Playing Fair with Your Real Estate Agent

This week's blog is about playing fair with your real estate agent.

Last week I was in New York City visiting family, and while I was there I met my niece and her husband for lunch and a show. They live in the city - my niece is an astrophysicist and only about ten people in the world really understand what she does. Something to do with black holes and dwarf stars and galaxies far far away!

We had just settled into our seats at this great Cuban restaurant when my niece said she needed to ask me some real estate related questions. I told her I would try to answer her questions, but with the disclaimer that New York City real estate was out of my realm of expertise.

My niece and her husband have decided they need more room than they currently have, so they are looking for a two bedroom apartment. Number one on their list was an apartment with about 900 square feet, 2 bedroom 1.5 bath for $4,500 a month. (You can buy 6,000 square foot Las Vegas luxury homes around the $700,000 price range for that kind of monthly payment, including the taxes and insurance!)

She showed us the floor plan, and the second bedroom was literally 10x5 - really more of a den off the dining room. The kitchen was minimal, and the bathrooms were only just big enough to turn around in if you were on the slender side.

But here's the kicker and where the real estate question came in. They had previewed this apartment with a local real estate agent. In addition to paying $4,500 per month for the place, they were also expected to pay the real estate agent 15% of the total rental amount for the year, another $8,100! But after returning home they found the same apartment listed on another agent's web site for only $4,400 per month with the landlord paying the agent's fees.

The question: what kind of liability/responsibility did they have to the agent that showed them the apartment in the first place?

After I picked my jaw up off of the ground in amazement at how much the New York agents make on rental properties, my first question to them was whether or not they had signed any type of agency agreement with the first agent. They said she had tried to get them to sign an agency agreement, but they had declined signing her paperwork. (My niece's husband is an attorney, fortunately, and he knows better than to sign something without fully investigating the ramifications.)

So I felt pretty confident telling them that they had no financial obligation to the first agent. However, I also explained that in the Las Vegas real estate market we have what is called "procuring cause." The agent that shows the listing to a client is entitled to the commission in most circumstances as per the guidelines of our local Las Vegas MLS board. I told them I did not know if the same rules were true in New York, but it could be that if my niece and her husband used another agent, the second agent might be liable to the first agent for the commission.

I suggested that as a courtesy to the first agent they let her know that they had found the apartment online for less money and without the agent's commission being paid by the tenant. They should give her the chance to represent them if she was willing to negotiate on their behalf and collect the agent's fee from the landlord. However, if she was not willing to do that, they should contact the second agent and let that agent know the circumstances so the agent wouldn't be blind sided later in the transaction.

This way the first agent would still have the opportunity to work with them. But if she declined their terms, the second agent would be in a much better position to collect the commission for performing the job, though that would still not be guaranteed.

This is an issue that all buyers/tenants should be aware of. If an agent shows you a property, in most states they are entitled to the commission from the sale as "procuring cause" of the sale unless there are extenuating circumstances. While most of the time "procuring cause" does not affect the buyer/tenant financially, they need to be sure they are being fair to the real estate agent that has done most of the work. After all, who wants to work for free? We have seen too many situations where a buyer asks an agent to show them Las Vegas homes for days on end and then turns around and has a friend (who was either too lazy or too busy to show them homes at the time) write the offer.

You have to have a compelling reason to use another agent, or that second agent may not be entitled to compensation. A compelling reason is NOT that you prefer to use a friend or that the first agent was not available on short notice to write an offer. A compelling reason would be that you had good reason to believe that the first agent was not working in your best interests or had "abandoned" you as a client. Most of the time that is very hard to prove.

And above all, the morals and ethics of the situation call for being fair to all parties. If the real estate agent does the work, they should get compensated for that work. So if you are looking for homes for sale in Las Vegas, make sure that only the agent you expect to represent you shows you the homes you might want to buy.