What To Expect
(Boring perhaps, but very worthwhile reading!)
The real estate industry has changed rather dramatically in the last decade or so. This is due in large part to the advent of the Internet. The Internet has helped to foster a new breed of real estate consumer. A consumer who is much more educated about the industry and much better informed about the state of the real estate market in general.
In the past, consumers had to rely almost exclusively on information that could only be provided by real estate agents. The MLS book (and in those days it really was a book!) was available only to real estate professionals and consumers had to rely on them to find out which properties were on the market.
The times have certainly changed! I could not even begin to guess how many real estate web sites are now available to the consumer with access to the MLS database just a mouse click away.
What is Buyer Agency?
With changes in technology come changes in the law. Another relic of the past is the notion that a real estate agent always represents the seller. Since the seller was the one who actually hired the agent to market their property and find a ready, willing and able buyer, the seller paid the commission and the agent was bound by contract to represent the best interest of the seller and only the seller. This left the buyer in a somewhat dubious position.
Today we have "buyer agency" where consumers can contract with an agent to represent them as buyers. This gives the buyer an advocate and a distinct advantage over the buyers of the past. With a buyer agency agreement, the agent is bound by contract to represent the best interest of the buyer. What, you may ask, does this really mean?
How Does Buyer Agency Benefit Me?
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Without a buyer agency contract agreement, the real estate agent's responsibilities to the buyer are limited. This is known as "non agency" or a "non agent" relationship. The agent is still bound by law to be honest and fair to the buyer but is also prohibited by law from disclosing certain facts to the buyer. In addition, the agent is not obligated to keep confidential any information provided by the buyer!
For example, a potential buyer walks into a real estate office and asks an agent for more information on a property he has just seen for sale on the Internet. It is a beautiful house that seems to be priced very attractively -- several thousand dollars less than expected for a property like that. The potential buyer is not quite ready to sign a buyer agency agreement however.
The agent knows the couple that owns the house is going through a nasty divorce and they are very motivated to sell the property as quickly as possible and will probably accept a very low offer, but according to the law, the agent is not obligated to pass that information along to the potential buyer, unless that potential buyer has signed a buyer agency agreement.
In addition, with no buyer agency agreement, the agent is not obligated to keep confidential anything that the potential buyer might reveal. For example, if the potential buyer indicated that he loved the house so much he would be willing to pay more than the asking price, the agent could pass that information along to the seller's agent, who would then know they could raise their asking price and probably still get the potential buyer to close the deal.
In essence, without the benefit of a buyer agency agreement, an agent working with a buyer may assist the buyer by showing properties and acting as a conduit for information from the seller, relaying to the listing agent any offers that the buyer may wish to submit. Nothing more than that. There is no further obligation on the agent's part.
On the other hand, once a potential buyer has entered into a buyer agency agreement with the agent, the agent is obligated to provide the buyer with any and all information that the agent is aware of. The agent is also authorized to negotiate in the best interest of the buyer as well as keep confidential any personal information the buyer might reveal to the agent.
The agent may also perform research on any properties the buyer might be interested in, assist the buyer by providing information on home inspection services, accompany the buyer during the home inspection and provide information on mortgage lenders.
The buyer's agent is also able to assist the buyer with the lending process by putting the buyer in contact with a quality lending institution, arrange and coordinate the closing and be present during the closing to facilitate the process and assist the buyer with any issues that may arise.
With buyer agency, the agent becomes the buyer's advocate and is bound by law to operate in the best interest of the buyer. The benefits are obvious.
How Is A Buyer's Agent Paid?
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In the vast majority of cases, the buyer's agent is paid from a share of the commission that the seller's agent has received. This is the standard practice in the industry, although in rare cases, the buyer may end up responsible to the buyer's agent for the fee.
It is highly unlikely that any buyer will end up paying the buyer agent's fee unexpectedly. Any offers presented to the seller from the buyer can be written to include the buyer agent's fee and the buyer has the choice to simply avoid presenting an offer under difficult circumstance where the seller may be unwilling to negotiate. Again, these situations are the exception and not the rule.
You might wonder how a buyer's agent can negotiate in the best interest of a buyer if a lower selling price is going to mean a smaller commission. Quite frankly, the answer to that is a very easy one.
To begin with, a good agent has a personal code of ethics that guides them in the performance of their duties. There is also the code of ethics that all REALTORS®
pledge to abide by. Last, but not least, a buyer's agent is obligated by law to place the interests of the buyer before their own interests.
Then there's the word-of-mouth issue. A good agent also knows that the best advertising they can ever get is a recommendation from a happy customer. Those kinds of recommendations are worth much more than any additional amount that an agent might receive from a commission. That is how good agents build their business. There simply is no better way to do it.
One area of confusion common with consumers is the issue about who to call when you see a particular listing or property for sale while you are driving around. Many people mistakenly believe that they must call the office that appears on a sign or a newspaper ad.
The truth of the matter is that the vast majority of agents all cooperate with each other and listing agents are glad to have another agent bring a potential buyer to one of their listings. The bottom line is that you should call the agent you trust to deal with you honestly and fairly, no matter who may be listing a property that you are interested in.
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