Real estate agents often assume that buyers know what a buyer’s agent is. More often than not, this is not the case. Furthermore, even among the buyers who understand the concept of buyer agency, few fully understand the implications of not working with a buyer’s agent, and what working with a buyer’s agent means from a legal perspective.
In explaining buyer agency, I will start with an example from another profession, where representation is a much easier concept to understand.
- Let’s say you had a dispute with your neighbor and go to court. Your neighbor is represented by a lawyer. Wouldn’t you want to be represented by your own lawyer?
- Let’s say you are doing a business deal. The other party has a lawyer looking over the contracts and terms. Would you not want your own lawyer to look over them?
Of course real estate agents are not lawyers, but the concept is that each party in the transaction should have representation. First I will explain who represents the “other party” in real estate (the “other party” being the seller) and then how a buyer’s agent represents the buyer. And to put things into perspective, I won’t go into detail but I will say that, a real estate transaction is governed by a wide body of federal statutes and state statutory and common law.
When a seller lists a property for sale they sign a listing agreement. That listing agreement is a contract between the real estate broker and the seller, spelling out the duties and responsibilities of each party to the other. One of those duties, is the duty of the listing agent to represent the seller’s best interest at all times. If the listing agent doesn’t do so, he/she can be sued in the courts, fined by the Real Estate Board, lose the real estate license, etc. Depending on how bad the screw up was, it may even mean prison time. In other words, a crooked listing agent doesn’t have a lot of room to be crooked without risking everything.
If a buyer shows up unrepresented to a listing agent and indicates an interest to buy the home listed by the said listing agent, the listing agent is allowed by law to help the buyer agent purchase the home (unless the seller has expressly prohibited this in the listing agreement). In this situation, the listing agent is helping the buyer buy the home, but the listing agent’s duty still is to represent the seller. As a result, the listing agent can not help you with a home inspection, or provide advice, or pretty much do anything other than try to convince you that this is the perfect house and you should pay top dollar for it. Just to clarify, the listing agent is not trying to trick you, but this is what the listing agent is obligated to do by the law and according to the listing agreement.
This situation poses another problem. When a listing agent is helping an unrepresented buyer to buy the agent’s listing there is always the possibility that the buyer will, rightly or wrongly, be left with the impression that the listing agent is actually looking out for the buyer’s interest. This opens up the listing agent to a lot of liability. Picture this scenario:
- Buyer: Goes to listing agent and says: “I want to buy your listing, but I am concerned about the noise from the street.”
- Listing Agent: “There is barely any noise. It is a great home, I’ll prepare the contracts”
Buyer moves in and the street is noisy. Buyer sues listing agent.
- Buyer: “You told me that there is no noise”.
- Listing agent: “I didn’t realize that by noise you meant the highway behind the back yard”
- Buyer: “I thought you represented me! You were helping me right the contract.”
This is a very simplistic scenario, but the point here is that the listing agent, by helping the buyer, opens him/herself to liability. That is why many listing agents avoid putting themselves in such position. The best and most honest agents I know, would recommend that the buyer find a buyer’s agent to help them prepare an offer.
So now you decide that you will work with an agent. You find someone that seems good and call them up. You tell them that you have found a home and you want to make an offer. You sit down with the agent and make an offer. You tell the agent all your financial info and how much you are willing to really pay.
Guess what? This agent, by law, represents the seller. The law states that all agents, unless they have an agreement to represent the buyer, they are obligated to represent the seller, regardless of who the listing agent is or what company she/he works for. In fact, the agent that you picked, by law is obligated to tell the listing agent that you are willing to pay more than you are offering, or that you are desperate to move quickly and this house is perfect for you, or that you are completely unqualified and they shouldn’t even look at your offer. Whatever that agent knows about you, he/she is obligated to tell the listing agent. The law says that this agent that you picked is a “sub-agent” of the listing agent. If something like that has happened to you, don’t blame the agent.
Now you’re thinking: “So how do I get represented as a buyer? Who protects the buyer? Does the law care about the buyer?“
Absolutely. It took many years to get there, but in the nineties all states started passing laws recognizing buyer agency and protecting the buyer. In our area we have pretty strict buyer agency laws. Maryland requires that the agency disclosure is written. The buyer and agent have to sign an agreement that indicates what relationship they will have.
In D.C. buyers must be provided with a written disclosure about agency relationships. If the buyers desire to have the agent represent them, they must have a written buyer agency agreement. In Virginia the law requires that a disclosure about agency relationships takes place at the earliest possible time. In other words, prior to the agent showing a home or prior to the buyer sharing potentially confidential information. If the buyer wishes to have a buyer’s agent, there must be a written buyer agency agreement.
So what is a buyer’s agent and what does she/he do?
The buyer’s agent represents the buyer, the same way the listing agent represents the seller. The buyer agency agreement spells out the duties and responsibilities of the agent and the buyer during the term of this relationship. The buyer’s agent is responsible to represent you in the transaction, share with you any information he/she learns about the seller, the seller’s situation, etc and look out after your best interest at all times. If a buyer’s agent violates any of the terms of the agreement, he/she can be held liable.
As a buyer, when working with an agent, you want to have a written buyer agency agreement to protect your self. Otherwise, what the relationship between you and the agent was, and what the agent should or should not have done, is open to interpretation.
It is also a good idea to look for an Accredited Buyer Representative (ABR). These three letters after a Realtor’s name are a designation held solely by agents who have met the educational and practical requirements set forth by the Real Estate Buyer’s Agent Council (REBAC) and who demonstrate skills and knowledge to best represent homebuyers. In order to earn the ABR designation, Realtors must complete specialized training in buyer-representation, and have an established track record, with proven experience in representing the concerns of home buyers.
How does the buyer’s agent get paid?
In practice, Buyers’ Agents get paid by the listing agent. When a listing agent enters a property into the MLS she/he automatically extends an offer of co-operation to the other agents members of the MLS. As a result, the agent that represents the buyer receives his payment from the listing agent. Even though this might sound as a conflict of interest, the law is very clear that payment does not determine agency. In other words, an agent is not obligated to represent the person who pays him/her. As a result, a buyer’s agent is paid by the listing agent but is free to fully represent the buyer. Of course, if the buyer wishes, the buyer can agree with the buyer’s agent to compensate the agent directly instead of letting him/her accept payment from the seller.
Occasionally, some skeptics argue that despite the fact that an agent works as a buyer’s agent, it is still in his/her interest to get a transaction closed quickly, since payment comes from the listing agent. Even though this might be the case in some rare situations, I believe that most agents have the intelligence to understand that such behavior, not only opens them up to liability, but it is also bad for their long-term business and certainly not good for their reputation.
What if I end up not liking my Buyer’s Agent? How long is the buyer agency agreement for?
In the buyer agency agreement that you will sign, you can specify the term of the agreement. If no expiration date has been specified in the agreement, by law, listing and buyer agency agreements expire in 90 days. If you are not happy with your buyer’s agent, when the agreement is over you are free to work with a new buyer’s agent. Personally I have the agreement expire in 180 days, simply because sometimes 3 months are not enough to find a home (six months is usually plenty). However, to make sure everyone is comfortable with this, I provide a guarantee, written into the agreement, that allows either party to terminate the agreement by providing 48 hours written notice.
I hope this post shed some light into the practice of buyer agency. Personally I always work as a buyer’s agent, as I’d like to make sure that my buyer clients are protected and also know that I work for them 100%. I believe in buyer agency and as an Accredited Buyer Representative (ABR) I have represented many people during the purchase of their home. For help from a knowledgeable and experienced Buyer’s Agent you can’t go wrong with me! Contact me to schedule an informal meeting and discuss how I can help.
