[headline h=”1″]Demanding due diligence[/headline]
Each property listed for sale on the local MLS is the exclusive listing of one of its participating local member agencies. The exclusive listing agreement is a legal contract between a seller and an agency concerning the marketing and sale of a specific property within a predetermined period of time.
This legal document not only specifies the enumeration for this service, i.e. commission, but more important to the seller it bestows fiduciary responsibility upon them from their chosen agency. This fiduciary responsibility is meant to ensure due diligence is provided to the seller. An agent that regularly pushes his own listings upon all buyers that walk in the door is living up to that responsibility regardless if any of those listings are of the buyer’s best interest or not. They’re going about their job marketing their listed properties.
The agreement between them spells out contractual obligations each has to the other. The agent who brings in the buyer owes fiduciary responsibility to that seller, too, whether it’s realized or not by the buyer. By way of the listing agreement, the seller has contracted the services of the local industry through their MLS membership, with their specific agency representative being the point man to sell their property by whatever ethical means necessary, to explicitly use other member agencies as the means to get the most exposure and consequently the best price within a reasonable amount of time. Participating with other agencies and showing all offers to a seller regardless of the company producing the offer is another example of an agent providing fiduciary responsibility to a seller and fulfilling their duties. In return for this service, the seller agrees to pay a commission to all agencies involved at point of sale.
The irony of this is that while the seller is responsible to pay the full commission to all involved selling their property, the money originates from the buyer. The buyer puts the money on the table from which the seller deducts the owed commission. The seller never pays the commission with their own banked money first but rather, at the time of closing, the seller pays the commission using the money the buyer made available for the purchase.
So if the buyer puts up 100% of the money the question to be asked is why is it only the seller who is given due diligence and not the buyer? Surely, a buyer would want similar due diligence bestowed upon them rather than chance being snookered by the seller or an agent and be left with only limited legal recourse.
The short answer is because it’s typically only the seller who has a legal contract in place detailing agency duties and responsibilities via the listing agreement. A better answer is the buyer can have their interests protected through an exclusive buyer’s representation agreement signed between themselves and a specific agency selected to look after that buyer’s best interests. This is the only way a buyer can be assured full legal protection and due diligence that’s otherwise afforded only to the seller.
The buyer’s agreement I use affords just that. For a flat fee of $5,000, the buyer is afforded their due diligence while acknowledging I’ll be receiving from the seller a commission per the listing agreement and sales contract. It further states, though, this commission will be used to pay the flat fee I charge so the cost to the buyer for my representation and due diligence is not an additional expense but rather one that’s paid by the seller. Having an agency agreement between us creates a legal bond stipulating my services regardless of how my services are compensated and most often there is no additional expense to the buyer in establishing their agency protection.
The buyer’s agency agreement has another effect, too. Not only does it ensure I’ll work diligently finding the property you want and negotiating the best price for it, but in return you agree to only utilize me for these professional services. I am a professional, I work hard and I will not treat you like I know what’s better for you than you do. I vow to give you 100% effort in locating the Mexican home of which you’ll be happy and proud. For that I expect the same loyalty in return and therefore the agreement works both ways.
So the first aspect of my flat-fee system is a buyer’s agency agreement detailing my duties as well as describing your expectations. In return for your commitment to exclusively use me I offer something else: a substantial savings on the cost of your purchase by rebating the balance of the commission received. That is, the flat fee I charge for my professional services is less than the commission I’m offered by the seller and rather than pocketing that difference I instead offer to pay down your closing costs.
Consequently, you save thousands of dollars off your Mexican land purchase that no one else is willing to offer. On the purchase of a $300,000 MLS listed home, for example, your closing costs will be $7,000 less than otherwise would be the case. Your savings could also go toward paying other purchasing expenses as long as they are related to the purchase and adhere to Mexican taxation obligations. Everything is above board.
Next: Flat-Fee Details
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[headline h=”3″]Introducing the flat-fee business model to Puerto Vallarta Real Estate[/headline]
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1. Introduction
2. Understanding the Commission-based system
3. Fiduciary Responsibility & Due Diligence
4. Flat-Fee Details
5. Buyer’s Agency Agreement
6. Flat-Fee FAQ
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