Understanding The Rules of Agency in Iowa
What do you know about Agency? Anything? I know I didn’t when I first came to the US and went out house hunting. I had plenty of experience buying houses and figured I knew what I was doing. That was a mistake. It was a big move across the world and I needed more support than I got. It was my own fault. I made a classic buyer mistake – I spent my time thinking about houses, not about agents. I did what many buyers do. The logistics of the whole home buying process goes straight past us and we just concentrate on that one thing that is most important to us – Finding the right house!
Fast forward a few years and I’m in the real estate business myself. What I know now that I am a real estate agent that I didn’t know then is that if I’d done it the other way around and found myself a good agent first, I wouldn’t have felt as if the whole home buying process was happening to someone else and at the end of it I just happened to own a house. Fortunately I did like the house. My point in this little story is, knowing about Agency means you can decide for yourself if you want personal representation or not. The alternative is to walk into a house you like with a listing agent, (the seller’s agent), to then have to write a contract with her, because you don’t have anyone else to turn to at that moment in time. (Or as happened to me, I didn’t know any better).
The Rules of Agency* are a set of rules that agents must follow when they help clients buy or sell real estate in Iowa. It’s the law. There are 3 types of agency – Buyer Agency, Seller Agency and Dual Agency.
Seller Agency in Iowa
Let’s start with Seller Agency. If you are selling a home there are rules the listing agent must follow. These are laid out in the Seller’s Agency Agreement – a written contract that is signed by both the seller and the agent. Basically the listing agent agrees to act in the best interests of the seller at all times. That means if you’re a buyer and call the listing agent hoping for information about the house or the sellers circumstances that will be of benefit to you, you’ll be out of luck. The agent is not permitted to share seller information with buyers, or with anyone else for that matter.
The most important aspect of seller agency is that the agent agrees to represent the seller in the sale of the home under the understanding that the goal is to negotiate the highest price and best possible terms for the seller.
Dual Agency in Iowa
Let’s move onto Dual Agency. This is when a buyer calls the listing agent, views the home with that listing agent and decides to make an offer.In this scenario, both the buyer and the seller must sign a dual agency agreement BEFORE signing any documents relating to the purchase of a home. This is because the rules change when an agent is representing both parties. At this point it’s a bit of a balancing act for the agent who passes along documents without actually getting involved in the transaction. (The term “transaction broker” is often used in this context). Any information the agent has that would affect negotiations is strictly confidential and may not be shared with either party. Both buyer and seller are expected to make their own decisions. This form of Agency can be problematic. In my experience both buyers and sellers appreciate some input from me when it comes to making decisions. They don’t want a messenger, they want an agent who advises them in the negotiations. One way to avoid getting into a dual agency situation is for buyers to find an agent to work with before looking at homes. And that takes us to Buyer Agency.
Buyer Agency in Iowa
As a Buyer you can choose to work with your own agent and this is known a Buyer Agency. As with the listing agent, there are rules that the buyer’s agent must follow and these are laid out in the Buyer’s Agency Agreement. In this case the Buyer’s Agent agrees to act in the best interests of the buyer.
The basic understanding is that the agent will negotiate the lowest possible price with the best possible terms for the buyer. Price of course is only one aspect of a real estate transaction. I use it to make my point as it’s the most graphic way to illustrate the difference in the motivation of buyers and sellers and the agents representing them.
As you understand more about the Rules of Agency it becomes apparent what the advantages are to each party to have their own Agent. Sellers already start out with their own agent when they list a home. Because of that it may seem like dual agency is riskier for buyers than for sellers. I talk about Agency a lot and most sellers I’ve spoken to who have agreed to dual agency in the past, are the opinion they got the shorter end of the stick and that the buyer got the better deal. I obviously don’t know if that’s true or not, but as far as I’m concerned perception is reality and I don’t want any of my sellers to feel that way. I’ll stick to my belief that both parties in a transaction should have their own agent.
Ultimately though it is your decision as a buyer or a seller to decide whether or not you want to work with an agent representing both sides of a transaction. Whatever you decide to do it’s important that you understand the Rules of Agency and are completely aware of who is representing who in the home buying or home selling process before you go signing anything.
*The Rules of Agency are laid out by the Iowa Association of Realtors, but each Real Estate Company is likely to have it’s own version of the form.
Please email me if you would like more information on these forms.