What is “Buyer Agency” in Real Estate and Why Do Some People Resist Using a Buyer Agent?

With rare exceptions, buying a home or an investment property is the largest single investment an individual makes in his or her lifetime.  No rational person would argue that point.  Yet, for reason(s) unknown, some people resist retaining a competent, licensed real estate agent to represent them in finding, analyzing, contracting for and closing such a purchase.  Why? 

In most cases of such resistance, I think the reluctance to retain competent representation arises from a genuine lack of information and failure to understand the functions and fiduciary duties of a buyer’s agent.  A good starting point in understanding the various agency relationships allowed by law in North Carolina is the consumer information brochure published by the NC Real Estate Commission (the Real Estate Commission governs licensure of all real estate agents in NC): Working with Real Estate Agents.  All agents are required to provide this brochure to potential clients before establishing an agency relationship.  A link to that brochure follows:

http://www.ncrec.gov/Brochures/HTML/WorkingWith.html. 

This publication speaks for itself, and I won’t restate it here.  Buyers and sellers of real property in North Carolina owe it to themselves to review this simple document.  It sets forth very specific duties an agent owes a client, and cautions a buyer in bold type  “… until you make this [buyer agency] agreement with your buyer’s agent, you should avoid telling the agent anything you would not want the seller to know.” Why?  This is because, absent a buyer agent agreement, the agent showing a home to a buyer is essentially a subagent of the seller, and owes his/her fiduciary duties to the seller, not the buyer.  Many buyers do not realize or understand this.  But after the buyer and agent reach agreement for buyer representation, the agent’s duties shift to the buyer.

So why do some buyers resist retaining a buyer agent?  Some seem to think that they are limiting themselves somehow by retaining a specific agent.  They seem not to realize that the overwhelming majority of properties available for sale in a given area are listed in the Multiple Listing Service (“MLS”) database and are available to all members of the MLS.  In fact, the sellers of these properties are represented by their own Seller’s Agent, who has placed the property in the MLS system.  That Seller’s Agent owes all his/her fiduciary duties to the seller, not the buyer.  That is, the seller’s agent (and a subagent of the seller in the form of another agent with whom the buyer does not have a specific buyer agency agreement) is obligated to look out for the best interests of the seller, not the buyer.  So not only is it not true that a buyer who retains a buyer agent is somehow limiting the properties available to him/her, but by failing to retain his own agent the buyer is also placing himself at a distinct and precarious disadvantage by essentially going unrepresented into a transaction in which the seller does have representation, and that representation has a clear duty to put together the best possible transaction for the seller.  (This is also true in the case of new construction, by the way.  The agent present at that model home represents the builder/seller, and owes all fiduciary duties to the seller, not the buyer.)

Another possible reason some buyers resist retaining a buyer agent is the buyer thinks somehow a better deal may be had if he “goes it alone” because there will be no commission payable to a buyer agent.  In the vast majority of cases, this is simply not true.  When a property is listed for sale by a seller with a Seller’s Agent, the listing agreement provides for a total commission payable upon sale of the property.  That total commission is paid BY THE SELLER.  In most cases, that commission is split between the seller’s agent and the buyer’s agent, even though the buyer’s agent represented the buyer and owed all fiduciary duties in the transaction to the buyer.  A typical total commission in the sale of real property is 6% of the gross purchase price.  Typically, 3% is paid to the Seller’s Agent and 3% is paid to the Buyer’s Agent.  But if there is no Buyer’s Agent in the transaction, the entire 6% commission would typically be paid to the Seller’s Agent.  So the buyer gains nothing at all by going unrepresented into the transaction.  In fact, he places himself at a distinct disadvantage by essentially trusting the Seller’s Agent (and the seller) not to structure the transaction in a way that favors the seller.

A good Buyer’s Agent is a member of the MLS system and has access to all properties listed in the MLS.  The MLS database can be used to thoroughly analyze properties—generate reports of recent sales of comparable homes… pull up tax and Public Records information for particular properties… etc.  The information available on the large national platforms like Zillow and Trulia are no substitute for this.  In fact, the more limited data available on those sites is also notoriously often outdated and incomplete.  Computer generated estimates of market value, such as Zillow’s “Zestimates” are notoriously faulty because they are based on outdated and/or incomplete information.  They are no substitute for the sort of thorough research a buyer should do when making such a large, important investment.

A good Buyer’s Agent should be fully familiar with the contracts and other legal documents used in a real estate transaction.  He or she should have a thorough knowledge of lender practices and procedures, and may have some suggestions for the buyer on which lender(s) might offer more favorable loan terms in a transaction.  A good Buyer’s Agent has an attorney or two he or she can recommend as the closing agent for the transaction, to make sure the transaction is taken efficiently to closing and the buyer receives good, marketable title to the property at closing.  A good, professional Buyer’s Agent is an invaluable aide to the buyer at essentially all phases of the purchase transaction, from finding the property to negotiating for the purchase of the property to preparing the contract documents to taking the transaction through closing.

So why do some buyers resist the notion of retaining a good Buyer Agent?  I think the main reason for this is a lack of information and understanding.  As always, if you have any questions about this or any other real estate related matter, please do not hesitate to contact me.