Getting a Better Deal on your Next Home
Page 2 - Frequently Asked Questions About Types of Buyer Agency
Understanding the different types of agency agreements is critical. There are basically four basic types of methods in which a real estate agent can assist you in finding a home. Each has its pro's and con's, some of which I have outlined below.
Type 1 - Sellers Agent also called a "Sub-Agent" - Agent works for the Seller
This is the most common form of agency among the top producing Realtors in the country.
Agent can show you property, must disclose any known defects or issues which may affect your decision to purchase, Must answer questions you put to them honestly and fairly a all times.
Can provide information on what comparable homes in the area have sold for, but can't "tell" you what to offer. Can recommend the services of mortgage companies, inspectors, etc...
Pro's - Since most of the Top Listing Agents work this way, you know you hear about the hottest new listings early on in the process, often before they hit the marketplace.
Con's - You need to be intelligent enough to be able to know that if 10 homes in the neighborhood sold last month for $200,000, you shouldn't offer $250,000. The agent can't tell you what to offer.
Type 2 - Buyers Agent - Works for the Buyer - They or their company also takes listings.
In my opinion, this represents the best of both worlds. You can hire the top agent in the city to represent your interests in the transaction. To advise you on pricing, negotiation etc., and keep your bargaining position confidential at all times. Working with a Top Realtor in this way has the same advantages as waiting in line to get into a 5-Star Restaurant. These agents got where they are by providing insight and uncompromising service that has resulted in them selling in 1-Year more real estate than most agents do in their whole career. As a result, you not only have the resources of a Top Firm and Top Agent, but also the advise and Council of someone working to protect your interests.
Pro's - by working with the best agents the real estate industry has to offer, you can receive access to the hottest new properties before other agents know about them, receive whatever discounts from inspectors, mortgage companies etc. that your agent has managed to negotiate due to their clout in the industry. Since your agent is a pinnacle in the local real estate community, they can best advise you on their professional opinion as to what a property is worth and what technique you may want to utilize to negotiate the best possible terms and conditions.
Con's -IF by coincidence you end up buying one of that agents own listings, the agent automatically becomes a "disclosed dual agent", representing both people in a transaction. Even though this seems rather bizarre, it actually works quite nicely. You see, when it comes to price for example, assuming that neither you, nor the Seller are stupid, you can reasonably be assured that you are not going to pay for the home any MORE than you think it's worth, and the Seller is not going to sell it for LESS than they think it is worth. If the home is right for you and your family than "facilitating" getting you and the Seller together and making it happen is the best thing anyone can do for you. When it comes to everything else involved, you have a host of other people you hire for their independent advice; your Home Inspector tells you what repairs are needed, Your Attorney negotiates Repairs that need to be done, as well as terms of the Purchase Agreement, with the Sellers Attorney, Your Bank Appraiser gets paid to do an unbiased Appraisal of Value to make sure the home is worth what you are paying. All in all it work very well. I have sold dozens of homes this way and never yet have had a buyer or seller feel that their interests went unserved.
Type 3 - Exclusive Buyer Agent - They or their Firm never takes listings - Only buyers.
In some marketplaces around the country, exclusive Buyer Agents are very popular. In others, they represent just a tiny fraction of home sales in the community. An exclusive Buyer Agent, in a nutshell is an agent who refuses to take listings on homes. They instead prefer to work strictly with Buyers because they state that this way they can never be accused of having a conflict of interest on a particular property. Many "Exclusive Buyer Agents" are good real estate agents who just prefer Buyers to Sellers. In many other cases however, their motivation is perhaps less noble. Let's remember that persons in the business of selling real estate are motivated by the same factors that get you to work in the morning - namely, feeding their family. That's not a bad thing in any way - that's called LIFE. The problem I have is with some "Exclusive Buyer Agents" who try to come off like Mother Theresa, and who imply it's just a matter of time before they are canonized to sainthood for their noble beliefs and principles as compared to their most terrible nemesis - the agent who might actually enjoy working BOTH with Buyers and Sellers.
Pro's - Since an "Exclusive Buyer Agent" never takes listings, they can never be accused of having any loyalty of any kind to the Seller of a property, and only represent the interests of the Buyer. As mentioned above in Type 2- Buyer Agents, the agent has a fiduciary responsibility to help you to negotiate price. Additionally, the Exclusive Buyers Agent , like the regular Buyers Agent, is required by law to disclose any information they know about the Seller or their situation to the Buyer.
Con's - You are required to sign a Contract that says that you are ultimately responsible to pay a fee to the Exclusive Buyer Agent of, in many cases, 2.5% to 3.5% (all fees are negotiable) of the value of the property. This fee is due to your agent regardless of what property you buy and whether that Agent found it for you or not. In my state, if you buy a property which is listed by a Real Estate firm in the Multiple Listing Service, it is not uncommon for the Seller to direct the Listing Agent to offer compensation to a Buyers Agent which may pay some or all of the fee on your behalf, but regardless of whether or not that happens, you owe the fee. For example, if you go to an open house on Sunday afternoon and fall in love with the property, the agent who was doing the open house is entitled to the Selling Agent portion of the commission. That being the case, there is no other money available from the Seller or Property, and so you need to pay an additional fee of X% to your "Exclusive Buyer Agent" even though that agent may have never even shown you the home. Your contract to pay that agent is a legally binding agreement which may be enforced in a court of law. Furthermore, if you buy a property which is Not listed in the Multiple Listing Service, such as a "For Sale By Owner" property, and the owner is relatively firm on price and doesn't want to pay the Buyer Agents Fee, then you are required again to pay the fee over and above the price. Lastly, if you are working with an agent in the regular fashion, and you decide you don't like their face, or you find a property on your own, it doesn't matter, whereas with an "Exclusive Buyer Agent" you have no choice. You are legally bound by contract to pay the Agent a fee whether you like them or not.
Additionally, in my area of the country, while many of the "Exclusive Buyer Agents" are absolutely sweet, wonderful, hard-working individuals totally dedicated to their profession, they are rarely the "cream of the crop" Top Producing Realtors in terms of production or number of sales. Most of them, in my opinion, use "Exclusive Buyer Agency" as a "hook", not really in a bad sense, but more just as trying to define for themselves this little niche where there is thus far less competition from other Realtors. If you are the only "Exclusive buyer Agent" in town, it gives you a marketing tool to set yourself apart from the crowd. There is nothing at all wrong with this, except if your marketing is based on fear, deception, or misinformation about the industry.
More Frequently asked Questions
Steve Dispels some of the Myths of Buyer Agency