“Buyer Representation” and “Buyer’s Agent” is a phrase that is thrown around in the Real Estate Industry. So much so that it’s pretty much lost its significance to the average consumer. What is it and where did it start? Do buyer’s actually have representation? Better question, do buyers really need representation? I mean, they’re just buying a house. We don’t need someone to represent us when we buy a car, why would it be different for a house?
This, unfortunately, is a common belief among consumers in the Real Estate market. In this day of technology and internet, it’s easy to do your own searching, go to open houses and even make an offer with the listing agent… right? Well, sure, you can search on your own and most cases, go to an open house without an agent… but making an offer and being up to speed on new listings in this market is a lot more involved.
First, if you’re lucky enough to find the house you’ve been looking for and you choose to write an offer up with the listing agent, note that the listing agent has what is called a “fiduciary duty” to the seller. That is a fancy way of saying they have a legally binding loyalty and trust with the seller in a similar way an attorney has with their client in a court of law. Therefore, if you write an offer up with them, they may or may not help you write an offer that will be accepted by the seller. In the end, they are going to advise their seller to go with the all around “best” offer. If they already know they have a better offer in than you can write, they may not make much of an effort to help you write a convincing offer or may even tell you to not bother writing an offer. They will not negotiate and advocate on your behalf like a buyer agent would and they definitely won’t be trying to sell your offer to the seller as a buyer agent that has a fiduciary duty to you would.
Part of the fiduciary duties to a seller is confidentiality. If a selling agent gets a better offer, they can’t tell you. A buyer agent knows what questions to ask to get an idea and how to approach an offer they might know isn’t going to be the strongest. I have been able to get offers accepted that were not the highest and best simply because I as a buyer’s advocate, work on building a trusting and open relationship with the selling agent and through that, convince them that my client and myself would be competent and make it to the closing table with as little issue as possible. Just because someone has deeper pockets doesn’t mean they’ll easily be able to close. Money is only part of the offer.
When you hire a buyer agent to work for you, you are typically not only hiring them, but you’ll be hiring a whole network of people from the lender to the attorney, insurance agent, etc. that will be advocating for you and protecting you through the process. Most buyer agents will have a network of people they are familiar with and trust. They can recommend a trusted network to you that they have had success with many times before. Understand that the network is just as important to the agent as it is to you. They will not normally recommend anyone that they can’t trust to get the job done as in the end, everyone wants to make it to the closing table. The agent isn’t getting paid to recommend these people, they just know and trust that when it comes down to it, they will go to bat for you and make sure you come out on top in the end. They will also make your agent’s job easier because they won’t have to chase them down to meet deadlines. Having this trusted network is part of what a buyer agent can use to convince the selling side of a smooth transaction and possibly to accept your offer over others despite it being lower in value.
Second, about getting up to speed on new listings. Sites like Zillow and Realtor.com don’t always have the most up to date information. I have noticed it is often times delayed or incomplete. All real estate agents have access to the MLS which the main resource that all of those popular search pages receive their information from. An agent can set you up on a mailing list (if you so choose) with your specific wants and needs narrowed down so that you will only be notified when a relevant listing comes on the market. An agent also likely has a network of resources out there that notify them of “coming soon” properties and potentially properties that will never be listed on the MLS also known as “off market listings”. Though Realtor and Zillow can sometimes get wind of such listings, most of them are never posted on those pages. In this market of low inventory and fast paced selling tactics, this kind of information is invaluable.
On the note of “confidentiality”, what if you are a home buyer that has some deep pockets, but don’t want to spend your full potential? A buyer’s agent can and will keep your financial ability confidential. If you’re capable of buying a $1 Million house, but only want a $500,000 house, the selling side does not need to know you can afford much more. If you write an offer up with the seller, that information can cause them to suggest you make a higher bid than you maybe need to. Their job is to advocate for the seller, and to get the seller as much for their house as they can. The buyer’s agent’s job is to save you as much as they can.
Before 1990, buyer advocacy and buyer representation didn’t exist. All Real Estate agents worked for the seller and buyers would come in as “customers” to buy a house, kind of like you would at a used car lot. Then in 1990, several agents across the country felt that buyers should have representation in the housing market as well, so they started what is known today as Exclusive Buyer Agency. It was first scoffed at, then about 6 years later fully embraced by the Real Estate industry as it became a very profitable business model.. the problem is, instead of doing what these agents set out to do and exclusively represent buyers and sellers, they chose to do what is called dual agency or in many cases, designated agency. This is where a brokerage works for both the buyer and a seller in a transaction. This concept was great for these brokerages because they then could ultimately “double dip” and get both the buyer’s agent’s compensation and the selling agent’s compensation from one transaction. Exclusive Buyer Agencies, or (EBA’s) did not feel this was a fair and ethical approach considering they were in turn getting paid double for the single transaction. CAARE.org goes as far as calling it legalized fraud. They go on to say; “just because it is legal, does not mean that it is good or appropriate for consumers. Designated agency serves only the interests of the real estate brokerage firm that desires to collect a double commission at the expense of appropriate client representation.”
When you sign an agency agreement as a buyer, ask the agent to review the whole document with you before signing. Ask any and all questions as they have to disclose in the agreement any possibility of designated or dual agency in the agreement. If you find that the agency cannot promise uncompromising fiduciary duties to you and only you in your transaction regardless of what house you end up buying, you should find other representation.