Buyers Agents; Rehoboth Beach Delaware

What You Should Know About Buyer's Agents

By Gene J. Koprowski

Chris Toth and his wife recently purchased their first home in San Mateo, Calif. But because the agent representing them also represented the seller, distrust ran high during the transaction. In hindsight, says Mr. Toth, "It probably wasn't the best thing for both parties."

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 Chicago, notes that more than 33,000 buyer's agents are active in the U.S., serving most communities in all 50 states. The council says there are 383 buyer's agents in New York state alone.

"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. 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.

"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, or may be paid a flat fee, up front, 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 Florida real-estate broker.

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% to 5% 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 Philadelphia law firm of Schnader Harrison Segal & Lewis LLP. You can find names of buyer's agents in your area.

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 Phoenix. But no one discovered that there was a mold problem with the home until after the transaction was completed. However, having the paperwork from the buyer's agent -- in which the builder certified that the home was sound -- was quite helpful.

"The builder did purchase my home back from me," says Ms. Wilmot.

-- Mr. Koprowski is a free-lance journalist in Chicago.

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