What Every Seller Should Know
About the Buyer's Broker Written by Ronn Huth Watch out, if a Buyer's Broker brings a buyer to your house, you are likely to sell it. That's because the buyer is in a client relationship with the Buyer's Broker, has been pre-qualified, and your house fits the criteria that have emerged from the counseling process. The buyer has entered a written contractual agreement to buy through the Buyer's Agent as most sellers have listed their home to be sold through the Listing Agent. That brings real stability to the transaction and assures you of a buyer who is serious, and capable of the purchase. In addition, you are freed of the liability associated with subagency. Attorney Maureen Glasheen, The former General Counsel for NY Secretary of State, has commented, "Entering an agreement where a Buyer's Broker is involved is the closest thing to bulletproof protection that a Seller can have." One of the reasons for that is that the seller cannot be held responsible for anything the Buyer's Broker said or did or failed to say or do. Such is not the case in a transaction where a subagent is involved. In fact, most lawsuits that have emerged in real estate transactions involve a subagent and a Buyer who was given insufficient, incorrect information or promises that were not fulfilled or undisclosed material defects. In most instances the Buyer brings suit against the Seller and Listing Broker; not the subagent! This is something of which few Sellers are aware. When a Listing is secured by a Broker, a photo and information about the property is placed into the Multiple Listing Service (MLS) along with a promise of specific compensation to the Selling Broker who brings a Buyer to the transaction. This is usually half the amount the Seller has agreed to pay the Listing Broker in the Listing contract. Currently, all listings in the MLS extend a unilateral offer of subagency to all other real estate agents. That means you have employed hundreds of agents you do not know to be your Broker representatives. They speak and work for you. You are liable for everything they say and do. The only exception is the Buyer's Broker who by law must reject the offer of subagency and declare loyalty to the Buyer. Numerous surveys including one by the Federal Trade Commission (FTC) have demonstrated that there is a lot of confusion about who represents whom in a real estate transaction. According to the FTC study, 74% of all Sellers interviewed thought the Co-op or Selling Agent bringing a Buyer to the table was that Buyer's agent. Sellers need to realize that all real estate agents (except Buyer's Brokers) represent Sellers and not Buyers in a real estate transaction. They work for you and your Listing Agent and they should all be supportive of your Asking Price and your needs in the transaction. That's one advantage of subagency. The Buyer is being brought to you by an agent who owes you the same fiduciary responsibility that the Listing Broker owes you. Those duties include loyalty, confidentiality, full disclosure, accountability, obedience, etc. If those duties are being violated you and your Listing Broker have a right to disciplinary action against a disloyal subagent. There are good, conscientious, well-trained, experienced subagents who take their fiduciary responsibility with Sellers very seriously. These agents are a real asset to your team. Your problem occurs with agents who are unaware or unconcerned about what services must be provided to clients and what services may be provided to customers. (All Buyers are customers unless they are represented by a Buyer's Broker.) It is also very possible for a subagent to accidentally slip into an agency relationship with a Buyer simply based on the rapport and budding friendship that develops over the period of time they spend together looking at properties. This is even more pronounced when a subagent is working with a relative or a close friend. It's pretty hard to keep loyalties with a Seller you may have never met while bringing Buyers you know well to view a property. It's more natural for subagents to feel an allegiance to the Buyer. Because of the above and other reasons. some Sellers are dubious about taking on the liability that subagency brings them. They would prefer to offer the compensation to an agent who brings a Buyer but not to be held liable for what that agent says and does or fail to say and do. That makes a lot of sense to me. Unfortunately, that has not been an option. However, the Agency Task Force of the National Association of Realtors (NAR) has recently made a recommendation that the mandatory offer of subagency be removed from the MLS so that Sellers can have the option of extending compensation without the liability of subagency. The national board has passed the recommendation and it will be effected in 1993. This new MLS policy will make it possible for Sellers to choose either Subagents, Buyer's Agents, or both as Co-op or Selling Brokers for their property. Should you, the Seller, extend cooperation and compensation to a Buyer's Agent who is going to be negotiating on behalf of the Buyer? That's a fair question and should be addressed from a couple of perspectives.
- First, recognize that Buyers and Sellers are not like plaintiffs and defendants engaged in a struggle that results in victory for one and defeat for the other. They are parties who want to agree with one another and do so through the process of negotiation. Disagreement simply results in no contract.
- Second, YOU as the Seller are in control of the sale of your property. If you and the Buyer cannot agree on the price and terms, just say no. On the other hand, you may just come to a mutual agreement that lets you sell the house you are marketing and lets the Buyer purchase the home they want. That sounds like a win-win to me. That will never happen if you close your doors to Buyers who have their own agents to represent them.
- Third, remember that, by law, all agents, including Buyer's Agents, must submit any offer a Buyer presents. You might receive a "low ball" offer from either a subagent or a Buyer's Agent. That doesn't mean that you have to accept it. As a Buyer's Broker it is not my intent to gouge a Seller or trick them out of their property. It simply seems fair to me that Buyers and Sellers both be represented in a real estate transaction.
- Fourth, the issue of compensation is convoluted. Who really pays the real estate commissions? Sellers think they do because they cut the check to the Listing Office. The Listing Office keeps their portion and cuts a check to the Seller Office for their share. Buyers, on the other hand think they pay the commissions because they are built into the sales price and it is with the cash Buyers bring to the table that the commissions are paid. Who is right? Both perspectives have merit. The truth is that the transaction pays the commissions and therefore the Seller and the Buyer both contribute. The Seller gives up equity and the Buyer gives up cash. Buyers are thus convinced that they are paying the Selling or Co-op fee portion which is disbursed to the Buyer's Broker while the Seller pays the Listing Broker portion. Both fees are included in the total sales price.
- Fifth, it is your advantage as a Seller to expose your property to as many potential Buyers as possible. A Buyer's Agent will bring you a ready, willing and able Buyer without the risk of subagency misrepresentation. The lines of agency are clearly established so there is no risk of undisclosed dual agency. The Co-op fees are typically paid out of the sales proceeds. Why would you agree to this for a subagent but not a Buyer's Agent?
Until the lending institutions and secondary market catch up with Buyer Agency this is the only sensible approach to commissions for the Buyer's Broker. The only other alternatives are for the Buyer to pay their broker outside the transaction or walk from the deal. Paying outside the transaction reduces the buying power and could thus eliminate a capable Buyer from an interested Seller. If the Buyer were to pay outside the transaction would the Seller be paying a full commission to the Listing Broker making the total commissions one and a half times the normal? Is that fair to the Seller? Why would the Listing Agent keep both the Listing and Selling commissions? My experience is that most would not, but some would, and an astute Seller needs to know. |
