI B. of the Colorado Real Estate Manual which covers Agency states: 

Loosely defined to include "Counseling buyer or tenant as to any material benefits or risks of a transaction that are actually known by broker", arguably Section E paragraph 3 of the manual mandates that brokerage activities include seeking due diligence information which, when done on behalf of a customer who is not yet a client by virtue of an agency agreement, is prohibited by licensing law. 

Legal Requirements

Clearly, a broker is free to run their business any way they see fit and some do so more loosely than others but, if they want to keep their picture out of the paper, they will do as the law requires.

Equitable Interest

In addition, unlike wholesalers, flippers and long-term investors, the buyer agent has no equitable interest to the property and is easily circumvented as yours truly has been on more than one occasion. Therefore, with the agency agreement defining how a commission is earned, the broker's interest in any transaction resulting from their efforts is somewhat protected by having customers sign them.

Buyer Protections

It might be comforting for a buyer to know their earnest money is protected by the clearly defined Objection and Resolution dates and deadlines provided by the Colorado contract.

Choose Wisely

Like a carpenter who measures twice and cuts once, choosing who to engage to help with one of the biggest decisions in a lifetime is no whimsical endeavor. It's critically important to select one based on their capacities and limitations, their track record of success, customer orientation and much more for once drafted onto your team, they become your fiduciary agents assuming responsibility for your best interests. Accountable to you as well as well-established rules and regulations once vetted and chosen it's equally important to trust their judgment in guiding you through the process to minimize those sleepless nights.

Thanks for reading.