Disadvantages of having a realtor as a "buyer's agent"? Qs about MLS sytem.

I went to a class on hime buying offerred by a realtor, who stringly reccommended getting a realtor as my “buyer’s agent” because it doesn’t cost me anything. There’s this large, imdustry organized cooperative “MLS” listing system, with a standard sale commission that the property owners agree to when they list the property. The buyer’s agent gets a cut of the commission sale – so the price to the buyer doen’t change whether or not they have an agent.

As this guy told it, there is essentially no down side, but I have a hard time believing that the sellers are happily paying for a person who maybe advising against buying their property. I also didn’t get a real clear answer on where ther commission money that WOULD go to a buyer’s agent goes when there isn’t a buyer’s agent.

Can someone enlighten me on this? Are there stats available on how much of the real estate market lists through this system, and how an agent like this would interact (if at all) with properties outside this systwm?

I’m not a realtor, but, as I understand it, that’s the way it works. When you sell your house through a realtor, the price already includes commissions for both the buyer’s agent and the seller’s agent. If the buyer chooses not to have his own agent, the whole pot goes to the seller’s agent. Of course, the seller’s agent will be MORE than happy for this to be the situation.

The problem with this is that the seller’s agent has very little incentive to make a good deal for you. (She wants you — or someone — to be able to buy the house, of course, but the higher the price she can get, the better for her.) She’s going to get a commission no matter who buys the house.

The buyer’s agent, though, can give good advice on whether the deal you’re offering is a good one, and advice on making counter offers. She also provides invaluable advice on getting house inspections, finding a lawyer, and all the myriad details that come about in buying a house.

If you’re buying a house from someone who’s using a realtor, you’re paying for the realtor no matter what. Do yourself a favor and get someone whose fee is based upon serving your needs.

The traditional real estate model of the agent working with the seller, and the agent working with the buyer being (in effect) agents of the seller (ie agent and sub-agent) has changed over the last 20 years or so, and in many areas (mostly urban) people are specifically contracting with agents to represent them as “buyers agents”.

Most residential listings are written so that the seller agrees to let the listing agent cooperate with, and share, the total sale commission with a buyer’s agent on (usually) a 50/50 split basis. In a few fairly rare situations some high powered listing agents in hot markets, with popular,“sure to sell” listings have their listing contracts written so that buyer’s agents are not cooperated with, and the buyer’s agent will need to look to the buyer (solely) for commission.

Having said that, in the vast majority of cases a listing agent will cooperate with, and split the commission with, a buyer’s agent. So what’s the risk/downside to using a buyer’s agent? The main negative to contracting with a buyer’s agent is that it restricts the buyer’s ability to switch agents if they are dissatisfied with the efforts the buyer’s agent assisting them. The buyer’s agency agreement is a binding contract and it normally specifies that the buyer’s agent will be paid even if the buyer works with and buys the house via another agent. In essence the Buyer’s agency contract essentially says

“I agree to take the time and effort to assist you in looking for real estate, and negotiating your best deal, but if I do this, you cannot just walk away from me, even if you don’t like the deals I am showing you, or me personally. If you buy real estate within the time limits and parameters specifed in the buyer’s contract, I will be paid by the seller or by you, even if you use another agent.”

In essence, as the buyer you are responsible for the paying the buyer’s agent, and if that relationship breaks down, and you choose to use another agent to assist you (who is not your original buyer’s agent), you can be held responsible for the payment of two selling commissions, one to the agent assisting you, and one the buyer’s agent you decided you didn’t like.

It 's two edged sword. You can contract to be represented by a buyer’s agent and have them labor on your behalf, but you can’t just walk away from them (mutual obligation wise) , the way you can from a selling agent you have decided you don’t like working with.

I strongly suggest that you make sure that the buyer’s agent and seller’s agent are from different realty agencies. You’ll sign a “dual agency” form, but I don’t put much faith in it, not after what happened to me.

Long story short: I accepted a “dual agency”, trusting that the agent really was working for me, but it turned out that he was as crooked as a dog’s hind leg and got us involved in a law suit. I’ll never make the same mistake again.

Best all around is to have a lawyer represent you. It’s well worth the extra expense not to have any nasty surprises. Our agent lied to us. A lawyer would have seen through it in a minute and saved us a lot of grief.

Whatever you decide to do, make sure your real estate agent is a REALTOR. The National Board of REALTORS is the group that “polices” real estate agents. If you have any problems with a REALTOR, you can report them to the Board of REALTORS, who can make life hell for them and their broker. This tends to keep them very above board. And scare enough to always type REALTOR in capital letters, as required.

Lissa, I’m sorry for your experience. If the agent was a REALTOR, report it. If not, go to your state’s Real Estate Commission. And possibly a good lawyer.

Don’t trust anyone who can’t show you every listing and doesn’t co-broke with other agencies. In New Jersey it is required by law. Any agent who doesn’t show other people’s listings is not working in your best interests.

Let’s not forget about the money.

Say the commission on a home is 6 percent and the sales price is 300,000 .
You have 18,000 in commissions. That is what the listing agent would get if he des not have to split with another broker.

The buyer’s agent would usually be entitled to half or 9,000.

In real estate all things are negotiable so if you approach a seller without a buyer’s agent you have a range 9 to 10 thousand dollars that the price can be lowered without any hardship to the seller or listing agent.

Why should you give 9000 to a buyer’s agent when you found the house?

You still have to pay a real estate attorney to represent you at closing. It is just giving someone money to hold your hand during the buying process.

Not that it’s a bad thing but realize you do pay for it in the end.

First, disclosure: I am a Realtor.[sup]TM[/sup]

If you walk up to an agent and say, “Show me some properties,” that agent is working for the seller(s) unless you have a buyer agency agreement, and ethics require him to disclose that fact before providing substantual brokerage services.

Nobody has mentioned one of the big advantages to the buyer of having an agency agreement with a Realtor. Because the agent is assured of a commission, he will include in his searches FSBOs and other offers for sale that are not in the MLS. This is especially good if the buyer does not live in the area where he is looking to buy.

Without a buyer agency agreement, the agent has no incentive to show anything to the buyer other than MLS listings.

And let me clear up a minor point about “dual agency,” although I can speak only for one state, Wisconsin. It does not refer to the broker firm, but the individual agent-person. If I represent a buyer and another agent in my firm represents a seller, that is NOT dual agency. If I represent both buyer & seller, that IS dual agency. That is, it matters not if both agents belong to the same brokerage firm.

Human nature being what it is, you may question if a dual agency arrangement can be fair to both parties and I know from personal experience that it is difficult. However, the National Board of Realtors tries mightily to elevate ethics and insists that agents represent both sides as fairly as they can. If you feel you have been treated otherwise, you can file a complaint. And you can always hire an attorney.

You seem to be a bit confused about this. Let’s make it simple. If seller A lists a property with a Agent A, he is agreeing to pay a commission if the property sells. When Agent A lists the property on the MLS (Multiple Listing Service), he is making an offer of compensation to other MLS agents of a percentage of the total commission if they bring him a buyer.

If the listing agent also procures the buyer, he gets the total commission from the seller. If another MLS agent brings the buyer, the commission is split (the percentage is often 50/50, but not always). Either way, the seller pays the same amount.

What if Agent B, who has a buyer agency agreement with Buyer B, brings the offer to the table? Nothing changes. Agent B is still paid the same amount and in the same way.

But what if Agent B, who has a buyer agency agreement with Buyer B, finds a property that is not listed in the MLS? (FSBO, Internet listings, or a property that is not available publicly.) Then the buyer is obligated to pay the commisson, as the seller has not offered any. So the buyer pays commission only if it is not forthcoming from other sources.

Just to complicate matters, there are hybrid arrangements possible, too, where the agent’s compensation comes from both buyer & seller. Or, before closing, almost any arrangement can be negotiated.

Believe me, buyer agency is a big improvement over the old system, which I understand some states still use. That arrangement says ALL agents work ONLY for the seller, and buyer beware.

I haven’t yet signed, or even seen, a contract with this realtor, though I’ve gone out looking twice with him. And yes, Annie Xmas, he is a REALTOR withe the whole Trademark thing, with a very large realty company.

The way I understand this commission system, I have concerns about his (or any REALTOR’s) objectivity on terms of properties outside of this MLS system. I don’t really know how many properties change hands in the Madison area annually, or what percentage of them do so under this MLS system. I asked him directly about other listing services that I know about – there’s a local “For Sale by Owner” website, for example – and he started talking about how most of these people had grudges against realtors, and blah blah blah, but he did say that he periodically checked them for his clients. What said he would do was to sit down with the seller and try to carve out a commission for himself, but I got the message it was not a task he would look forward to.

He is also somewhat reticent about showing me a buyer’s agent contract, though I’ve spoken to him twice about it. This is the rationale I’ve come up with for his behavior: Their corporate strategy is to market this service as free to me, the buyer. I am told that the costs are borne by the seller. And so long as the deal remains within the MLS system, that is true. He doesn’t feel too much pressure to have me sign a contract because – again, so long as the sale is within the MLS system – when I find my dream condo, he can whip out the paper contract and I would presumably sign it without blinking because my costs won’t change by so much as a penny and to not do so would be a pretty jerky thing to do.

I’m also guessing there are some clauses in the contract that he hasn’t mentioned yet. I can think of several ways things might be “tilted”. Maybe it only obliges him to be my agent within the MLS system, despite what he says about looking everywhere for me. Maybe I would have to pay him a commission on a non-MLS fee, and he’d just as soon not disclose that until it would be moot anyway. Or who knows, maybe not, if their corporate strategy is to go after buyers rather than sellers and offer a free service, the terms might oblige hum to forsake a commission in a sale outside of MLS. In that case, it would make a lot of sense that he would prefer to avoid having a contractual obligation to search the entire marketplace on my behalf.

What I’d like to know more about is how exclusive a club this REALTOR thing is? Am I likely to find one more comfortable going outside this MLS system? If I want a reallly independent advocate, what would a reasonable commission be?

Musicat, you posted while I was composing my reply, so thank you for answering some of my questions and anticipating others. And as I am in Wisconsin, your advice is especially appreciated.

So this guy’s strategy is really to keep the buyer’s agent contract in the background, at least so far. I first met him about 3 weeks ago. I’ve been to his office at least briefly for the last 3 days (since the financing ball got rolling) and asked about a contract the last 2, and he’s kind of brushed it aside as something unimportant we can do anytime. In the class he taught (and there were 3 guys from this firm participating in this class, nearly outnumbering thos of us who showed up to take it) he said we could “walk away from the contract anytime” we were dissatisfied with an agen’t services. That was the most suspicious sounding thing I heard in the whole presentation.

If it IS boilerplate language, I’m starting to think it’s language that obliges them to do stuff that they don’t especially want to do. And so they’ve come up with this rather clever way to use the buyer’s agent concept to sweep in easy commissions.

A lot of the time the reason individual (esp older ones) Realtors will not encourage or push you to use buyer agency is simply because they are not that familar or comfortable with it. Especially in medium sized and smaller non-urban markets. Even if they’ve taken the BA classes as part of their continuing education, being a BA is something they just don’t “do” very often (if at all) and really don’t push their clients to do it.

This is puzzling to some people because it would seem to be in the Realtors best interest to bind a client to them via the BA agreement, but old habits die very hard, and someone who makes a good living in the regular sub-agent context may not really want to get involved with it, and the additional requirements and paperwork it entails. It’s out of their “comfort zone”.

Beyond this, in some cases the Realtor (especially in a hot market) may want the ability to easily bail or terminate the client, especially if the person turns out to be difficult, unrealistic, or a probable swirling black hole of wasted time. A BA can complicate this.

See Who Really Represents the Buyer?

Astro - Realtor and CCIM

Boyo Jim, it looks like it may be time for you to find another agent. If this one is reluctant to sign a buyer agency agreement in a state where that is available, that would be like an attorney saying he represents you but will not sign an agreement to that fact, isn’t it?

As Astro has suggested, old habits die hard. Buyer agency is a relatively new concept and was introduced because buyers felt the deck was stacked against them. This is a way to level the playing field. Why shouldn’t you have representation, too?

Most of my professional transactions have been buyer-initiated. (I seem to attract more buyers than sellers, dunno why!) I encourage all prospective buyers to execute a buyer agency with me for mutual good. Not all do, but I am in no way reluctant to do so, and I don’t find any clauses in the contract to be disadvantageous to me or my commission.

Perhaps a little more info could be useful here in understanding the broker market today. An agent may become a Realtor by joining the National Association of Realtors; it is a voluntary act, and not required by law (at least not in Wisconsin). But most agents see a tremendous advantage in joining and do so. To access the MLS, you must be a member.

Some agents, such as those that limit their sales to a large condo or specific development, or ones associated with developers (like spouses) don’t feel the need to join the MLS or become a Realtor. They must meet the same state licensing requirements, however.

By belonging to the MLS system, all listings acquired by an agent are required to be posted within a certain number of hours (I believe it is now 72, excluding weekends and holidays) to the general system. An agent cannot withhold any listing from the MLS. It is possible to arrange a purchase so quickly that the entire transaction (up until closing) is done before the MLS listing, and this is so noted “non-MLS sale,” but it is still posted.

By belonging to the MLS system, every time an agent posts a listing, he is automatically making an offer of compensation to any other agent in the same system (they are usually regional) who brings him a buyer if a purchase is made. Regional brokers have, in their files, inter-broker agreements that spell out the percentages in advance of an MLS listing.

As far as “walking away from the contract,” read the fine print. It is a legally binding document on both parties. Don’t sign anything you aren’t comfortable with. When I present contracts to clients, I go over every paragraph, at least briefly interpret the meaning and always ask if they understand and agree to it or want more information. You have a right to get everything out in the open and on the table. If you don’t feel like this is happening, go somewhere else BEFORE you sign the contract.

And if you’re ever buying property in the Door County area, call me. I love buyer agency contracts! :slight_smile:

Musicat, my sister often talks about getting a summer cottage up there as she spends time up there just about every year. If she ever gets serious about it I will hook you up. I hoping to find a place right in the heart of Madison. At the moment there are only two properties listed in the MLS system in my my location zone and price range. I’ve found at least 3 more on fsbomadison.com, a cheap listing service for owners to sell direct. I’m waiting to see whether the REALTOR guy ever mentions them, as he says he scouts such sites for “serious” offers. In the meantime I’ll go look at them myself, and I won’t have any compunction about dealing without him if I do find the perfect place.

astro, I apologize for not giving appropriate thanks for your input sooner, as I got all agiggle over having a WI REALTOR also reply.

I’m not sure what this guy’s comfort zone is. Maybe it’s satying with MLS listings, maybe it’s more realated to amount of work for the return. I’m shopping the lower half (almost the lowest third) of property values for the whole county, but I’m looking in a location that will make finding it either difficult or time or maybe just unknown wait time till it appears on the market.

He has already suggested a rather goofy thing to me, but I put it off to the kind of thing a realtor says when trying to close a sale. We looked at one property and I mentioned that I would really have preferred that the fireplace was not where it was – if the space was an expanse of bare wall it would be perfect for a VERY LARGE TV that I have. He suggested I could easily have the fireplace removed. Yeah, I’m gonna pay a premium for an amenity I don’t want (or maybe do want but somewhere else), and then pay thousands of dollars to a contractor to have the amenity removed and lower my property value.

That is not IMO good professional advice from someone supposedly advocating for me.