Buyer-broker representation in the purchase of a home is one of the smartest things you can do for yourself. One of my pet peeves is finding out, after the fact, that someone purchased a home from the listing agent because they thought they would get a better deal. My question is who got the best deal?
First, let me explain what I mean by a buyer-broker. According to California real estate code we, who sell real estate, are required to explain who we represent in any given transaction. This is called an agency disclosure. So, if you hire me to list your house, my job is to bring buyers and I am a listing agent. If you hire me to help you find a house, my job is to show you homes that meet your criteria and I represent the buyer as his agent.
A buyer-broker agreement adds to the usual agency duties and requires that I work exclusively for the buyer to find a property that meets his criteria. For example, if I see a home that is For Sale by Owner (FSBO) then I need to contact that owner and ask them if I can show my client the home. If the seller says they will not pay a commission to me then I am still bound to show my buyer. Typically the buyer-broker agreement outlines the compensation to the agent. In most cases the buyers agent is paid from the proceeds of the sale, but technically the buyer is responsible for the commission.
So back to my pet peeve. If you call me about a property that I have listed and you tell me you have an agent, I am required to respect that relationship. Failure to abide by that simple rule results in well over 50% of the complaints received by our board of Realtors. The problem arises when the listing agent alludes that he can get the buyer a better deal for the house by dismissing his agent. Actually, the California Association of Realtors (CAR) boiler plate listing agreement shows the amount of commission to be offered to the selling (buyer’s) agent. So, if the broker doesn’t have to split the commission he gets to keep the whole amount. Do you think that motivates the listing agent to find a buyer who isn’t represented? As Sarah Palin says….you betcha!
This happened in once instance when I was representing a buyer a few years ago. My buyer had a budget that she could not exceed and the market was still going crazy. In the heat of the moment she walked into an open house, told the agent (who also happened to be the owner) that she had a buyer’s agent. He persuaded her to cancel the contract she had with me on another house. He then said he would reduce the price of the home to the amount she told him she was budgeted for.
Do you think she was represented well? The owner/seller wanted out in a big way and exploited her ignorance. We see this a lot in hard markets such as now with investors buying and flipping properties as fast as possible. As if this wasn’t unethical enough, after the escrow closed she finally read her paperwork and found various things wrong or misrepresented. She called me to see if I could offer her counsel. The saddest part was that because this real estate agent was not a member of our local board, and only joined the MLS, there was nothing the board could do to help this consumer.
The lesson is two-fold. One, make sure you understand your agency relationship and if you want single representation (no dual agency) then tell your agent. Buyer broker agreements require that you will be responsible for paying your agents commission. IF you default on your agreement and do what my client did, then not only do you risk owing the commission, but you open yourself up to unethical agents. It’s funny how more green on the table causes failure to highlight items easily missed on reports or disclosures.
And two, hire a Realtor…this is a trademarked designation to be used only for agents who are members of the local, state and national boards of realtor’s. IF they do something unethical you have some recourse and can make their work life very difficult until they resolve your complaint. I’ve always maintained that you can’t teach ethics…people either have them and live by them or they don’t. One thing I do know and that is, that nothing stands in the way of what unethical people think they deserve.
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