Agent2Agent in Massachusetts>Question Details

Louis  Wolfs…, Real Estate Pro in Needham, MA

Is Buyer Agency Free? Are your Representing your Buyers Best Interest?

Asked by Louis Wolfson, Needham, MA Mon May 23, 2011

I don't know where brokers say a buyers agent is free?

Buyers agency contracts are between the buyer and the agent, which spell out the contractural obligations of each. Which does spell out that the buyer is responsible for your fee. You may seek iit first if there is a fee being offered by a co-operating selling agent.

Also there is not always equal or for that matter compensation always offered by the seller or the sellers agent.

A true buyers agent is suppose to get the best property and deal for their client. That means exploring ALL situations, even those not on the market.

So if a home B is on the market and home A and C on each side of A are not on the market and you do not ring there bell to see if they will sell their home, are you truely representing the best interest of your client?

I don't think so.

Louis Wolfson

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Answers

25
Carl,

we don’t use buyer/broker agreements? Who do you represent and what state obligations do you have?

In MA your are either a Buyers agent, Sellers Agent (sub-agent of the listing agent (opens up liability to the seller)) or a Facilitator and the buyer or seller must acknowledge that they have been presented with this "Mandatory Agency Disclosure"

When I did buyer agency in commerical real estate, my buyers paid me over and above the purchase price. To me that is true buyer agency.

Mack - as always simple and to the point

Jay & David,

I disagree, its about representation not the fee - if you feel your worth more charge more.

Point in case, my buyer wanted to see a house 7,400,000 liked it but thought it was to large. He wanted to see another house, it was actually 2 doors down from the 1st, 2,500,000 I got there early, looked at it and knew it was not right for him. Had sometime till he got there. There was a driveway between the 2 I drove down it, (thank god my wife wasn't with me as she would of never let me) about 1/2 mile long, saw a woman outside told her that my buyer looked at the house on the left, was coming to look at the one on the right, which I said he was not going to like, would you consider selling yours, I think he'll like it. The husband came out and said 'ITS YOUR LUCKY DAY - SHOW IT" Well to make a long story short I sold it 4,000,000

David you just blew a nice commission - can't take that thumbs up away though, who ever gave it to you? Did it cost me more? If I did not find that home for him - how many more months may I have had to work with him?

Not that I would drive down every driveway or that every house on each side is worth trying to pursue but it is important to think out of the box and to go that one step beyond. It is also good to speak with neighbors, they can tell us a lot about the property you are showing and what may be going on if your not already aware.

Now here's another question for the group - should I get both sides of the fee?
Web Reference: http://www.LouisWolfson.net
2 votes Thank Flag Link Mon May 23, 2011
I agree, David . . . but, you've got the inspection period, the heaven knows what other contingency period . . .

My point is that you should have an agreement with the buyer that both declares and limits the actions you will undertake. It doesn't have to be coercive and unjust; it simply needs to set limits and boundaries for both you and the client.
1 vote Thank Flag Link Thu May 26, 2011
An agency or brokerage agreement should spell out the terms - what the agent's responsibilities are, and what the buyer's responsibilities are. By defining these, you also limit them, so that you are not being derelict in your duty by failing to canvass every three-bedroom home in a particular zip code or census tract.

Once that is established, then you and the client now know what it is that you're supposed to do, and how you are to get paid for doing it.

All the best,
1 vote Thank Flag Link Mon May 23, 2011
As a home owner, I would be upset if I had agents knocking on my door every week asking me if I was willing to sell my house. There is an infinite number of possibilities if you want to start venturing out from homes that are for sale. Trying to buy a house that is not on the market is certainly going to cost more money and take much longer. To me, that is not in my clients interest.
1 vote Thank Flag Link Mon May 23, 2011
Louis:

Agree – we don’t use buyer/broker agreements. Buyers REALLY don’t like them. They’ve figured out that buyer agents use them to:

(1) Lock a buyer into using them regardless of whether or not the buyer decides that the agent is not the best for them, is not representing their best interests or is not a good fit.

(2) Guarantee a base commission rate.

Instead, we use a non-binding, informal agreement (not a contract) that states what I will do for the buyers (2 full pages) and then asks the following of the buyers:

(1) I ask that you honor the investment of time and finances we are making to you as your Realtor.

(2) I ask that you allow me to be your sole agent. If you are unhappy with my services, you may fire me at any time (until we are in escrow). All I ask is an explanation so that I may continue to grow professionally.

(3) I ask that you respect that my commission is my sole source of income, and that you not ask me to act in an unprofessional manner and give up part of that income.

(4) I ask that you refer your friends and family who need the same level of real estate service that you have been receiving.

I’ve never had a buyer tell me they were not willing to sign this and, since it spells out in vivid detail what the buyer can expect from me, it really puts buyers at ease. In addition, since they have signed a commitment document, it produces loyalty to me as well. And then I work VERY hard to ensure that their loyalty is well founded.
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1 vote Thank Flag Link Mon May 23, 2011
@All ...

Remember, California is a FAR different place than Lexington or Massachusetts. To try to compare or even understand can be a fruitless exercise …

Julie, I couldn't even understand what you are explaining - I have no reference for it.

Louis, fees may be a moving target out there, but it works differently in CA. The fee is flexible and negotiated by the LISTING agent – NOT the buyer’s agent. Once it’s posted on the MLS by the listing agent, it’s assumed (for all intents and purposes) that it’s no longer negotiable. Buyer agents here don’t typically come asking for more. They know better.

To apply methodology from MA or KY or even Oregon to CA is simply a waste of everyone’s time.
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0 votes Thank Flag Link Fri May 27, 2011
Carl,

Oh how I wish life was as black and white in my market as it must be in yours! The agent doesn't ask for more commission, the buyer requests the Seller pay whatever incremental amount they may be responsible for per their Buyer Representation Agreement. It's no different than asking for a swing set that was excluded. Depending on it being more of a Buyer or Seller market, this can play out any number of ways. I've had Sellers actually surprised they weren't paying the amount being requested! Each agent is working in the best interest of their client...it's never as cut and dried as you imply.

Julie
0 votes Thank Flag Link Fri May 27, 2011
The thing about having a buyer's agreement - whether it's in writing, in contract form, or whatever - is that you establish the basis for the expectations you have for each other.

I know some agents who don't use brokerage contracts instead give a buyer a checklist of services they provide. This is a good idea for agents that say they're putting the client's interests above their own; so that, as in Louis' original post, they don't wonder why you didn't find out that the neighbors were selling their much nicer house for less until it hit the market the day after they closed!
0 votes Thank Flag Link Fri May 27, 2011
Jay,

It is against the law to discuss commission rates. Please follow the law.

Carl, it was not about typical, as I agree with what some consider typical, but fees are and should be a moving target based 1) upon the law 2) individual business practices, 3) the market place in general.

I can truly go into fees if you would like, it is not a pretty or fair picture.
0 votes Thank Flag Link Fri May 27, 2011
Carl,

I participate in this forum because I LOVE to hear perspectives from real estate agents all over the country. As you said, it's not about right or wrong, or better or worse...just different. Every marketplace has it's own unique practices and pitfalls. I appreciate your point of view and look forward to hearing more of what you have to say. :-)

Jay
Web Reference: http://www.josiahrallen.com
0 votes Thank Flag Link Fri May 27, 2011
@Jay:

There is a considerable difference between they way you operate on the east coast as compared to the way we do business here. The process you just described as normal in your area does not happen here. Our forms are not even designed to do as you suggest.

It doesn’t make either way right or wrong, just different.

We can go around and around on this, but at the end of the day come to no conclusion because of the differences in practices and the inability to understand the other areas methodology. What is normal here you mighty consider totally weird or, as suggested by Louis, “not meeting your obligations as spelled out in the Realtor Code of Ethics.”

Not so. Just different.
.
0 votes Thank Flag Link Fri May 27, 2011
@Louis:

What you are inferring is that a buyer’s agent comes in, writes an offer for a specific price and terms for the buyer AND asks for more commission as well? First of all, that is not common practice HERE (and again, as we’ve all discovered, there are no standard practices across the county) – and it’s considered EXTREMELY tacky when it does occur.

Second, the commission stated in the MLS is the MAXIMUM a seller is willing to pay. Whereas the price and all other terms are typically up for grabs in a normal negotiation, increasing the commission above the stated maximum is typically NOT.

Third, since the bottom line is the net to the seller, a more likely scenario would be the seller instructing me to counter back, modifying the price and terms to the buyer and (if an agent indeed tried to get more commission) telling the buyer’s agent NO. Ironically, there is no place in the purchase contract in CA for a buyer’s agent to modify their commission or ask for more. An offer is considered to be an agreement between a buyer and a seller – NOT between the buyer, the seller AND the Buyer’s agent. If they want a different commission, they need to submit a different form altogether that is not linked to the actual purchase agreement. Nor should it be. In addition, we have been trained to never include terms about commission in an offer or any counter offer – because the offer is between the buyer and seller and should not include any terms pertaining to the agents. For this reason, there is actually no place for an agent to sign on a CA Counter Offer form. The agents sign the original purchase agreement documents to verify agency, not terms of commission.

The two times in the past 10 years I’ve had a buyer’s agent try to get an increased commission … on both occasions the sellers instructed me – on their own – to tell the buyer’s agent … “NO, we’ve already specified what commission will be – take it or leave it.”

If a buyer’s agent wants to try to go back to the buyer to get more money, then that’s where a Buyer/Broker agreement comes in – and it’s why I won’t use one in this type of situation.
.
0 votes Thank Flag Link Fri May 27, 2011
Carl,

So based on what your saying if they don't come in with the asking price you will just say No, as that is the price in the MLS.
Of course not. You will negotiate.

I'm saying that if your offering a co-operating fee of x and they want y, if it is something that you want to do and or the seller wants to do then you will have a deal. Under your senerio you are not meeting your obligations as spelled out in the Realtor Code of Ethics. Or more importantly you are not acting in the best interest of the seller.
0 votes Thank Flag Link Fri May 27, 2011
@Louis:

You state: “That said if the amount offered is not acceptable to that agent they have every right to present what they feel is fair for their services.”

A: If an agent comes to me with an offer and they ask for more commission in their offer than is specified in the MLS, we say NO. It’s not about they feel their services are worth – it’s about what the seller is willing to pay.

You state: “As MLS has nothing to do with compensation.”

A: It has everything to do with commission – it states the amount the seller is paying.

You state: “I then am obligated to present the offer to the seller. I and the seller then determine the proper counter offer.”

A: It’s the stated commission. Period.

You state: “I've been told that the rational that the buyers don't out right pay the buyers agent is due to the fact that the amount can't be incorporated into the loan.”

A: More likely, they don’t have the money to pay. Especially of they are FHA. We’re counting pennies as it is.

As for the idea that buyers pay the commission – that’s not true. The seller pays OUT OF THEIR PROCEEDS – not in addition to. Even though the buyer is supplying the funds for the house, the seller is paying the fees. If you go all the way down that road, then you’re going to be implying that agents are artificially hiking the price of real estate to make sure their fee is paid. Not so.
.
0 votes Thank Flag Link Thu May 26, 2011
I agree with you 100% that your client whether a buyer or a seller should only be bound to you based on your service. That is how I've conducted my business model as well.

Our mls listing also spell out the compensation that is offered to the buyers agent and or facilitator. That said if the amount offered is not acceptable to that agent they have every right to present what they feel is fair for their services. As MLS has nothing to do with compensation. I then am obligated to present the offer to the seller. I and the seller then determine the proper counter offer.

So getting back to my original post if the counter is higher to compensate the offer present by the agent, is it not costing the buyer. The buyer always pays the commission for without the buyer there is no commission.

I've been told that the rational that the buyers don't out right pay the buyers agent is due to the fact that the amount can't be incorporated into the loan.,
0 votes Thank Flag Link Thu May 26, 2011
@Louis:

You ask: “Who do you represent and what state obligations do you have?”

For a start, I don’t do commercial RE. There are a few of factors here relating to residential RE in California:

(1) The MLS states very clearly what the compensation will be to the buyer’s agent – even if it’s a short sale. The commission stated in the MLS is the amount the seller has contracted with the listing agent to be paid to the buyer’s agent out of the total commission. Under normal circumstances, the listing agent splits the commission 50/50 with the buyer’s agent. If a buyer’s agent comes to me asking for more commission, I have a standard response. NO.

(2) There are three types of agency relationships here: Listing Agent, Buyer’s Agent (Selling Agent) and Dual Agent (someone representing both listing and buying sides in the same transaction).

(3) The first document we hand a client when doing a listing or writing an offer is the DISCLOSURE REGARDING REAL ESTATE AGENCY RELATIONSHIP. We are required to have 3 separate copies of this disclosure in a transaction: Listing Firm to Seller, Selling Firm to Buyer, Selling Firm to Seller. This agency disclosure specifically delineates who is who in the transaction and what their agency responsibilities are. All parties sign as applicable. These documents are good for this transaction only and in no way bind a buyer to a buyer’s agent outside of this transaction.

(4) We don’t need a specific Buyer/Broker agreement per se – the agency disclosures state the agency relationships and responsibilities VERY clearly.

Buyer/Broker agreements exist here to clarify OTHER obligations of a buyer/agent relationship. These agreements include the following:

(1) SPECIFIC COMPENSATION for any transaction regardless of what is stated on the MLS or if the transaction is outside the MLS – FISBO, etc.

(2) LENGTH OF BUYER TO AGENT RELATIONSHIP – this contractually ties a buyer to a buyer’s agent for a specific period of time – typically 6 months. If the buyer does not like the type of service they are receiving, they cannot use another realtor because of this contractual arrangement.

(3) A reiteration of the agency relationship from the agency disclosure.

(4) A reiteration of the Dispute Resolution segments of the purchase agreement.

Therefore, we would only need a buyer broker agreement if we concerned about a commission OR we wanted to bind a buyer to ourselves for a specific period of time.

For this reason, I don’t normally use a buyer/broker agreement. Don’t need to … and don’t want to. I prefer to keep my clients connected to me by the level of service I provide and my expertise; not a contract. And I accept the compensation in the MLS. If a buyer wants me to represent them in a contract for a property OUTSIDE the MLS, I would use a buyer/broker agreement for that transaction ONLY.
.
0 votes Thank Flag Link Thu May 26, 2011
What happen in the past and Mack is a historian, is that agents were telling their clients you better buy, if you don't the house will cost you more. Its called the Greater Fool Theory" or for the others that may remember "Musical Chairs" when the music stops if you don't have a chair your out.

I'm saying yes that may be the right house for your buyers, but if you don't ask the neighbor and there house comes on the next week 10k -50k lower. The buyer is relying on your expertise as to value you could have a lawsuit on your hands. A buyer that just took a hit is looking for a fall guy. Guess who that will be. Unfortunately my senerio is not hypothetical. It happens everyday.
0 votes Thank Flag Link Thu May 26, 2011
If you see a house your clients love, are you representing your clients needs by saying, 'wait before we put an offer on this, let's check with the neighbors and see if they want to sell.' I would say no. It is going to take you several days to get any serious commitment from a neighbor and the chances of you getting a better deal from a neighbor are slim compared to the chances that you lose the house your clients initially loved.

I understand what Louis is saying with respect to his case, but the average home sale is not a $4mm home. A lot of homes in this market sell in a mater of days and I do not think it is my clients interest to delay putting an offer in while I check with the neighbors.
0 votes Thank Flag Link Thu May 26, 2011
This deserves more input than it has received.

Louis's point is incredibly sharp and poignant - if you are out there, telling buyers that you represent their best interest, and you're going to put their interests before yours . . . and you don't have an agreement limiting it, then . . . don't you pretty much HAVE TO be knocking on the neighbor's doors?
0 votes Thank Flag Link Thu May 26, 2011
Julie

Nice to see that you not only understand the roll of a buyers agent, but also take the time to educate your buyers on it as well including that the fee that may be the responsibility of the buyer.
0 votes Thank Flag Link Thu May 26, 2011
Louis, and all others who commented

Louis, as you know, in Massachusetts (& perhaps other states) the primary responsibility of Buyer Agency is just that...agency. The acronym O.L.D.C.A.R. is used to simplify it...

Obedience – the duty to carry out all lawful instructions of the Client
Loyalty – the duty to act in the best interest of the Client
Disclosure – the duty to disclose all information relevant to the Client
Confidentiality – the duty to keep the Client’s confidential information, confidential, duty survives
termination of agency relationship. Duty does not apply to legally required disclosures such
as known physical hazardous conditions of property.
Accountability – the duty to protect, isolate and account for all money, documents, or other personal
property provided to the agent
Reasonable Care and Due Diligence – the duty to act competently and being capable of performing the
duties undertaken

All of this can be done with or without a contract, but I, for one, will only work with a client who I feel I can help, and who is committed to me as well. You wouldn't think of representing a seller without a contract. What's the big deal about getting a buyer to agree to one. It's a question of valuing our time and experience. I allow my buyers a "test drive" - out with me 2 times, then we decide if we will continue to work together and sign a contract. It binds me to them as well. If I only have an hour to work on something, will I spend it on a client who has signed a contract to work with me, or someone who could be out writing an offer with someone else this very minute.

My contract has a time limit loosely based on the buyer's expectation for finding a home. I put in a fee and have had very little resistance once I tell them they will know the level of compensation offered for any house they see. I have had a great deal of luck collecting any difference from the seller or listing agent by putting that condition in the offer. If we were dealing with a competitive offer situation where asking could harm the client's chances, I have offered to drop the condition and have had clients offer to pay. In 13 years practicing buyer agency, I have only lost 4 potential clients because they didn't want to pay and never signed an agreement after the "test drive". I only regret not having worked it out with one of them. I'd venture a guess that more buyer's have been "lost" without an agreement and mutually beneficial agreement.

As far as knocking on every door - I agree with most of the other respondents... the "R" in O.L.D.C.A.R. covers it - 'Reasonable Care & Due Diligence'. Don't go crazy and have them miss out on the property they really want!

Julie
0 votes Thank Flag Link Thu May 26, 2011
Louis,

That's a nice piece of "real estating." Well done! :-)

I may have misunderstood...I thought the premise of your question was that to properly fulfill our duties as a buyer's agent we need to speak with EVERY homeowner in a neighborhood/price point to help our buyers understand ALL of their options. After reading your story, I think the point you were trying to make is that being watchful for "outside the box" solutions to our clients' real estate needs should be part of our job description. And you get the thumbs up from me on that.

Jay
0 votes Thank Flag Link Mon May 23, 2011
As far as working as a buyers agent, looking into the public records & sending a mailer to all properties of like type that the client is looking for in a given region isn't out of this world. Some may not like us showing up at their door but that's what our clients hire us for. Also stipulating in the buyers brokerage agreement what sources of housing stock that will be used is also important. We have the ability to set up very hyperlocal searches through the MLS but exploring inventory that's not on the market can also be a wonderful source for our clients to also consider.
Web Reference: http://www.MedfordHouse.com
0 votes Thank Flag Link Mon May 23, 2011
Good topic, Louis. And a great point on the buyer agency fee. That is a distinction that is often overlooked...or at least, not fully explained.

Just a quick comment on the 2nd part of your question. I think we ARE representing our buyers properly without ringing doorbells of off-market homes. I'll take it a step further and submit that I don't think our clients expect us to. And if they did, the 2.5% buyer agent compensation that my company collects for my services would be inadequate to cover the amount of time it takes to knock on 3,000 doors for every buyer that I work with.

In a world where buyer's agents knock on every door in town searching for the perfect house for their client, buyer's agents would have to earn ten times as much per transaction...and we would have no listing agents. No need to market listings, if the buyers come to you, right? I know we can find a seller or two in this forum who likes the idea of not having listing agents...but not in exchange for paying ten times the buyer agent fee.

Again, I like this topic and look forward to reading other agents' thoughts. Thanks for the post, Louis.

Jay Allen
Coldwell Banker
Web Reference: http://www.josiahrallen.com
0 votes Thank Flag Link Mon May 23, 2011
Seeing posts that say the Buyer Agency service is "free" are a hot button for me.

You're 100% right with regard to compensation and what the Buyer Agency contract stipulates.

If homes A and C meet the client's criteria, then an inquiry would be appropriate, just as checking on the "for sale by owner" websites for properties that meet the client's criteria would be.

j
0 votes Thank Flag Link Mon May 23, 2011
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