Choosing the right real estate agent critical

Buying a home is one of the biggest financial and emotional decisions a person makes.

That's why it's critical to pick the right type of real estate agent, and to use a financial planner to help make sure the home-buying decision fits the buyer's financial circumstances.

Many home buyers (and for that matter, home sellers) don't realize that there are several kinds of real estate agents, and that they need to understand the differences among the types in order to choose the one who best represents their interests.

Traditional agents

The traditional real estate transaction involves two agents (or real estate brokers in some areas).

The listing agent supplies information on the property to other agents on behalf of the seller.

A cooperating agent, some-times called a subagent or seller's agent, matches a buyer with the seller.

The listing agent and the cooperating agent then split the sales commission, which is paid by the seller.

In some cases, the listing agent does both jobs, but not all real estate companies allow that.

The important point here is that regardless of whether the buyer works directly with the listing agent or with a seller agent, their fiduciary obligation is to the seller, not the buyer.

They should answer honestly all questions the buyer has about the property, but if the buyer divulges information that's relevant to the seller's interest, the agents must pass that information on to the seller.

For example, they would have to pass on to the seller a casual remark by the buyer that he is willing to pay $5,000 more than her current offer. Thus, the buyer should always insist on a written disclosure as to whom the agent represents and whether communication with that agent will be confidential.

Buyer's agent

The last decade has seen the emergence of buyer's agents, though they still make up only a modest percentage of real estate agents.

As might be inferred, a buyer's agent represents the buyer, not the seller.

Thus, if the seller divulges relevant information to the agent, such as a willingness to sell at a certain price below the asking price, the agent must pass that information on to the buyer. And the agent must negotiate, fairly, in the buyer's interest not the seller's interest.

Some observers argue that because the buyer's agent sometimes is paid from the listing agent's commission, the buyer's agent may not negotiate solely in the buyer's interests.

In most states, however, the nature of the agency relationship is defined by contract and not by which party pays the commission.

Sometimes the buyer pays a retainer fee to the buyer's agent that's credited toward the final commission, or forfeited if the buyer doesn't buy at all, though the fee is often negotiable or eliminated.

This raises another advantage of buyer's agents.

Because they are not working for a seller, they can conduct a more comprehensive search, including properties not listed, such as sale-by-owner homes or even new homes.

In these cases, the buyer may have to pay the agent's commission or an agreed-upon fee if the seller doesn't, but it can be well worth it.

Transaction agent

One aspect of working with an agent that home sellers and buyers often don't realize is that they can be legally liable for the actions of their agent. For example, they might be liable should the agent misrepresent the property or fail to disclose material information.

One way to avoid this liability is to hire a transaction agent (the name varies from state to state), whose job is to work to complete the action with no fiduciary obligation to either party.

Dual agent

To confuse matters, some agents act as dual agents, legally representing the interests of both the seller and the buyer. Because of what is perceived as an inherent conflict of interest, this is seldom used.

Regardless of which type of real estate agent the buyer uses, he or she should be sure to get in writing where the agent's legal obligation lies. Buyers also can strengthen their hand by working with a certified financial planner who will work solely for their interests.

Buying or selling a home can have significant tax, budget, insurance and investment implications that a buyer will want to explore with the planner before committing to the transaction.

(The preceding article was produced by the Financial Planning Association and provided by William O. Woody, CLU, ChFC, CFP, of Stovall Woody Associates.)