Dangers of Misinformation About Buyer Agency….

The Seattle Times lay-ed an unfortunate egg last Saturday when it elected to reprint a column by Washington Post syndicated columnist Mary Ellen Slater entitled: “Factors to weigh before choosing a buyer’s agent”.

Before jumping into this, I suggest reviewing the Washington State pamphlet: “The Law of Real Estate Agency”.

There are parts of this article that are simply not true in the state of Washington. As such, I challenge the Times to verify the applicability of the articles they reproduce.  How hard is it to call an agent, a broker, an attorney, and clear such articles for our region prior to publishing?

The following is the text from said article accompanied by my observations in bold type:

If you’re thinking of buying a home, one of your first decisions is whether to work with a buyer’s agent. True.

As the name suggests, a buyer’s agent is a real-estate agent who represents the buyer in a home sale, as opposed to the listing agent who represents the seller. True.

It’s important to understand that just because an agent shows you a house doesn’t mean he or she works on your behalf. On the contrary, once an agent has shown you a property, a buyer-agency relationship has been implied.

To establish an official relationship, you must sign a formal buyer’s agency agreement, which spells out your obligations to each other. NOT TRUE IN Washington State. An implicit relationship exists from the time an agent begins working on your behalf. However, without a signed buyer/broker agreement, this relationship is largely one-sided, meaning that the buyer may opt to work with, and/or buy from, another agent, but the first agent remains duty bound to the buyer until notified of the buyer’s decision to change agents. The first agent could be in trouble if they showed and sold a listing to another buyer while knowing that the first buyer had interest in the same listing. With a signed buyer/broker agreement, if the buyer bought any listing from a different agent, the buyer would likely be on the hook to pay a commission to their “contracted” agent, even if that agent did not show them the listing they purchased.

Basically, the agent is promising to represent only your interests, and you’re promising not to make offers that cut the agent out of deals — and ultimately, a paycheck. In Washington State, buyer/broker agreements are largely designed to protect the agent. We do not use buyer/broker agreements unless there are extenuating circumstances:

1. The buyer is looking for a specialized property which will require an inordinate investment of time compared to most buyers;
2. The buyer is purely an investor. The dynamics are different and loyalties can be short-lived;
3. The buyer is entirely unknown to us, without a referral source or any connection to our past clients, yet demands full time attention;
4. Trusting our instincts, we sense that the buyer is likely to be non-committal without an enforceable agreement in place;
5. The process, by the buyer’s own definition, is likely to be quite lengthy e.g., “we’re happy where we are, we’re not sure if we want to move yet, but if you find something interesting we’d like to see it.”

“You’re signing a legal document,” said Ilyce Glink, author of “100 Questions Every First-Time Home Buyer Should Ask” and other real-estate guides. “Make sure you know what you’re agreeing to.” Read everything carefully.

Another point of confusion is how buyer’s agents are paid. Buyers “think they have to pay for representation, but they actually get it for free,” said Andi Fleming, a real-estate agent with Long & Foster in Washington, D.C. Nothing is free. The buyer is paying the commission via the purchase price paid to the seller, who then pays the agents’ commissions.

Well, not really for free, since the cost of sales commissions is reflected in sales prices. If the property you want is for sale by owner, deciding who pays your agent could even become a sticky point of negotiation. A well written buyer/broker agreement makes it clear that if the seller does not offer a commission to the selling agent, the buyer will pay it. This situation is often accomodated by adding said commission to the agreed sale price, then it is paid from the seller’s proceeds at closing e.g.,

• for sale by owner sale price is $300,000
• selling commision, if listed, would be $9,000
• written into the purchase and sale agreement, buyer and seller agree that the purchase price is $309,000
• upon closing, seller receives $300,000, agent receives $9,000

Getting a service that someone else pays for may sound like a great deal. See above.

Buyers should keep in mind, however, that because the agent receives a commission only when the deal is done, there is an incentive to close a sale — possibly at a higher price to earn a bigger commission — even when it might not be in the buyer’s best interest. Every agent you talk to will tell you emphatically that nothing could be further from the truth! Think about it. The difference in commission on a sales price of $300,000 and $325,000 is $750. No agent worth their salt is going to sell out a client for the sake of $750. Not when there is a $9,000 commission on the table, together with the potential for future referrals if the agent does a good job.

To get around this conflict, some buyer’s agents work for a flat fee. AKA flat service.

Finding a buyer’s agent isn’t difficult. A common route is to ask friends, family and co-workers for referrals. The people that care about you most are your best resource.

Another way is to visit open houses. You may not want that particular house, but you can size up the agent who is hosting, and who is likely to specialize in that neighborhood. If this is your method, always call and check references. Don’t just be dazzled by a website or marketing. Find out if the agent does what they say they do. Just because they might be new doesn’t mean they aren’t good. And just because they might be old-timers, like me, doesn’t mean they are right for you. Trust your instincts above all.

One other option is through real-estate agents’ professional associations. Both the National Association of Realtors and the National Association of Exclusive Buyer Agents have on-line databases. A needle in a haystack, this is not much help.

Once you have a few names, schedule interviews. Your questions should be very different from the ones you would ask when choosing a listing agent. Nothing could be further from the truth! Good agents do it all. The “exclusive buyer’s agents” that we have met and dealt with over the years are not of the same caliber as full service selling/listing agents. Tagging yourself as an “exclusive buyer’s agent” is viewed as a bit of a cop out within our industry. It is accepted that the heavy lifting in this business is done by listing agents. It requires more time, research, detail, patience, knowledge and professionalism. It is through the listing business that agents absorb infinite detail regarding construction, neighborhoods, schools, i.e., what sells and what doesn’t. One of the most important aspects every buyer should consider is the future saleability/marketability of the property that they buy today. An “exclusive buyer’s agent” generally does not possess that type of knowledge or experience.

“When you’re hiring a listing agent, you want someone who’s a great marketer, but that’s not our job,” said Stephen Israel, president of Buyer’s Edge, a Bethesda, Md., company that works exclusively with buyers. Such brokerages are a niche, but thus far not considered a successful business model.

Instead, the job of the buyer’s agent is to find you the right house and help you negotiate the best deal. We have personally witnessed some buyer’s agents put together sales that could only be described as horrendous for the unwitting buyer.

Early on, you need to decide how much tolerance you have for “dual agency,” in which the same brokerage is working both ends of the deal. 

This is very common, especially where one or two brokerages dominate a local market.

Many real-estate agents work with both buyers and sellers, which can be awkward if one of their prospective buyers is interested in one of their listings. This is so rare it doesn’t matter.

Whose interests do they represent then? If you’re considering working with an agent who also works with sellers, ask the agent how the situation will be handled. State law and the brokerage’s rules will guide the answer.  See “The Law of Real Estate Agency”.

That conflict doesn’t happen with exclusive buyer’s agencies, a setup that some people prefer. But such agents aren’t always the best choice, a point even exclusive buyer’s agents concede.

Call previous clients and ask if they would work with their agent again. Good Idea! Is the agent knowledgeable about the market? Does the agent return phone calls promptly? Negotiate assertively on the buyer’s behalf?

Fleming, whose clientele is evenly split between buyers and sellers, said it’s important to pick someone whose working hours coincide with yours. Will this person be available to show you houses on the weekends or in the evenings? Good agents are available just about all the time. Every client has different needs, and accomplished agents are accustomed to adapting to those needs. Don’t settle for second rate service. Be up front about your expectations and you should not be disappointed.