Traditional Real Estate Agency or Buyer’s Agency?

In our last post, we offered tips about what to look for in a real estate agent and where to find a good buyers agent. Today we will delve further into this topic by examining the inevitable questions that transpire:

Let’s examine each of these questions:

What’s the difference between a traditional real estate agency and a buyer’s agency (and why does it matter)?

I don’t remember too much from my college accounting class — I’m a writer now, not a number-cruncher and it was soooo loooong ago — but I did retain an important piece of advice from those days: My accounting professor implored us “to always get it in writing.”

This is genuine wisdom in just a few words.

Many potential home buyers make erroneous assumptions or proceed based on incomplete information about who will best represent their interests. A common misconception is that real estate agents always represent your interests. But unless you specify in writing what your agreement is with a real estate agent, you may become frustrated and disappointed. ”Traditional” real estate agents ALWAYS represent the SELLER and the SELLER’S interests unless specified otherwise!

In case you missed this mega-important nugget of information: most real estate agents represent the seller of a property, not the buyer. BE AWARE OF THIS!

Occasionally, an unscrupulous real estate agent will take a prospective buyer on a tour of homes, but the big secret is that many (if not all) of the homes for sale being shown are actually listed by that agent’s home-selling clients (or by the agent’s associates), effectively locking you out of any properties that they don’t represent (and which they can earn a full commission on). Worse, any information that potential buyers communicate to a real estate agent can legally be disclosed to the seller, which usually can have a detrimental effect on the potential buyer’s ability to get the best deal on the sale of the home.

To eliminate this nagging problem, ask the agent to GET IT IN WRITING, that is, insist on a statement from your agent that he or she will represent you, the buyer, exclusively, and that your agent will DISCLOSE any conflicts of interest. Reputable real estate agents will have no problem with this.

Or consider enlisting the services of a Buyer’s Agency. A buyer’s agency offers a choice to buyers in that a buyer’s agency represents them, the buyer, exclusively, with no allegiance to any seller or seller’s agency. Will a buyer’s agent know about properties offered by certain sellers? Certainly. But a buyer’s agent will not push any of these properties, because a buyer’s agent represents the buyer and the buyer’s interests and preferences. This allows the buyer to compete for the best price.

Let’s differentiate between a SELLER AGENCY, a BUYER AGENCY and a DUAL AGENCY.

A SELLER AGENCY is the traditional real estate agency. Unless specifically disclosed otherwise (i.e. in writing), real estate agents (and their brokers) represent and owe their allegiance to the seller. If you contact an agent who has a property listed, that agent will be representing the seller (trying to get the highest sales price for the seller), with no concern about the buyer or the buyer’s situation.

A BUYER AGENCY is does what it says: It turns the traditional real estate model on its head and represents the buyer exclusively. A buyer’s agent’s only loyalty is to the buyer, with no concern about the seller or the seller’s situation.

A DUAL AGENCY situation most often occurs when two agents represent both a buyer and a seller. This most often occurs when the owner of an existing home desires to move to a new home. The owner may engage a real estate agent to help the owner with both transactions: strike a deal on a new home while finding a buyer for the existing home. Full disclosure is, of course, of paramount importance (and required by law), although privileged information (such as the lowest price a seller will accept for or the highest price a buyer will be willing to agree to) cannot be disclosed without written permission.

So if you want the best deal (who doesn’t?) when buying a home, you should insist on a buyer agency and all of the specific disclosures that accompany the selection of a buyer’s agency. It’s the only way to assure that an agent is free from any conflicts of interest and is exclusively and impartially representing your interests and your interests only.

Buyer’s Agencies have proliferated in the past decade or so. Their distinct advantage for home buyers is that they represent the home buyer above anyone else and put the home buyer’s interests above anything else, including (especially) the home seller.

Here’s a way to look at this: You contact an agent after you see a home for sale as you drove down a street, or you respond to a newspeper advertisement, a Internet listing or a listing in a homes magazine. The agent is friendly, informative and answers all of your questions about the home. This agent represents the seller. He or she is a salesperson! This agent does not represent you, but is pledged to get as much as he or she can (maximum price) for the seller.

Here’s another way to look at this: You are working with an agent (not an exclusive buyer’s agent) who shows you a dozen properties over the course of two weekends. The agent buys you lunch, knows your preferences in a new home and even knows your kids’ first names and is becoming a “friend” and you feel comfortable revealing important personal information. Beware, this agent is still representing those dozen property owners and not you. The agent MUST reveal to the sellers any information that you reveal to the agent.

In addition, a seller’s agent cannot reveal information about the sellers to you, the buyer, such as:

• Why is the home for sale? Why now? (The seller may allow his agent to disclose this information, but often does not.)
• What concessions is the seller willing to make (in price, financing, closing options, home add-ons, etc.)?
• Private conversations between the seller and the agent.
• Information that could be detrimental to the seller, the property (such as problems with the home not revealed by a home inspection) that could give you an advantage as a buyer.
• CMA (Comparative Market Analysis), an independent determination of value that could put you at an advantage in price negotiations.

Buyers Agencies turn the typical home sales model on its head. If you strike a deal with a buyer’s agent, it is you, not the seller, who gains an advantage. Benefits of working with a buyer’s agent include:

• Your buyer’s agent can develop a CMA (Comparative Market Analysis), which can reveal the price at which similar properties in the area have been listed for and sold for in recent months.
• A buyer’s agent is free to disclose any information he or she may know about the seller, including the reason(s) for the sale, the urgency of the sellers, possible sales concessions, or other information that may help you make an enlightened buying decision.
• Information about local, state or national trends in property transactions that may be relevant to you at the current date and time.
• Many buyers agencies offer their services for FREE to buyers (because sellers pay sales commissions).

Granted, many happy homeowners did not use a buyer’s agent. But you should know that the real estate industry has changed (buyer’s agents were uncommon until about a decade ago) and that buyer’s agents are a valuable option that offer a service heretofore unavailable in many markets that can enhance the home buying experience as well as the satisfaction of home buyers.

What is a REALTOR®?

Not all real estate agents are REALTORS®, but all REALTORS® are real estate agents. A real estate agent is a REALTOR® when he or she is a member of the NATIONAL ASSOCIATION OF REALTORS® (NAR), The Voice for Real Estate® — the world’s largest professional association, with about 740,000 members. (And yes, they prefer to the term REALTOR capitalized and followed by the “®” sign.)

The term REALTOR® is a registered collective membership mark that identifies a real estate professional who is a member of the National Association of REALTORS® (NAR) and subscribes to its strict Code of Ethics.

REALTORS® typically do not charge any more in sales commissions than real estate agents who are not REALTORS®, but given their experience and training, they rarely charge less, which is to be expected. However, can you afford to gamble with the what will likely be the single biggest financial transaction of your life?

Now you can make a well-informed decision about who you will choose to help you buy a new home!

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