Understanding Buyer Representation in Real Estate: A Comprehensive Guide
The National Association of Exclusive Buyer Agents (NAEBA) was established in the mid-1990s with an important mission: to provide dedicated representation for home buyers throughout real estate transactions. NAEBA emerged from the need to make certain that buyers receive unbiased and comprehensive support during their home-buying journey.
Beginning August 17th, 2024, new rules go into effect that will directly impact home buyers. The rules, the result of a lawsuit and settlement by the National Association of Realtors and other large brokerages, require buyers and buyer agents to have signed buyer brokerage agreements before touring properties. Remember, the agreement should include a start and end date, how the buyer agent will be compensated and additional fees, if any, paid to the buyer brokerage.
It’s expected that the new rules may undergo changes as real estate agents and brokers start to apply and evaluate them in practice.
These changes in real estate are unprecedented. NAEBA warns it could lead to more dual agency and unrepresented home buyers.
The Role of Agents in Real Estate Transactions
In a typical real estate transaction, the agents involved each have specific roles.
Listing brokerages represent the seller, working to market and sell the property. Within these brokerages, there are listing agents and buyer agents. Listing agents focus on properties for sale, while buyer agents assist individuals looking to purchase homes. In some cases, traditional agents may represent both buyers and sellers in the same transaction, which can lead to conflicts of interest.
Exclusive Buyer Agents, on the other hand, dedicate their practice solely to working with home buyers. These professionals operate under brokerages that represent only buyers in all transactions. Unlike traditional agents, Exclusive Buyer Agents do not list properties for sale. This specialization helps them avoid the conflicts of interest that can arise from dual or designated agency arrangements. By focusing solely on the needs of buyers, these agents offer a more objective and dedicated service.
How Are Buyer’s Agents Compensated?
Nationwide, the new real estate regulations will mandate that exclusive buyer agents and buyer agents must directly ask the listing brokerage whether the seller is providing a subsidy to the buyer’s agent, and if so, the amount of that subsidy. The cooperative commission, which was previously displayed on the Multiple Listing Service (MLS), will no longer be visible. Instead, it will be the responsibility of the buyer’s agent to inquire about any potential seller subsidies and to communicate this information to their client.
- Seller’s Agreement– The seller enters into an agreement with the listing brokerage. This contract outlines the terms for marketing and selling the property, including seller subsidies, if any, for the buyer’s agent.
- Buyer’s Payment– The buyer pays the seller directly for the home at the settlement (also known as “closing”).
- Payment Distribution
- The seller compensates the listing brokerage.
- The listing brokerage then pays the listing agent.
- The seller, through the seller subsidy, pays the buyer’s brokerage.
- The buyer’s brokerage pays the buyer’s agent payment for services.
It is important to note that there is no standardized fee for services in real estate transactions. Buyers and sellers should engage in discussions with their real estate representatives to agree on fair compensation.
The Concept of Procuring Cause
One term you may encounter in real estate is “procuring cause.” This refers to the agent who is considered the primary reason a buyer ends up purchasing a particular property. For example, if a buyer initially contacts Agent A (the listing agent) to view a property but later works with Agent B to make an offer, issues of procuring cause may arise.
To avoid complications related to procuring cause–
- Sign a Buyer Brokerage Agreement– Have a formal agreement with your exclusive buyer’s agent. This document solidifies your relationship and helps prevent conflicts.
- Work Exclusively with Your Agent– All questions about a property should go through your agent to the listing agent. Your exclusive buyer’s agent will also schedule tours of properties. Maintaining clear communication with your agent is critically important in the success of finding your home.
A Few Things To Consider
Keep in mind that the listing broker and all real estate agents at an open house represent the seller’s best interests. While they may answer your questions, they are required to relay any information they gather from potential buyers back to their client, the seller.
Real estate agents are required to follow ethical guidelines when interacting with all consumers but don’t think you’ll get ‘inside scoop’ from a real estate agent at an open house or a listing agent who represents the seller.
In direct contrast to traditional real estate brokerages which represent buyers and sellers often in the same transaction, Exclusive Buyer Agents work solely for home buyers. They are committed to securing the best terms and price for their clients, free from the conflicts that can arise from representing both parties in a transaction.
The Risks of Dual Agency
Dual agency happens when a single agent or brokerage represents both the buyer and the seller in a transaction. When a brokerage represents the buyer and seller in a transaction, it’s called designated agency which is a form of dual agency.
For either form of dual agency to be valid, both parties must sign a dual agency agreement. According to guidelines from the Northern Virginia Association of Realtors, dual agents face several limitations:
- They cannot provide advice on terms, offers, or counteroffers beyond initial disclosures.
- They cannot guide either party on property suitability, condition, or repairs.
- They cannot resolve disputes that may arise during or after the transaction.
Do you see why exclusive buyer agents don’t like dual agency?
In essence, dual agency may not serve the best interests of either party. While dual agency is illegal in some states, designated agency—where two agents within the same brokerage represent the buyer and seller separately—is a common workaround. However, this setup raises questions about impartiality.
Imagine a law firm where the same lawyers represent both the plaintiff and the defendant in a legal case. This scenario would be deemed unethical, yet similar practices occur regularly in real estate.
Working with an Exclusive Buyer Agent
To ensure your interests are fully represented, consider the following tips:
Clarify Representation – Ask the real estate agent you interview to explain dual agency. Ask the agent if they represent buyers and sellers in a single transaction. If you work with an exclusive buyer’s agent, you will not sign a dual agency agreement-ever.
Sign an Agreement – Have a signed exclusive buyer-broker agreement in place. This formalizes your representation and allows the real estate professional to act as your fiduciary and advocate.
Avoid Direct Contact with Listing Agents – Direct any questions about a property to your exclusive buyer’s agent to maintain your representation.
When attending open houses, remember that the agent present works for the seller. Be careful sharing personal information, as it could be used to the seller’s advantage in negotiations.
Listing agents do not owe you confidentiality, unlike your exclusive buyer’s agent.
By understanding these aspects of buyer representation, you can navigate the real estate process with greater confidence and ensure that your interests are well protected.