A recent case has exposed serious and expensive conflicts-of-interest when a homebuyer chooses an "on-site" real estate agent to represent the buyer in the purchase of new construction.
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What is an "on-site" agent?
An on-site agent is a licensed real estate salesperson who represents buyers in new construction home purchases. The on-site agent usually resides in a model home and conducts tours of new homes for sale. If a buyer is interested in purchasing a home, the on-site agent offers his or her services to represent the buyer in the transaction. The on-site agent receives a commission for representing the buyer's interest and advising the buyer through the buying process.
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Potential conflicts of interest
In many cases, the on-site agent has some working relationship with the builder/seller. In some cases, the on-site agent has previously represented the seller as a listing agent. In other cases, the on-site agent receives a small salary from the builder/seller to occupy the model home and conduct tours.
Likewise, the on-site agent may also be from the same brokerage as the listing agent. This means that both the listing (or seller's) agent and the buyer's agent may share the same broker. (Note, real estate agents or salespersons are merely agents of the broker and do not legally represent a buyer or seller. The broker is the actual agent of both buyer/seller).
Given the on-site agent's relationship with the builder/seller, there is an inherent conflict in terms of the on-site agent fulfilling his or her obligations to the buyer. In this real estate market, this can be a dangerous proposition.
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Example of conflict of interest
In a recent real estate case, my client chose an on-site agent to represent him in the purchase of a new home. The on-site agent had previously represented the seller on numerous occasions as a listing agent, a fact not disclosed to my client. Moreover, the on-site agent shared the same broker as the listing agent.
The on-site agent drafted a contract for my client to purchase the new home. This contract was flawed in numerous ways. For example, the on-site agent drafted the standard inspection contingency to allow my client to cancel the deal if he did not want to purchase the property for, essentially, any reason. However, the on-site agent also forced my client to sign a "builder's addendum" which canceled the inspection contingency. Thus, my client had no ability to cancel the sale as he had thought.
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Example continued
The on-site agent also drafted a financing contingency which allowed my client to cancel the transaction if the appraisal on the property was less than the purchase price. However, notice was required to be given to the seller within 5 days of the receipt of the appraisal. Given market conditions, the appraisal came in almost $50,000 lower than the purchase price. However, the client was unable to contact the on-site agent. She didn't return phone calls, emails etc.
Since the on-site agent did not return calls or emails, the client contacted my office in attempt to cancel the sale. However, by the time my client contacted me, the client had spent over $25,000 paying for upgrades.
While I was able to cancel the sale, the client is likely forced to file a lawsuit against both the builder/seller and the real estate agent to recover these sums not to mention the attorney's fees he incurred to cancel the sale under the contract.
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Conclusion
If you desire to purchase new construction, you may think that an on-site agent will be your best bet in getting the best deal from the builder/seller and that the friendly on-site agent will represent you to his or her fullest capability. However, be very careful when proceeding with the on-site agent. Ask the on-site agent the extent of his or her relationship and past dealings with the builder/seller.
My advice would be to retain an outside agent to represent you, or to retain the services of an attorney to review all the paperwork and to track the transaction through closing to ensure that your interests are protected.
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