Who Does the Real Estate Agent Work For?

Real Estate Advice

In Maryland all real estate agents are required to have their clients sign a one page form titled “Understanding Whom Real Estate Agents Represent“.  This form needs to be signed before or after the first meeting with the clients.

Since a lot of people are taken aback by this form – especially since it happens on the first meeting before anything has even been done, I thought I’d try to explain it in layman’s terms.

Who Represents the Seller?  Who Represents the Buyer?

The first thing we have to understand, is that in Maryland (and most other states) the real estate broker actually “owns” the listing of the property in question. It isn’t the agent who has their name in the yard – but the broker they work for. So, if any agent in a broker’s office is trying to sell a property that is listed by the broker, and they are not a buyer’s agent – then they are representing the seller.

So it isn’t just the listing agent representing the seller, but all of the agents in the broker’s office.

We also have to understand that when we discuss these issues and we use the term “agency” – we are referring to the agency relationship that is set-up when a broker agrees to work on behalf of a buyer or seller.  They usually do this through one of their own agents – and this causes a lot of confusion in the terminology.

Agents Who Represent the Seller

Seller’s Agent: A seller’s agent works for the broker that has the listing on the property.  The seller’s agent markets the property for the sellers and exclusively represents the sellers in any transactions.  That doesn’t mean he or she can’t help the buyers purchase a property – but the agent’s duty and loyalty remains with the seller.  The seller pays the seller’s agent’s fee as specified in a written listing agreement.

Cooperating Agent: A cooperating agent works for a real estate company different from the broker that has listed the property.  The cooperating agent can assist a buyer or tenant in purchasing or renting a property, but just like with a seller’s agent – their duty is to the sellers – even though those sellers are listed with another broker.  The cooperating agent’s fee is paid by the sellers or landlords through the seller’s agent’s company as specified by the written listing agreement.

Agents Who Represent the Buyer

Presumed Buyer’s Agent (no written agreement): If you were to walk into a real estate office and ask to look at a home, that agent is presumed to be representing you as the buyer.  They can show you any properties – not just the ones listed by the broker.  A presumed buyer’s agent can not make an offer or negotiate on your behalf, and you have no obligation to buy anything or pay anything to them.  If you want to terminate a relationship with a presumed agent – you can do so at any time simply by saying so.

Buyer’s Agent (by written agreement): This is the most typical form of buyer’s agency and it happens when a buyer signs a written contract with a real estate agent who says they will represent the buyer in locating a property to buy.  That agent will help a buyer by evaluating properties, doing Comparative Market Analysis, researching market info and preparing offers.  The buyer’s agent negotiates in the best interests of the buyer.  The agent’s fee is paid according to a written agreement between the agent and buyer.  If you want one agent to represent you exclusiveley – you need to have a written buyer’s agency agreement.

Dual Agents Represent Both the Buyer and the Seller

This is what happens when a buyer’s agent and a seller’s agent both work for the same broker.

Since the broker now represents both sides of the transaction – it is called a “dual agency” (the agency relationship set-up between the broker and the parties).

In this case the broker and his employees owe loyalty to both the buyer and the seller and this obviously creates a conflict of interest. Because of this conflict of interest – dual agency always has to be disclosed and agreed to by everyone involved.

In the event of dual agency a broker will assign one agent to represent the seller and one agent to represent the buyer.  These are typically the same agents you started the transaction with – unless a buyer’s agent happens to show you a property they have listed – or vice versa.

If either party does not agree to dual agency, the real estate company may withdraw the agency agreement for that particular property with either the buyer or seller, or both.

Plus, the buyer can always choose not to be represented by an agent of his or her own but simply to receive assistance from the seller’s agent, from another agent in that company, or from a cooperating agent from another company.  There isn’t any law that says you have to have a buyer’s agent.

So Who Pays Who?

When a seller enters into a listing agreement with their agent they can specify how they would like the agent to split the commission and with who.  They can specify whether they want the agent to cooperate (share the commission) with  buyer’s agents.  Most sellers do agree and this is typically how most buyer’s agents get paid.

But, in some cases a buyer’s agency agreement can call for additional compensation.  Sometimes this is just in the form of an admin fee, and in other cases it can be spelled out as a regular percentage of the transaction.

For instance last fall I went to a settlement on a house I had listed.  The total listing commission on the house was 5% and the seller’s agreed to split the commission 50/50 with any buyer’s agent.  This meant that my broker was to earn 2.5% commission once the house sold and the buyer’s agent’s broker was to earn 2.5% commission once the house sold.

When we got to settlement there was the usual line item charge to the buyer’s for real estate commission, but there was also an additional line item charge to the buyer’s for real estate commission.  I wasn’t a party to their agreement so I thought it was curious on why it was there.  I also noticed that the amount (equal to .5% of the sales price) was added to the commission check being paid to the buyer’s broker.

When the buyer noticed this they questioned the agent who agreed to be their buyer’s agent.  Their agent explained that in the buyer’s agency agreement they agreed he would be compensated to the amount of 3% of the sales price, and that if the seller’s paid less than 3% – that the buyers would make up the difference.

So – Does This Mean I Can’t Trust My Realtor?

No, it doesn’t mean that at all.  It just means that during the negotiations a buyers agent and a seller’s agent are going to have a common outcome (a successful settlement built on a fair transaction at a reasonable price), but that they represent different objectives to reaching that goal.

The seller’s agent obviously is trying to get as much money as possible for their client.  And the buyer’s agent is trying to help their clients buy a house for the least amount of money possible.

This means that at the heart of the negotiation they will withhold certain information.  For instance if the seller’s agent knows his clients need to move next month and will probably take an offer way below the asking price – he’s not going to disclose this to the buyers.  Conversely if the buyer’s agent knows his clients are anxious to move next month in order to get their kids into school – and they’re willing to pay way above the asking price – he can not disclose this to the sellers.

So What Must the Agents Disclose?

The law states that no matter what type of agent you choose to work with, you have the following rights and responsibilities in selling or buying or renting property:

  • Real estate agents are obligated by law to treat all parties to a real estate transaction honestly and fairly. They must exercise reasonable care and diligence and maintain the confidentiality of clients. They must not discriminate in the offering of properties; they must promptly present each written offer or counteroffer to the other party; and they must answer questions truthfully
  • Real estate agents must disclose all material facts that they know or should know relating to a property. An agent’s duty to maintain confidentiality does not apply to the disclosure of material facts about a property.
  • All agreements with real estate agents should be in writing and should explain the duties and obligations of the agent. The agreement should explain how the agent will be paid and any fee-sharing agreements with other agents.

You have the responsibility to protect your own interests. You should carefully read all agreements to make sure they accurately reflect your understanding. A real estate agent is qualified to advise you on real estate matters only. If you need legal or tax advice, it is your responsibility to consult a licensed attorney or accountant.

Conclusion

Alright, hopefully this cleared some thing up.  If not, you can contact me (link above) and let me know if you have any questions.  I’ll do my best to answer them.

If you ever have any complaints regarding how you were represented – you should first contact the broker in question.  If you’re still unhappy please feel free to call the Real Estate Commission at 500 North Calvert Street, Baltimore, MD 21202. (410) 230-6200.

Anne Arundel County Evictions

Real Estate Advice, Real Estate Investing

I have a handful of rental properties and from time to time one or more of the tenants tend to fall a little behind in their rent. A series of events take place at that time: late fees, late notice, etc. – and sometimes it even ends up in eviction court.

I don’t know many people who have been landlords for any length of time that haven’t had to start the eviction process at least once on someone. I thought today would be a good day to review a few of the details involved.

First, you can evict a tenant for a number of reasons: lease violations, late or delinquent rent, or if the tenant simply refuses to leave. Since late and delinquent rent is the most common reason for eviction – I’ll mostly be talking about that. Keep in mind though, that when we get to the actual physical eviction – that will be the same for any of the above reasons.

It is important to remember that if you have a lease with the tenant, the judge is going to expect you to honor that lease. At the end of the lease period most jurisdictions and judges will assume a lease converts to a month-to-month term, with all other lease terms remaining in place.

Standard Disclaimer ~ None of This Should be Considered Legal Advice

Eviction Process & Eviction Court

If you are evicting your tenant for delinquent rent you need to make your way to the District Court office in the county where the property is located (we have two here in Anne Arundel County: Annapolis and Glen Burnie).

You’ll fill out a one page form (Failure to Pay Rent – Landlord’s Complaint for Repossession of Rented Property – Form DC/CV82) that outlines the names of the tenants, the addresses of the parties involved, how much rent and late fees they owe, etc.

And you’ll write two checks, one to the District Court for the filing of the complaint and one to the Sherriff’s department ($5 for each tenant over the age of 18). The sheriff will deliver a copy of the complaint to the tenant.

Now, I can tell you that in my twenty plus years of experience this is usually where it all ends. Unless your tenant is just completely without means, or resources, or compassionate relatives – once they get that notice from the sheriff (delivered in person) – they usually come up with the money.

If not, eviction hearings are held once a week, so at most you might have to wait 7 to 8 days for your day in court.

Eviction court judges move through their docket pretty fast – so make sure you’re on time. Some judges will give a few extra minutes if either party isn’t there when their case is called – but some judges don’t. So again, try to be on time. If a judge waits, and one of the parties is still not there – he’ll rule against the absent party. If the landlord is absent, it usually means they’ll have to refile if they want to proceed with an eviction. If the tenant is absent – then the eviction will go forward.

Another reason why you might want to show up early – if you are the landlord or the tenant – is that there is always time to work it out.

Even after your case is called, if you would like a few extra moments in the hallway to come to some kind of agreement – the judge will usually be ok with this. Judges always like it when parties work out things between themselves.

And tenants remember, unless you know your landlord has other options – they are probably willing to come to some kind of an agreement. It costs time and money to evict someone from a property. And even though hardened landlords might be immune to it – evicting someone does come with a certain amount of emotional grief that most people would just as soon avoid. Don’t be afraid to approach your landlord and come up with some kind of solution.

It is like I always tell my tenants: if the rent is due and you can’t pay me the whole thing – then pay me something. Anything. Just don’t forget about me or blow me off. I get more pissed off when I go out to the mailbox and I don’t find a check. Call me up, e-mail me, send me something, let me know when the rest is coming – and then deliver on that promise. If you do that, I’ll work with you through almost anything as long as I know what is going on and that there is an end in sight. If you don’t – then I really don’t have any options other than to evict you.

If you do work it out prior to the hearing, and you’re still in the courthouse – I always like to hang around until my case is called and then tell the judge that everything has been worked out and thank him for his time. District Court judges in Maryland have a notoriously long memory so it never hurts to get on their good side whenever you can.

When your turn in the docket comes up, the judge will call both parties up front, ask if the rent is still due, and then hear anything that might be a mitigating factor.

Some tenants might bring up issues of maintenance on the property – but I’ve personally never seen or heard of this working. I was in court once when a tenant had an inspection form from a fire marshal where there was a question about the wiring of one or two outlets in the house. The judge heard her side of the story and still ruled in favor of the landlord. The judge’s point of view always seems to be – if you have a problem with the property then you need to work it out with the landlord – you just don’t stop paying rent.

You probably stand a little bit of a chance if you first put your complaint in writing and then withhold some money to repair if the issues aren’t remedied by the next time rent is due. If you did that, and then the landlord took you to court for the back rent, the judge might be a little sympathetic to your cause. But again that’s not legal advice – so I wouldn’t count on it.

Now, once the judge hears both sides he’ll give his decision. This is usually some form of the tenant has 4 days to come up with the money, otherwise the landlord can evict on the 5th day.

From time to time there may be a few wrinkles in this process.

For instance, just this past Tuesday I was in an eviction hearing down in the District Court of Calvert County in Prince Frederick. It was a commercial tenant and landlord – so the numbers they were throwing around were a bit staggering to all of us residential landlords that were in the court room awaiting our turn. The landlord claimed the tenant was behind in rent and late fees by more then $26,000. The tenant claimed it was only $21,000. The landlord said that since most of the remaining $5,000 was made up of late fees, she was willing to accept $21,000 for the tenant to stay in the property.

The judge ruled that if the tenants could come up with $21K they could stay in the property – BUT he wasn’t saying that was all that was owed or due. He left the door open for the landlord to come back for the additional $5K at a later time, or even to pursue it through a civil claim outside of the normal eviction proceeding.

I guess my point is, if there is any question to the amounts owed – be prepared that the judge might give wiggle room one way or another after hearing all of the details.

Another interesting point is that even if the tenant pays the rent that is due – the judge can still grant the landlord’s request for an eviction. This can come up if the landlord has been to court three times (four times in Baltimore City) in the past 12 months for delinquent rent and the judge sided with the landlord every time, but the tenant made good before the actual eviction.

Note: If you want to request an eviction on these grounds, you’ll need the case numbers of the previous cases when you initially file the form at the District Court office.

The Actual Eviction

Now, if the judge has ruled in favor of the landlord (almost always) the tenant still has 4 days to make good on the past due rent or move out. On the 5th day the landlord can go to the sheriff’s office and ask for a “warrant of restitution” (good for 60 days), this costs an additional $40 and is paid to the sheriff’s office.

Usually there are one or two officers in the sheriff’s office that deal with evictions. So you’ll work around their schedule. Most of the time the officers prefer that the eviction be done during normal business hours (so the court can be contacted in case any issues come up) and on days without any inclement weather.

The officers are only there to keep the peace not to do any work for you. They’ll also handle anything that pops up that you aren’t expecting. For instance, a long time ago I was helping out with an eviction and we found some young kids (under the age of 10) who apparently had been left unattended for quite some time – so the officers were the ones to contact social services.

You’ll need some way of getting into the property – because the officers won’t do it for you. Hopefully, you’ve kept a key and the tenants didn’t change the lock on you.

Once the sheriff is there you need to gain entry into the property and you usually only have about two hours to get everything belonging to your tenant out of the house and out to the curb (the traditional place).

Two hours obviously isn’t a lot of time – so make sure you bring as many people as you can to help you.

If you only have one or two people – the sheriff probably won’t even let you begin the eviction since it’ll obviously take too long. The good news is that you’re evicting the tenants – you’re not moving them across town – so you can do it faster than if you were actually moving a household. You can’t be destructive and break the tenants stuff – but you don’t need to pack everything up in a nice and orderly fashion either.

After everything is out of the house, make sure you change the lock and secure the house.

Now technically, the eviction is done. But your duties as a landlord aren’t. In Anne Arundel County you only have 48 hours before the pile of stuff from the eviction has to be gone from public property (streets, sidewalks, right-of-ways, etc.). Sometimes your tenants will come and pick most (maybe all) of their stuff. Other times you’ll have to cough-up the expense of having someone haul it away. That cost can vary obviously depending on whether any of it is salvageable or if you just need someone with a truck to take it to the dump.

Summary of Eviction Process

So let’s review here. If you start the eviction proceedings the first day the rent is late, you’re looking at probably 2 to 3 weeks before you can get your tenants out of the house. That is pretty much the better part of a month. And it could cost you up to a few hundred dollars if you have to pay people to help and/or haul stuff away.

So the eviction process is certainly not hassle free. But the good news is, even though it happens to the best of us – it isn’t common place. Most tenants pay their rent on time, and if you do your due diligence by checking their background (credit), references and verifying their income – you can be assured of a worthwhile and rewarding landlord experience.

Some Helpful Links:

Maryland Law Library References on Landlord-Tenant Law

District Court of Maryland – Housing Issues Page

10 Tips to Make Your Yard Bay Friendly

Living in Anne Arundel County, Real Estate Advice, Real Estate Information

Here in Anne Arundel County, landscaping season is upon us.

I’ve been to both the Lowes in Bowie and one of the Home Depots in Annapolis this past week and one thing is clear – they are stocked and ready for spring and summer.

As a speaker with the Chesapeake Bay Foundation Speaker’s Bureau I give a presentation with a little run-down on what each of us can do in our own back yards to help rebuild the bay.

Here is my list of the Top 10 things you can do for a Bay-Friendly Backyard.

1. Test the soil.
You can find a soil test kit at one of your favorite home supply stores (both Lowes and Home Depot carry them), or you can send a test away to one of these laboratories (PDF) recommended by the Anne Arundel County Soil Conservation District. In any event after testing your yard, you may find you don’t need to add any chemicals or fertilizers to your soil at all. By reducing the amount of fertilizers and chemicals you add to your yard, you’re reducing the amount of nutrients that eventually reach the bay. A lot of people apply excess chemicals, and these usually just run off in the first rain storm and end up in the bay.

2. Plant Native Trees and Shrubs
A soil test can also help you determine how acid/alkaline your soil is – and which plants will survive and thrive in your current soil conditions. Usually this is a mixture of indigenous trees and shrubs. In the mid-Atlantic area we’re lucky to have a good mixture of plants that can give your yard a lot of bio-diversity. This helps your yard have less pests, disease and weed problems. And it provides food, shelter and cover for birds and small animals. Any of our local nurseries can help you pick out good plants for your yard.

3. Use Less Fertilizer (or none at all)
As mentioned above, a lot of people over fertilize their yards and this contributes to the excess nutrient loading that pollutes the Bay. After testing the soil, use minimal amounts of fertilizer – and only if needed. And in spite of what else you might hear, fertilizer is usually only needed once per year.

4. Grass Clippings are a Great Fertilizer
With so many mulcher-mowers out there, everyone should be doing this. Grass is a great natural fertilizer and it returns a lot of nutrients back to the soil as it decomposes.

5. Use Compost as a Fertilizer
Another great natural fertilizer is compost. A nice compost pile that reuses food waste (no fat or proteins), grass clippings, dead leaves, yard waste and other natural ingredients is a fantastic addition to any yard. The mineral-rich compost can be added back to the lawn or flower and vegetable beds. And best of all – compost is cheap – virtually free.

6. Reduce or Eliminate the Use of Pesticides and Herbicides
Toxic chemicals can poison your yard’s balanced ecosystem by killing the natural predators and native plants that keep your yard a well maintained diverse collection of organisms. Adopt integrated pest management systems around your home so you can reduce or eliminate the use of chemicals in your yard. In addition to your yard, these toxic chemicals eventually make their way to the creeks, rivers and bay – creating havoc along the way. Use chemicals as a last resort.

7. Mow your Lawn at the Proper Height
Set your mower blade to a height of 3 inches and make sure to keep the blades sharp. A lot of people cut their grass way too short, and this keeps the grass from getting ahead of the weeds. It also prevents the grass from establishing a firm root structure which will help sustain it through a drought.

8. Reduce Your Overall Lawn Size
There is a difference between your yard and your lawn. Most of us want a big yard – but that doesn’t necessarily mean a big lawn. Figure out how much lawn you really need and reduce the grassy area to the smallest amount necessary. Replace the rest with a buffer of native trees and shrubs and gardens. These areas will prevent soil erosion and soak up excess nutrients before they reach the bay.

9. Use Less Water
Grass lawns in our area naturally go dormant during the drier parts of the summer season. When the rain returns, your lawn will green right back up again. Some of the above tips will also help you to cut back on the amount of water you use. Make sure when you water your lawn, you do it rarely and thoroughly – until water can no longer be easily absorbed into the soil – but not so much that the water starts to run off. Whenever possible, water later in the afternoon or at night. And if rain is coming in a day or two – you might want to hold off all together.

10. Provide Wildlife Habitat
Wildlife such as birds, chipmunks, squirrels and other animals need a source of food, water and shelter – especially in areas where development has taken away their natural sources. These animals all play a vital part in our ecosystem. By giving them an area in your yard to thrive – you’ll be helping to boost the ecosystem of the region as a whole.

Here is a list of helpful tips for all of the above:

Anne Arundel County: Yard Waste, Yard Cycling and Backyard Composting

Guide to Composting

Compost Guide

Chesapeake Bay Foundation

Lease to Own

Buying a Home, Selling Your Home

I’m not sure why a lot of people are looking for this, but I’ve been getting a lot of inquiries regarding rent-to-own or lease-to-own arrangements.

With the recent changes in the FHA limits – credit in our area is easier to come by. Unless you have poor credit, you should really think about buying straight-up. And of course, I’d be happy to help you with that.

If you’re interested in a rent-to-own purchase, then here is some information for you:

For the Seller – From the Orlando Sentinel:

Lease-to-Own Primer

Lease-to-own agreements can help sell a hard-to-sell property during a sluggish housing market. Here’s how they work:

  • A seller agrees to rent a property to an interested buyer for a set period of time, usually one to three years. At the end of the lease, the buyer has the option to purchase the home at a preset price.
  • A portion of the monthly rent paid during the lease is usually counted toward the down payment. To cover that, the seller charges a rent increment or monthly premium of $200 to $300 compared to comparable rentals.
  • Many owners also charge an option fee for taking the property off the market, usually 1 percent to 2 percent of the sale price. This may be applied toward the purchase.
  • Sellers have no guarantee that renters will buy at the end of the term, but if they don’t, they keep the option fee and the amount of the rent that would have gone toward the down payment.

Source: Orlando Sentinel (03/09/08)

And for the Purchaser – From About.com

* Buyer pays the seller option money for the right to later purchase the property. This option money may be substantial or as little as $1.

* Buyer and seller may agree to a purchase price now or the buyer may agree to pay market value at the time the option is exercised. It is negotiable. However, most buyers want to lock in the future purchase price upon inception of the option.

* The term of the option agreement is negotiable, but the common length is generally from one year to three years.

* Option money is rarely refundable.

* Nobody else can buy the property during the option period.

* The buyer can sell the option to somebody else.

* If the buyer does not exercise the option and purchase the property at the end of the option, the option expires.

* The buyer is not obligated to buy the property.

Basics of a Lease Option

* Buyer pays the seller option money for the right to later purchase the property. The lease option money may be substantial.

* Buyer and seller may agree to a purchase price now or the buyer may agree to pay market value at the time the option is exercised. It is negotiable. However, most buyers want to lock in the future purchase price upon inception of the lease option.

* During the term of the lease option, the buyer agrees to lease the property from the seller for a predetermined rental amount.

* The term of the lease option agreement is negotiable, but the common length is generally from one year to three years.

* The option money generally does not apply toward the down payment.

* A portion of the monthly rental payment typically applies toward the purchase price.

* Option money is rarely refundable.

* Nobody else can buy the property during the lease option period.

* The buyer generally cannot assign the lease option without seller approval.

* If the buyer does not exercise the lease option and purchase the property at the end of the lease option, the option expires.

* The buyer is not obligated to buy the property.

Basics of a Lease Purchase

* Buyer pays the seller option money for the right to later purchase the property. This option money may be substantial.

* Buyer and seller agree on a purchase price, often at or a bit higher than market value.

* During the term of the option, the buyer agrees to lease the property from the seller for a predetermined rental amount.

* The term of the lease purchase agreement is negotiable, but the common length is generally from one year to three years, at which time the buyer applies for bank financing and pays the seller in full.

* The option money generally does not apply toward the down payment.

* A portion of the monthly lease payment typically applies toward the purchase price.

* Option money is nonrefundable.

* Nobody else can buy the property unless the buyer defaults.

* The buyer typically cannot assign the lease purchase agreement without seller approval.

* Buyers are often responsible for maintaining the property and paying all expenses associated with its upkeep, including taxes and insurance.

* The buyer is obligated to buy the property.

Doing a Lease Option / Lease Purchase
Hire a real estate lawyer to draw the documents and explain your rights, including those of possession and default consequences. The property might be encumbered by underlying loans that contain alienation clauses, giving the lender the right to accelerate the loans upon sale.

Sometimes sellers give the option money to their real estate agent as full payment of commission. Agents are not always involved in the exercise of lease options or fulfillment of lease purchase agreements and, even if you have retained real estate agent representation, you still need a real estate lawyer. Agents are not lawyers and cannot give legal advice.

In the event of a lease purchase, obtain all the disclosures and do your due diligence just like you would on a regular sale. This means:

* Get a home inspection.
* Examine the title policy.
* Obtain an appraisal.
* Read seller disclosures.
* Consider obtaining pest inspections, a roof certification, home warranty plan and hiring other qualified inspectors.

Lease Purchase Benefits for Sellers and Buyers

Lease purchase agreements are commonly offered by sellers of hard-to-sell properties. Think about it, if the property was easy to sell, the seller would sell it to a conventional buyer who would pay the seller cash.

* Sellers generally get market value at today’s prices and relief from paying a mortgage on a vacant property.

* Although the lease payments may exceed market rent, the buyer is building a down payment and banking that the property will appreciate beyond the agreed upon purchase price.

* Buyers generally make a small down payment, with little or no qualifying, making a lease purchase an attractive way to ease into the benefits of home ownership.

* Buyers also receive a forced savings plan since part of the lease payment is credited toward the purchase price at the end of the lease option agreement.

* If the buyer defaults, sellers do not refund any portion of the lease payments nor the option money and may retain the right to sue for specific performance.

For more information, contact a real estate lawyer or your local Anne Arundel County Realtor.