Written by Ronn Huth
It never seemed quite fair to me that all the representation was on the Seller's side and the Buyer stood alone in a traditional real estate transaction. Oh sure, some Buyers hire their own attorney to go over the Purchase and Sale Agreement and most Buyers pay for a home inspection to assure a sound purchase. One can even hope that if a property is grossly overpriced that the bank appraisal will alert the Buyer. But by far, the bulk of the home-buying process pits the Buyer against the entire system of seller Agency and Subagency.
In February of '90 a local high school science teacher appealed to my sense of fairness by asking me to represent his wife and him in their home purchase. In fact, he said, "I'll promise to buy my house through you if you'll promise to represent me instead of the Seller throughout the looking and buying process." So, with my office principal's support and his attorney's approval, I drafted a Buyer's Broker agreement and entered into an exclusive agency relationship with the Buyers. I loved it! Now for the first time I was able to approach the Buyer's purchase as if I were buying for myself.
Buyer agency wasn't brand new to me since I had made several real estate investments in the mid 80's and understood the concept from my reading and workshops I'd attended. I even understood how the commission fee could be built into the purchase price. What I didn't realize was how refreshing it would be to give my full loyalty to the Buyer with complete integrity. There was no struggle about what I should or should not say to the Buyer. To be honest, I had often found myself wanting to side with Buyers whom I had come to know by showing properties and talking about their needs, wants and dreams. Even though I would say, "Don't tell me anything you wouldn't tell the Seller," personal and confidential comments were given to me and I'd be in the bind of not wanting to unfairly disclose what I'd heard and learned about the Buyers to some Seller I'd never met. Yet, I knew that was my responsibility as a fiduciary to the Seller through the system of subagency.
Subagency demands that the agent bringing the Buyer to the transaction works for the Listing Agent and has the same duties and responsibilities to the Seller that the Listing Agent has. The only exception to this is when the Selling Agent rejects the unilateral offer of subagency and declares an agency relationship with the Buyer. This is Buyer Agency.
In my opinion subagency is an unnatural allegiance. A real estate agent spends a significant amount of time taking Buyers around to show houses owned by Sellers whom the agents have never met. While showing houses, a rapport often develops between the Agent and Buyer. The natural but dangerous inclination is for the Subagent to side with the Buyer. This is undisclosed dual agency and is strictly prohibited by law.
Many Sellers are unaware of the snares of subagency. They and the Listing Agent expect that the Subagent bringing a Buyer is representing the Seller but often experience a loyalty toward the Buyer instead. Sellers are also often unaware of the liability that subagency brings them. Sellers and Listing Agents are legally responsible for everything a Subagent says or does or fails to say or do.
Often the real estate agents themselves are unaware of what services must be provided to clients and what services may be provided to customers. When you combine that with the fact that it doesn't take a contract or compensation to form agency the problem is amplified. The conduct and language of a real estate agent call imply an agency relationship. If Buyers think an agent is working for them, it's probably so. Surveys indicate most Buyers still think the Selling Agent works for them. The irony is that the same surveys indicate that most Sellers think the Selling Agent works for the Buyer as well.
Much to their credit, the National Association of Realtors and our Massachusetts Association are addressing the issue. There is a focused effort to inform agents of the scope of their fiduciary responsibilities and ongoing training in agency issues. The NAR Advisory Group on Agency has recently recommended, among other things, that the MLS policy of the mandatory offer of subagency be deleted and that subagency be made optional. This is movement in the right direction to my way of thinking.
Once I'd had a taste of Buyer Agency it was tough to go back to the old traditional style and feel comfortable. I began the process of further educating myself in Buyer Agency through instructors including Jim Warkenton, Bary Miller, Bill Broadbent, George Rosenberger, John Reilly, Michael Sommers, Bob Griffith, Gail Lyons and Don Harlan. I attended every workshop I could and wrote or telephoned people I knew who were practicing Buyer Agency in various parts of the country. I knew I needed to be somewhat of an expert to make it work in an environment where it had been minimally explored. I remember Bob Francis, a commercial Buyer's Broker, saying that the first time Homebuyers were the ones who need the service most but could afford it least. My goal was to make it available for no additional cost to those who needed it most. I'm happy to say I have been able to achieve that goal in practice.
When deciding where and how I would practice Buyer Agency I considered several medium to small offices where I thought I could handle the issue of in-house listings. I decided to continue in the franchise office where I had begun my real estate career. It was a well established and respected office and my relationship with the owner and other agents was very positive. I gave up my own listings and became their exclusive Buyer's Agent. The difficulty I ran into was keeping the necessary distance from the Listings information within the office and the complexities of disclosed dual agency with written, informed consent. As time transpired I felt myself becoming a separate entity within the office but practically speaking, feeling more without than within. My presence there was potentially confusing to Sellers who would list their house with our office and then discover there was a Buyer's Broker in the nest. I was not taking desk time because of the Listing files an agent typically accesses to share information with a potential buyer. We ran the risk of being perceived as the office that was trying to work both sides of the fence. Would Sellers see us as the office that wasn't quite 100 percent for Sellers because they had a Buyer's Agent on board? Soon there was very little benefit in my association there and people were asking good questions about how I could be a Buyer's Agent and work in a Listing office. It isn't easy to do properly!
That's when I decided to launch out on my own and established Buyer's Choice Realty, an exclusive Buyer's Agency. I have a tremendous respect for Listing brokers and for the amount of time, energy and money that go into effectively marketing properties. I have found working for Buyers to carry similar heavy demands. Locating and listing Buyers is not much different from the traditional approach of listing houses. My preference all along has been working on the Buyer's end, and I thoroughly enjoy it. It is very satisfying to come to a closing knowing I have done due diligence to represent my Buyer the same way a Listing Agent has served their Seller.
It's fulfilling to know that I can offer the consumer the unique opportunity to benefit from the same level of client services traditionally offered to sellers only. As Buyer's Agents we are able to provide Buyers a level of services that cannot legally be provided by traditional agents. They include issues of confidentiality, loyalty, protection, counseling, representation, negotiation and information sharing.
It's not always a smooth road representing Buyers exclusively. Its newness in the residential arena and confusion about commissions can cause some initial frustration. But by and large my experience has been that once Sellers and traditional Agents understand it, they welcome a Buyer's Agent who brings a qualified, controlled Buyer and eliminates the subagency liability of traditional real estate.
There are Listing Brokers who have actually offered more of a commission split to a Buyer's Broker because of the reduced liability and the quality of Buyers we bring to the table. These Agents know well both the demands and liabilities of subagency. Some Listing Brokers have decided not to split any commissions with Buyer's Brokers. It has been my experience that they are concerned about whether or not it would be to the Seller's interest to have them split commissions with an agent of the Buyer.
I believe it is to the Seller's best interest to have the Buyer's Broker participate in the commission because the Seller receives the same release from liability and other benefits the Listing Broker receives from a Buyer's Agent. The presence of a Buyer's Agent also educates the Seller to agency issues and makes them more aware of what they can expect from a subagent. I can see no reason why there should be any additional cost to anyone involved in a transaction in which both buyer and Seller are represented. The Seller brings equity and the Buyer brings cash and both contribute to the listing and selling commissions which are included in the purchase price. To ask the Buyer to pay the Buyer's Agent outside of the transaction decreases the Buyer's purchasing power and thus eliminates a capable Buyer from the Seller. The listing and the selling commissions normally are paid out of the sales proceeds at the closing. Why should that change because a Buyer's Agent is involved? Can we really expect that a Buyer or Seller will pay the equivalent of 150% commissions in a transaction that utilizes a Buyer's Broker? Even if they did, would it be a healthy thing for the real estate industry? I think not to all of the above.
Thankfully, to date, all closings in which our office has been involved have been cooperative and both the Seller's and Buyers' Agents have been paid from the transaction at no additional cost to anyone. That's important to us because we believe that first-time homebuyers need the representation and this affords them that opportunity. Despite some of the hurdles, Buyer Agency is here to stay and the growing numbers in our ranks speak to the issue that Buyers as well as Sellers deserve to be represented in a real estate transaction. The praise, appreciation and satisfaction that come to us from Buyers is not surprising. Most of our clients come from these personal referrals. But Sellers appreciate us as well. We have had Sellers thank us for enabling the sale to occur, and express the wish that they had employed a Buyer's Agent to buy the house they were now selling because the same repairs and considerations we were requesting for the new Buyer were necessary when they originally made the purchase themselves.
We're not out to gouge Sellers or to trick them into giving away their property. We simply believe that both sides deserve to be represented in a real estate transaction. To me, when the Seller and Buyer have both agreed to price and terms, the Listing Agent and I have both done our jobs well. Nobody needs to lose! I like a win-win transaction.