As I write this (August, 2011), we seem to be living in the best buyer’s market I have seen in a long time – at least in terms of inventory. Where I live there is a glut of inventory on the market and it seems like every time I leave the house I notice new homes for sale all over the region.
Since I’ve been out of the real estate business for a number of years now, there may have been a few changes since I learned this stuff, but I think it’s basically all still relevant today. Hopefully, it will give you a little primer on what you can expect as a home buyer and the options that are available to you as you begin your search for a new home.
Unless you don’t have a computer, you’ll begin searching for your new home on the internet. I was recently talking to a Realtor® and she told me that something like 96% of home buyers start their search on the internet. That’s up quite a bit from when I was a real estate agent. I’m a little fuzzy on this, but I think it was something like 75% at the time.
Checking out homes for sale on the internet is just the beginning. At some point you have to start calling or e-mailing real estate agents so you can get out there and start seeing some real estate up close and personal. This is where you have to start making decisions about how you want to be represented as a seller.
What is Buyer Agency?
With changes in technology come changes in the law. In the “old days,” real estate agents always represented 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?
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?
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.
Who Should I Call (or e-mail)?
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.