Chris Toth and his wife
recently purchased their first home in
Though the Toths wound up
closing on the home, their relationship with the agent, a friend, was ruined.
"Our underlying source of stress in this case -- and we are first-time
home buyers -- was whether the agent was looking out for our best interest or
the seller's, as my wife and I were never 100% sure," Mr. Toth
says.
The couple wonders whether
the deal would have worked out better if they had hired a buyer's agent to represent
them in the transaction.
For years, many homebuyers
have used a Realtor to show them available properties, prepare offers, and help
nail down a purchase agreement. But Realtors typically make their money from
fees paid by the seller and so clearly have an interest in making a sale. They
also have less incentive to point out possible flaws in a property or its
location. It's not surprising, then, that a 1983 survey by the Federal Trade
Commission indicated that 72% of homebuyers thought the agent showing them the
house represented them. But that wasn't necessarily the case.
To clear up possible
confusion and conflict, a number of states passed laws requiring, among other
things, disclosure of the duties of agents involved in a real-estate
transaction. The changes also prompted home purchasers to increasingly use a
"buyer's agent" -- a real-estate salesperson who exclusively
represents the buyer.
This area of the
profession has swelled dramatically in the last 20 years. By 2001, 46% of all
homebuyers signed contracts with a buyer's agent, according to the National
Association of Realtors, a Washington, D.C.-based trade group for the industry.
The Real Estate Buyer's
Agent Council (REBAC), a division of the NAR based in
"There's no question
that buyer's representation has reached the mainstream," says Curtis Hall,
a Phoenix-based buyer's agent affiliated with RE/MAX, who co-wrote the
buyer-brokerage accreditation course for the industry. "There are only a
few select markets, mostly in the rural areas, where this isn't
prevalent."
Advocating for the
Buyer
Buyer's agents are
licensed real-estate agents. The major difference between them and a seller's
agent is that they work exclusively on behalf of the buyer. Most commonly, a
buyer's agent might help negotiate with the seller for a smaller deposit for
the house. Or help negotiate for the seller to pay closing costs. They also
will help buyers find a real-estate lawyer to examine the sales contracts and
inspectors to examine the property being purchased.
Mr. Hall says that he
tries to help home buyers just as a business consultant would assist a
corporation. "Buyers can make the emotional decision of whether they like
the house or don't like the house," says Mr. Hall. "But they need
someone on their side to help them make a prudent business decision as well."
Mr. Hall is familiar with
local neighborhoods and can discuss them with buyers. He also can provide
clients with access to databases showing the insurance-claims history of a home
they wish to buy and the history of the neighborhood. In unusual cases, such
information might even include whether any sexual offenders live in the area,
disclosed through local versions of Megan's Law.
"That's certainly
something that someone with a family will want to know about," he says.
"And a seller's agent doesn't have an obligation to tell you about these
things. They probably wouldn't want to even learn of those things."
Buyer's agents have access
to the multiple-listing service, which lists homes being offered for sale
through other real-estate agents. But, since they represent the buyer, they
also often will show homes that are listed as "for sale by owner" and
"for sale by builder" if a buyer is interested in a particular home.
How They're Paid
The typical mode of
payment is a commission at the time of the closing from the proceeds of the
deal. Buyer's agents also may work on an hourly or retainer basis, much as a
lawyer or consultant. Still, homebuyers should keep in mind that hourly fees
can add up quickly.
When paid a commission at
closing, -- a typical practice in the industry -- a buyer's agent naturally has
an interest in having a sale close. "So the buyer's agent's primary
motivation is still to get you to buy something," says Michael Golieb, a
To reduce the chances of
other conflicts, don't hire a buyer's agent who works for the same agency as
agents who are showing properties that you want to view. This is called
"dual agency."
Who Pays the
Commission?
Another potential problem
can arise when a buyer's agent shows a prospective homebuyer a house that's for
sale by owner (FSBO). "Sometimes the seller will say, 'OK. I'll pay the
commission.' Sometimes, the seller will say, 'No. I won't pay the commission,
you'll have to pay it,' " says Elisa Galati, a
vice president at GoneHome Inc., an online real-estate listings service.
Using a buyer's agent
could affect the sales price, says Ms. Galati. "Home sellers often pad
their price to account for the 3% commission they expect to pay a buyer's
agent," she says.
"FSBOs are a scary
thing for agents because the real-estate transaction is so complex, and any
number of things can go wrong and delay the sale," says Mark Hayden, a
director of communications at eRealty.com, an online home seller. "Most of
the time, the FSBO owner is unrealistic about the price and ignorant about the
fees and documents that need to be expedited in order for the home to
close." Many times, what ends up happening is the seller will "seek
counsel from the buyer's agent, putting the buyer's agent in a
conflict-of-interest situation," says Mr. Hayden.
Hiring a Buyer's Agent
Be "very
careful" when choosing a buyer's agent, advises Jerald Goodman, a partner
and member of the real-estate-law practice at the
Before signing a contract,
prospective homebuyers should interview several agents and check their
references with current and past clients. You also may want to call your
state's real-estate regulatory agency and ask if any complaints were filed
about your selections.
Home buyers should get the
terms of the agreement in writing, with the agent's services, price and other
costs clearly spelled out in a document called a buyer's agency agreement.
Buying a
home while using a buyer's agent by no means makes a transaction risk-free. Jody Wilmot worked with a buyer's
agent and his colleague "extensively" during her recent new home
search in
"The builder did
purchase my home back from me," says Ms. Wilmot.
--
Mr. Koprowski is a free-lance journalist in