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Consumer Tip - Real Estate Red Flags (1)


The majority of Minnesota's licensed real estate agents and brokers are well-trained professionals who can help make the process of buying or selling your home a successful venture rather than a stressful adventure. Occasionally, however, you may run into an unlicensed person posing as an agent, or a licensed agent who is not following the rules of the profession. In either case, your real estate experience can quickly turn sour.

Following are some "red flags" that may assist you in determining if you are NOT working with a legitimate or honest real estate agent. These tips are not intended to provide legal advice in drafting real estate related documents or provide detailed descriptions of the nature of relationships that may be created between agents and buyers and sellers.

Consumer Tip - Real Estate Red Flags (2)

Some "red flags" that may assist you in determining if you are NOT working with a legitimate or honest real estate agent. These tips are not intended to provide legal advice in drafting real estate related documents or provide detailed descriptions of the nature of relationships that may be created between agents and buyers and sellers.

  • RED FLAG - Agents using high-pressure tactics, especially in an attempt to have you sign a purchase or listing agreement
    • Do not be pressured into entering into a purchase agreement based solely on the agent telling you there are multiple offers so you need to make your purchase agreement offer immediately. Multiple offers may exist but don't be pressured into making a decision you are not comfortable with or if you do not understand the terms of the purchase agreement. If the sellers accept your purchase offer it becomes a legally binding contract. You may have to forfeit your earnest money deposit if you get "cold feet" and later decide that you just don't want or like the property.
         
    • Do not be pressured into signing a listing agreement unless you are comfortable with the agent and understand and agree with the terms of the listing agreement including any marketing strategy.
  • RED FLAG - Agents asking for earnest money or a down payment check made out to the agent...or asking for cash
    • Earnest money should be paid with a check or money order and made payable to the real estate company and not to the individual agent.
         
    • By law, earnest money must be placed in the listing company "trust account" and cannot be mixed with personal funds of the agent. Once the listing company receives the earnest money, it must be deposited within three business days. However, the buyer and seller may agree, in writing, to handle the funds differently.
  • RED FLAG - Agents who do not provide answers to your questions about the property or fail to return your calls or maintain communication with you
    • By law agents are required to disclose all material facts they are aware of that may adversely and significantly affect your use or enjoyment of the property, such as existing structural or mechanical problems, water infiltration problems, easements or encroachments, or faulty septic systems. 
    • Do not enter into a purchase agreement until your questions are answered. You also have the option of including "conditions" or "contingencies" in your purchase agreement. If your conditions or contingencies were not met, you would not be obligated to go through with the purchase. Some common contingencies are a buyer requiring a satisfactory home inspection report by a certain date and at the buyer's expense. If the home inspection is unsatisfactory, the buyer can cancel the purchase agreement and obtain a refund of the earnest money.
  • RED FLAG - Agents who don't disclose who they represent
    • Whether you are buying or selling, it is important to understand the different types of relationships that can be created between you and an agent. Expect agents to act in the best interests of whomever they represent.
         
    • Agents must provide a consumer with an "agency disclosure" form at the first substantive contact with the consumer. The agency disclosure is intended to provide a description of available options for agency and nonagency relationships and a description of the role of a licensee under each option. The agency disclosure form is not a contract. If a buyer or seller wants an agent to represent them, a written contract must be entered into such as a listing agreement or a buyer representation contract. Following are the different types of agency relationships in real estate transactions: 
             

                         Seller's Broker: A broker who lists a property of a salesperson who is licensed to the listing broker who represents the seller and acts on behalf of the seller. 


                         Subagent: A broker or salesperson who is working with a buyer but represents the seller. In this case the buyer is only the agent's customer and is not represented by that agent.
           

                         Buyer's Broker: A buyer may enter into an agreement for the broker or salesperson to represent and act on behalf of the buyer. In this case, the agent represents the buyer only and not the seller.
           

                         Dual Agency: Dual agency occurs when one broker or salesperson represents both buyer and seller, or when two salespersons licensed to the same broker each represent a party to the transaction. Dual agency requires the informed consent of all parties.
           

                         Facilitator: A broker or salesperson who performs services for a buyer, a seller, or both but does not represent either in a fiduciary capacity - meaning the facilitator is not obligated to represent the best interest of either party.

  • RED FLAG - Agents who will only show you properties they have listed
    • An agent who you have entered into an agreement with should be acting in your best interest, not his or her own best interests. Agents should be willing to show you properties that they have listed as well as other company listed property and property that is For Sale By Owner (FSBO's).
  • RED FLAG - Agents who ask you to sign blank or incomplete documents
    • Do not sign any real estate related documents that are blank or incomplete. Most of these documents are legally binding.
         
    • Be wary if you are told, "Don't worry about that section, we'll fill it in later."
  • RED FLAG - Agents who require a listing agreement for extended periods of time
    • Do not be pressured into signing a listing agreement for lengthy periods of time. A typical listing period is six months but you can negotiate a shorter or longer listing period.
  • RED FLAG - Agents who are difficult to contact or do not regularly communicate with the consumer
    • An agent who has your best interests in mind should be easy to reach.
  • RED FLAG - Agents who do not provide a basis for a listing price
    • The agent should provide a market analysis with documentation to support the listing price.
  • RED FLAG - Agents who attempt to talk you out of a home inspection or hiring an attorney
    • Agents are prohibited from discouraging the use of an attorney. Hiring an attorney, while not required, may be desired and it's your right to do so.
         
    • If an inspection is discouraged, it might be because there is a defect in the property.
  • Make sure your agent is licensed
    • Visit the Minnesota Department of Commerce website to verify that your agent has a current real estate license and to find out if there are any enforcement actions against him/her.