What Serious Home Buyers Need to Know Cruising through properties on the Internet, visiting Open Houses, driving through neighborhoods - this is how most home buyers start their search. But when you get serious about buying a home, you pair up with a real estate professional. Where else can you get hours, days, and weeks of an industry professional - for free? Door-to-door shuttling around to neighborhoods and homes, maybe even a couple of free meals if you are lucky. It's a no-brainer - smart home buyers typically work with their own representative, who acts on their behalf in all aspects of the home search and purchase process. But experienced Buyer’s Agents may ask you to sign a Buyer Agency Agreement. What is this form and why should you sign it? Is it a benefit - or a trap??
What Is It? Sellers are used to signing a Listing Agreement to get their home sold, but in the past buyers and their agents were “winging it". Buyers were not clear of their rights and obligations, and agents (Realtors mostly, members of the national and local professional real estate boards) were uncertain of their responsibilities – or whether they would get paid if the buyer they helping for weeks or months finally purchased a home. Since legal agreements are required to be in writing in most states, Buyer Agency Agreements came into common usage over the past decade. These are also called Buyer Representation Agreements, or in Hawaii, an "Exclusive Right-To-Represent Agreement".
Who likes paperwork? No one, but it is smart to have a written contract when working with someone on such an important purchase as a home. This agreement describes the working relationship between the buyer and Realtor, and specifies what services you as a buyer should expect to receive. It involves mutual loyalty between the parties, any costs involved (unlikely), and reasonable expectations as well as limitations. Like most other written agreement, it expires on a specific date and can be extended. It should also have an "escape clause" if things turn sour.
Why Sign a Buyer Agency Agreement? A few reasons why it can help:
1. Clarify relationships Sometimes I ask a buyer if they are working with a Buyer’s Agent and they reply “I’m not sure”. I hope none of the buyers I represent with say that! If you are serious about buying, and you have selected a Realtor to act on your behalf, you have a Buyer’s Agent even if you have not signed anything. So why not be clear about it? It avoids confusion later.
2. Receive a higher level of service
You become a client, not just a customer. This means that your agent has a fiduciary obligation to act in your best interest. Not their own, or the sellers interest – this can be crucial difference. A qualified professional on your side of the deal will help you get the right property at the best price, and save you lots of time and trouble, too. Many agreements state that the agent will be looking for unlisted properties, or foreclosures, or other out-of-the-mainstream sources. Some give a general description of the type of property being sought. You won’t know if you and your agent fully understand each other on these matters if you have not discussed it and decided on a plan.
3. Get more – but don’t pay more Not every buyer’s agent is an Accredited Buyer Representative (ABR), but most real estate agents are happy to represent buyers. When you use an ABR, it insures that your agent is experienced in negotiating for your best price and terms, and has the expertise to give buyers the best possible service. It costs no more - probably nothing - to use a Buyer's Agent, so why not use an ABR? You may even save money while getting better assistance. For more information check out http://rebac.net/homebuyer_resources.cfm for details.
It is quite rare for a buyer to pay a real estate commission. In almost every case, home sellers have previously agreed to compensate your Buyer Agent’s commission. Listed homes specify these compensation terms, and even For Sale By Owner homes usually expect that a Realtor will be working on the buyer’s side. But if an unlisted property seller won’t pay your agent’s commission, you can factor that into your offer, or avoid such homes. Just make sure you know how this is being handled in your Buyer Agency Agreement.
4. Avoid Confusion If you have your own agent, you have a single source for information about properties coming onto the market, market information, negotiating strategies, and an explanation of the process itself to name a few. An experienced professional can help you watch for “red flags” and discuss neighborhood pros and cons. You may also want help finding other experts who can contribute - such as home inspectors or contractors, as well as refer you to information sources from private and government agencies. Remember that your agent can help you with any and all properties so you will save time and energy.
You don't need more than one agent if you have a good one. Two or three agents add up to less than a whole in this case. If you have not committed to just one, rather than compete with each other for your business, they will give you only a piece of their time and interest. They have other more committed buyers to call first when a great new listing comes up.
5. Do You Know Who Your Agent Really Represents? If you think that the nice agent at you met at the Open House is going to represent you, think again. That person has been hired by the Seller to get them the best price and terms, not you. If you choose to let them represent you it is called “Dual Agency”. Contrary to popular opinion, you will not get a lower price if you go directly through the seller's agent. Even if they just assist you, (as opposed to representing you) you will be a customer, not a client. Either way, you will have to decide on your own what to offer, and how you want to negotiate. Choose your agent first, and discuss how they would handle these situations first. Then look at all the suitable properties listed by other firms as well as your agent’s. If an agency conflict seems likely, you will already know how it is going to be handled. Most Buyer Agency Agreements have a Dual Agency clause or Addendum with specifics.
6. About Loyalty Your agent should put your needs first, above their own preferences or their compensation. If it is risky for you to buy at a particular time, or their are hidden problems with a property or neighborhood, you should be told even if it means no sale. Likewise, you the buyer are expected to be use your agent exclusively for your purchase - even if you go out on your own to look at open houses, or you contact a listing agent directly for a showing.
If you like to attend Open Houses, be sure to tell the seller's agent that you are represented by a Buyer’s Agent, and give them your agent's card or name. This saves you from the need to reveal your address, phone number, or any of the other pesky personal questions they want you to divulge when you sign in the register. Ethical listing agents will appreciate and respect your agent. Unethical ones may not – avoid these! Your agent can be your one source for all properties, so call them for any homes you want to see, and let them schedule showings and locate the best properties - they expect to work for your business. Real estate is a profession, not a hobby for Realtors. If they do the job they expect to be compensated for it.
7. If it doesn’t work out… Agency relationships are based on mutual consent. Most Buyer Agency Agreements can be cancelled by either party if you the buyer are unhappy, or if the agent believes that they will not be able to meet your needs for whatever reason. You could even start with a one day or one week “trial period” to see if you are mutually happy with the agreement. I have no problem cancelling an agreement if I believe that I am not equipped to help a particular client, or it is not working out for whatever reason. Buyer and agent need to feel confortable with each other to forge a working relationship that will last at minimum about two months or as long as several years until the right property is finally located and closed.
A Wise Time to Buy. Using a Buyer Agency Agreement and the services of a Buyer’s Agent a win-win situation when you work together for a common goal. Could now be the right time to work with the best Accredited Buyer Representative you can find, and take advantage of great prices and interest rates? For further details about finding a good Buyer's agent, with a dose of humor to keep it light, check out my earlier columns, such as http://www.aroundhawaii.com/business/real_estate/2008-06-good-realtor-bad-realtor-how-can-you-tell.html.
For further information on any real estate subject, please email me directly at firstname.lastname@example.org or ask your chosen Buyer Agent.
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Very informative and helpful article for a first time home buyer like me.