Agency, Smagency!

When I first meet buyers I am obligated by state real estate licensing law to present a Mandatory Agency Disclosure. My spiel usually goes something like this:

“Before I can show you this property, I am required to present you with an agency disclosure. At this point I don’t represent anyone, I am a facilitator. I don’t represent the seller, but I don’t represent you either. I’m a neutral party. If at some point in our relationship you would like representation, I could work as your buyer’s agent.”

Around this point I usually get one of two responses; either the buyers don’t want to sign anything or they don’t want any commitments and happily check off “facilitator”. But as we proceed through the property they will inevitably ask me one of the following questions:

• Why are the sellers moving?
• How does the price of this house compare to similar properties?
• Will the sellers negotiate?
• Can I add on to the property?
• Why hasn’t this house sold?

I then have to explain that these are the type of questions that a buyer’s agent can answer and they immediately think I’m trying to sell them something. You see entering into a buyer agency contract requires commitment on the part of both parties and most buyers want my full commitment, but aren’t ready to commit to me.

In Massachusetts buyers can work with one of three types of agents:

Facilitators are just as I described before, neutral. They show properties and serve as go betweens. If a buyer wants to submit an offer with a facilitator, they must make all decisions on their own, without the full knowledge and expertise of the agent. As a facilitator, I cannot give an opinion about the value of the property, nor can I share information I have about the financial motivation of the sellers. Conversely, I cannot share information I have about the buyers with the sellers or the seller’s agent.

Seller’s agents (and Sub-Agents) work for the seller. They are usually the listing agent. Buyers may submit an offer with the seller’s agent, but why would they want to? Any information that a buyer shares with a seller’s agent (intentionally or accidentally) must be shared with the sellers if it’s relevant. For example, as a seller’s agent, if a buyer tells me that he loves the house and is willing to spend up to $525,000, but wants to start the negotiations at $500,000, I have to share this information with the sellers. In this situation the seller is obviously going to hold out until the negotiations reach $525,000.

Buyer’s agents work for the buyer. Just like a seller’s agent negotiates and works on the seller’s behalf, buyer’s agents work and negotiate on the buyer’s behalf. As a buyer’s agent I can provide my buyers with a market analysis, research building restrictions, provide the names of home inspectors and contractors, etc.

Buyer agency sounds great on the surface, where buyers lose interest is with the contract. Most agents will only work as a buyer’s agent with a contract. This contract will typically outline the agent’s responsibilities AND bind the buyer to the agent by outlining their responsibilities, including the commission due the agent. I always stress that in 99% of all transactions, the buyer’s agent fee is paid by the seller. In my market, all fees paid to cooperating agents by the listing agency are disclosed on MLS (multiple listing service). If a contract states that a fee of at least 2.5% of the sale price is due the buyer’s agent, I will know quickly if the commission for a particular property will not cover my fee and we can discuss and potentially negotiate the fee with the seller. The most common case of the fee not being covered will occur when a buyer is interested in buying a property directly from sellers, or a For Sale by Owner. Even in this situation, the buyer’s agent can negotiate the fee with the sellers and most often they will gladly pay a small commission to sell their house.

I always encourage buyers to work with a buyer’s agent – even as a seller's agent when I stand to lose large amounts of money by making the suggestion. Why would you not want someone working on your behalf when you're making one of the most expensive purchases of your life? Buyer agency is not a scam, it’s a benefit to anyone wishing to buy property. The key is to open up a dialogue with your agent and gain a full understanding of how it benefits you as a buyer.