About Brokerage in New Jersey

WHAT IS A BROKER?

A broker is an individual or company specially licensed by the state to facilitate real estate transactions. The vast majority of real estate transactions in New Jersey occur through the impetus of a real estate broker. Since most of the broker's actual work occurs behind the scenes, and because as a facilitator, his or her role adapts and conforms to the needs of the transaction, many people are not fully aware of what are the typical broker's actual responsibilities, activities, and accountabilities. Residential real estate brokerage is licensed and regulated by the New Jersey Real Estate Commission, part of the Division of Banking and Insurance to protect the interests of consumers, including both buyers and sellers. A real estate salesperson, or agent, is a representative of, and an extension of the broker under whom they are employed. They are also professionally trained, examined and licensed by the state. A real estate agent may legally conduct real estate transactions only under the auspices and supervision of a licensed broker.

WHO DOES A BROKER REPRESENT?

A broker may represent a seller (Seller's Agent), a buyer (Buyer's Agent), both parties, (Disclosed Dual Agent), or neither (Transaction Broker). Please see the New Jersey Real Estate Commission's Consumer Information Statement for more details about these distinctions. The broker who has an exclusive sales representation agreement with a seller is known as the "listing broker," and their agents are the "listing agents." Typically, the listing broker will advertise the property to other brokers, who may assist in the sale by introducing buyer/customers of theirs to the property. This is called "co-broking." If a deal is made, to distinguish the parties involved, the broker who introduced the buyer to the property is called the "selling broker," or "selling agent."

HOW DOES A BROKER GET PAID?

Brokers generally work on commission only, so their time, efforts, and expenses are invested in the hope that a transaction will culminate, at which point they are paid at the closing. If the broker's efforts do not result in the closing of a transaction, the broker does not get paid. In New Jersey, it is customary for the seller to pay the broker's commission, although there are circumstance where the buyer will pay the broker's commission. In a co-broke situation, typically the seller pays their listing broker, who then shares the commission with the selling broker according to a previously agreed-upon split.

WHAT DOES A BROKER DO?

In a nutshell, a broker does what you don't have the time, expertise, or impartiality to do. The broker's basic activities include the following, when they are representing the seller:

* Provide expertise and experience in pricing, marketing, presenting, and selling the property.

* Pre-screen all potential customers to ensure that they are qualified purchasers.

* Obtain candid feedback from potential buyers that they might not otherwise feel comfortable expressing directly to the owner of the property.

* Negotiate on behalf of the seller to provide a protective cushion in the discussions; advise and support the seller in his/her decision-making, and obtain the highest possible price for the property.

* Liaison and coordinate necessary information with the buyer, the buyer's attorney, the seller's attorney, the property manager, the coop Board if applicable, and the mortgage lender and appraiser, if any.

* Manage the transaction process so that it moves along as expected; be constantly aware of its progress, and trouble-shoot any snags or delays as they occur.

There are also many subtle enhancements that the broker may add to the process, depending upon the specific needs of the seller and of the transaction. For instance, the broker/agent may provide reassurance to a nervous seller if the transaction experiences delays, advise him or her on cosmetic improvements to make or not to make to the property before presentation. If the property is a coop or condo, the broker may coordinate with the property management office to ascertain costs, fees, and procedures for transferring the property unit, and review the buyer's Board application for accuracy and completeness before submitting it to the Board for review.

ABOUT BUYER BROKERAGE

"Let the buyer beware" is a familiar saying in our culture that leaves many property seekers wary and confused in the complex world of real estate. "If the listing broker represents the seller, who's representing me?" The first point that any buyer should understand is that along with state-mandated responsibility to the seller, a real estate broker or agent is equally mandated to be honest, fair, and ethical in their interactions with buyers. While they may be required to withhold information that could be detrimental to the seller, such as his/her financial pressure to sell, he/she may not knowingly withhold detrimental information about the property itself. The buyer is also protected by the practice of hiring a qualified New Jersey State licensed attorney to review and advise on such items as the contract of sale, property financials, tax liability, and title searches, and to attend the closing to ensure that all paperwork is complete and legally binding.

Nonetheless, many buyers find it tiring to deal with a myriad of listing brokers about their individual properties. They feel they're being constantly "sold," and they end up wading through a lot of trial and error shopping of inappropriate properties. They browse endless open houses in competition with other buyers. Some are simply uncomfortable with the notion that no one is specifically looking out for their interests. Often, a listing agent whose property did not fulfill the buyer's needs will begin to work with that buyer in locating and presenting properties listed by other brokers. As the agent begins to screen and pursue properties on the buyer's behalf and a rapport develops between the two, a sense of partnership can emerge and the buyer may want that agent to represent him or her, and may choose to enter into an exclusive buyer's representation agreement.

HOW DO I SECURE A BUYER'S BROKER?

When considering the possibility of buyer brokerage, both the buyer and the broker are faced with the issue of loyalty. The agreement described above puts the buyer in a clearly more advantageous position, since they're gaining the market knowledge and representation of a real estate professional. They have someone scouring the market on their behalf, relieving them of the tedious task of combing through ads and making endless phone calls. But given a real estate agent's typical compensation basis, how will the buyer's broker be motivated to stay on board and truly work for the buyer, knowing that a sale might not eventually close, and that the buyer may continue to pursue property leads through resources of his own, including other brokers who may be searching the very same listings simultaneously?

The buyer's broker agreement must provide assurance to both parties that a good chance of success will result from the partnership. The buyer may offer to guarantee to the broker that within a limited period of time, they will not enter into a contract to purchase any property without the buyer's broker being compensated. In other words, the buyer agrees to allow the broker to represent them exclusively, and thus be guaranteed at least the value of a co-broke commission when a property is purchased. The amount could be either a percentage of the final purchase price, or an agreed-upon flat sum based on either the estimated purchase budget or the estimated amount of work involved. In the rare case where the broker may present, and the buyer selects, a property for which the owner is unwilling to pay any commission, the buyer would pay the agreed-upon commission to the broker. However, the buyer is likely to have obtained a correspondingly more advantageous purchase price for the property, since the seller did not have to factor a full broker's commission into his or her decision.

WHAT WOULD A BUYER'S BROKER DO?

As above, a broker does what you don't have the time, expertise, or impartiality to do. The broker's basic activities include the following, when they are representing the buyer:

* Interview the buyer to establish a profile of the property desired, including price, location, size, amenities, style, and quality that will satisfy the buyer's needs.

* Coach the buyer if necessary on financing options and purchasing strategies.

* Conduct an exhaustive search of available properties by checking multiple resources.

* Screen and qualify those properties by researching available floor plans, photographs, and building information, and by calling the listing agents to obtain more detailed information.

* Assist the buyer in prioritizing choices and determining which properties to pursue.

* Call the listing agents for all of the properties selected and schedule a viewing itinerary.

* Debrief the buyer and determine what, if any, additional information is needed to make a decision on a property and follow up with the listing agent.

* Negotiate on behalf of the buyer to provide a protective cushion in the discussions, advise and support the buyer in his/her decision-making, and obtain the lowest possible price for the property.

* Liaison with the listing agent to co-manage the transaction process so that it moves along as expected, be constantly aware of its progress, and trouble-shoot any snags or delays as they occur.

One of the benefits of having a buyer's broker is that they can communicate "in shorthand" with sellers' brokers, who may speak more directly and succinctly about a property to a fellow broker than they might to a potential customer, thus saving the buyer time, energy, and unnecessary running around. Also, the buyer's broker may provide general information and professional advice to a first-time buyer, or recommend an attorney, mortgage broker or lender, home inspector, or other professional needed in the transaction. In the case of a coop or condo purchase, the broker may also coach and assist the buyer in preparing their Board application, review it for accuracy and ensure that all information is complete and presented in the best possible light for the Board review.

Buying or selling real estate involves some major decision-making, often accompanied by issues that can be personal and/or emotional. For some people, discussions of money can produce confusion or anxiety. Whether you're the buyer or the seller, you stand to benefit from the objectivity of a third party to the transaction, since their advice is unencumbered by the personal impact of the decisions being made.

For more information on the above, please call Paula Brown
at (201) 866-6500.

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