On Buyer Representation Agreements

Posted by nithi.vivatrat on March 27, 2009

Craig and I were chatting yesterday about my March 24th blogpost regarding SmithAdams for buyers and an interesting issue came up. It was my assumption that MOST people shopping for homes sign an exclusive buyer representation agreement with the agent helping them. Craig corrected my misconception — in fact, MANY people shopping for homes do NOT readily sign any type of representation agreement with their agent.

I suppose one might think, “I just want to look at this property – why should I commit to any type of agreement before I know I can work well with this agent or that I will like any of the properties he or she will show me?” This attitude is likely exacerbated by the exclusive buyer representation agreements put in front of buyer prospects by most agents (there ARE non-exclusive buyer representation agreements, but that is a topic for another day). I can certainly understand why home shoppers might not want the commitment.

I think it’s important to highlight this point though: just because an agent took you to see a property, it doesn’t mean that agent is legally ON YOUR SIDE. Unless you have entered into a buyer representation agreement with your agent’s broker, then your agent, through his or her broker, is technically acting as a “sub-agent” or “cooperating broker” to the broker engaged to list and sell the property. “Your” agent’s responsibility is actually to support the broker representing the seller (not you). This could include passing on information you provided to your agent you had assumed was in confidence. In any case, your agent (and broker) will be paid by the listing broker from the commission collected from the seller after a successful settlement. In this situation, how could your agent really be representing your interests?

Even if you don’t choose to work with SmithAdams, my recommendation to buyers is this: sign a buyer representation agreement. While I still believe the traditional commission model introduces harmful incentives, at least you can feel assured that your agent is legally mandated to represent your interests, not the seller’s. This relationship also must be disclosed immediately in conversations with the listing agent, followed up in writing, so it is clear who represents whose interests.

If you are considering an exclusive buyer representation agreement, I would recommend you get a good understanding of what the agent will do (for example, will show you x properties over the next y weeks, etc.) in return for your commitment to exclusivity. Also, put a fuse on it –- say, 30 days (they will likely recommend 90 days, which is way too long) –- you can always extend it if you like what you’re getting.

Better yet, go with the SmithAdams approach to buyer representation. We remove the conflicts of interest from the equation and employ a service-centric (versus deal-centric) strategy to deliver a great buyer experience.