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North Shore Sunday
December 6, 1992

HELPING THE HOME BUYER

Real estate brokers have always represented sellers.  Now, a few agents are working for the buyer.

Ronn and Shawn Huth

Ronn and Shawn Huth review a purchase and sale agreement for a client. The Huths are the only agents on the North Shore working exclusively for buyers, although other agents do so occasionally.

(Photo by Owen O'Rourke)

By Taylor Armerding

Good Friday was a bad day for Peter and Pat McKay. But then, it was also the start of something very good - what Pat calls a "miracle," that came in the somewhat mundane form of one of the newer concepts in local real estate.

For the second time in a year, their car, parked outside their Beverly apartment, had been struck by a hit-and-run driver.

"I just said, 'That's it, I'm getting out of here'," Pat recalls.

The only problem was, like most people, they weren't flush with the kind of cash that lets one immediately go out and start making real estate deals.

Even when Pat learned the following day that she and her husband were eligible for housing assistance through her employer, Gordon College in Wenham, they still figured a move to their own home in a less hazardous neighborhood was a somewhat distant dream.

Then she recalled a conversation with a tax consultant who had told her that if she were ever house hunting, call a "buyer-broker" named Ronn Ruth of Hamilton.

Huth, a former minister who for years headed the North Shore chapter of Young Life, a youth ministry, is one of the first local examples of a new breed of real estate agents who exclusively represent the buyer.

And according to McKay, it was one of the best calls she ever made.

"He came over the very next night and answered every question we had," she says.

"The nice thing about it was that he was on our side - not so much working for the sale of a house as he was for us to be able to buy a house."

The result of his efforts, she says, is evident both in their new home in Beverly's Ryal Side and in the speed of the process.

"We had found a house by the end of May," she says. "We were approved by the bank on June 17, and we closed on July 23" - just about three months after the anonymous driver wiped out their car.

"And he was with us all along the way," she says, through some bumpy moments with the bank, right up to the closing.

"For us, we really needed it," she says. "There are too many complicated things you could miss in something like this."

Fledgling industry
For proponents of buyer brokers, also known as buyer agents, the only question is why they have been so long in coming.

In fact they haven't really come in any numbers even yet. The concept isn't new - buyer agents have been common in commercial transactions for years. And they are well established in a number of Western and Southern states. But Huth, as far as he knows, is the only agent on the North Shore who exclusively represents residential buyers.

Marge Frith, owner of Cove Realty in Salem, does part of her work as a buyer's agent, and hopes to do that exclusively in the future. "But I'm not there yet," she says.

Leo Berard, owner of Buyers Brokers of Cape Cod and president of the new Massachusetts Association of Buyers' Agents, says his organization is up to 180 members. He thinks there are at least twice that many agents in the state, and is convinced those numbers are going to "grow tremendously."

Of course, that still barely registers a blip as a percentage of the membership of the Massachusetts Association of Realtors, with 14,000 members.

If buyer agents do become the wave of the future, it will basically be because of one advantage - it levels the playing field between buyer and seller.

In the traditional system, the seller has an advocate. The buyer doesn't.  This changes all that.

While the real estate code of ethics requires all agents to "show honesty and fairness to the buyer in all transactions," they still represent the seller.

Thus, if the buyer tells them anything that might be advantageous to the seller, they have a duty to provide that information to the seller. That is true even when Real Estate Company A lists a property for sale, but Real Estate Company B brings in a buyer.

'Unique' approach
Huth, who had worked as a "conventional" agent for a couple of years before starting his current business, Buyer's Choice Realty, says the existing system "never seemed quite fair to me."

And when a local high school teacher approached him in February 1990, he signed on his first client.

"I had studied about buyer agencies at conferences," he says, "and so I ended up drafting a buyer-broker agreement, and I found that I loved it.

"It let me approach the purchase as if I were doing it for myself. That is really the unique thing about what we do."

But not the only thing, he and his very few colleagues on the North Shore would add.

Frith says she believes some agents, like herself, simply work better with buyers. "I think it is exciting to find somebody what they are looking for. It is a little like a puzzle. That's really why I got into it."

The advantages buyer agents say they bring include:

  • Broader inventory. Most seller's agents are committed first to showing properties in their own company's inventory, and next those that are in the MLS. A buyer agent can also show properties up for auction, foreclosure or for sale by owner. As a brochure for a California firm states, "it opens up the entire market- place for the buyer."
  • Money. A seller's broker is committed to getting the highest reasonable price for his client. A buyer's broker is out for just the opposite.

    "Not that we're trying to undercut prices," Huth insists, "but we can let a buyer know what a fair offer is. And when we make the offer, we can include reasons to back it up."
  • Anonymity (if desired). Selling prices can become very firm if a buyer is known to have deep pockets.
  • Negotiation assistance. Huth says he is allowed to do things for his clients that would be illegal for a regular realtor to do. "There are issues of confidentiality, loyalty, protection, representation, negotiation and information sharing," he says, "that a traditional agency is obligated to do only for the seller."
  • Money again. In most situations, buyer agents say it does not cost the buyer any more to hire them than it would to go through the traditional process.

    Under current MLS practice, if one agent lists the property and another finds the buyer, the two split the commission. Huth says most selling agencies are willing to do the same with him, although he arranges in advance for his check to come at the closing from the bank, not through the selling agency.

    "It's cleaner that way," he says, "because I want it clear that I don't have any connection with the selling agency."

A touch of hostility
But then, that concept of splitting the fee is one reason some realtors are not exactly applauding the rising of buyer agents.

David King, vice president of the Greater Salem Association of Realtors, says the organization is officially neutral, but acknowledges that some members are hostile to it.

"Certainly there are benefits," he says. "I guess the drawback would be anxiety over asking the seller to pay part of the fee for somebody representing the buyer."

That is exactly the problem Jay Burnham has.

Burnham, president of the MLS of the Greater Salem Association and manager of DeWolfe New England Real Estate's North Shore office, says he is not opposed to buyer agents.

"I think they're great under certain conditions. I've acted as one myself several times during the past 12 years."

But he says in those cases, he has always collected a fee from his client that was separate from the commission that goes to the seller.

Asking the selling agency to split the commission with a buyer agent is, "tantamount to asking an attorney representing one party to pay the fee of the attorney on the opposite side. I take issue with that," he says.

And how is that different from simply sharing a commission with a broker from another conventional agency?

There is indeed a difference, he says. "My major expense is advertising the inventory of homes in this office," he says. "I have about 100, and we spend tens of thousands of dollars to advertise them.

"I don't mind splitting that with another selling agent, be- cause I have the same opportunity through MLS to sell a property he may have listed. But I don't have that option with a buyer agent."

Burnham says he would "give my eyeteeth" to have the advertising budget of a buyer agent.

"All they have to do is take out a half-page ad promoting their business," he says.

Huth counters that buyer agents, because they don't list any properties, don't get the sort of steady, "bread and butter" income of the listing agencies.

Still, because of the fee issue and also because of liability issues, DeWolfe will cooperate with, but will not compensate, a buyer agent.

If a real estate company splits a fee with a buyer agent Burnham says, that is at least an implication that the company approves of what that agent has done. And if something goes wrong, "there are big liability issues."

Of course, there are ways around that. Frith says buyer agents frequently have their clients make an offer that includes paying a certain amount to the selling broker.

And while there is no absolute industry standard, in general when two agents split a fee, both take about 3 percent. So the offer generally tends to provide for payment to the selling agent in that range.

Huth says while technically the seller "pays" the commission, both the buyer and seller believe they are paying it. The buyer pays a higher price for the house than he would have, and the seller collects less than he would have.

"Actually, it is the transaction that provides the commission, both for the listing side and the selling side," he says. "The seller brings the equity to' the table, and the buyer brings the cash."

Changing the rules
Some of this may become a bit more academic on Jan. 1, when the rules of the MLS game will change.

The new rule will give selling agencies the option of co-operating with buyer brokers, compensating them, or both. While there is no rule against agencies cooperating now, this will make it more standard throughout the industry.

And according to those involved in tracking the real estate trade, that is just one reason traditional agencies probably had better get used to buyer brokers, because they are coming whether wanted or not.

Several suggest that it is much less a threat to conventional real estate than the advent of HomeView, which allows potential customers to get a close-up look at any home that interests their through an interactive computer program.

Berard, president of the state organization, says the growth will come partially because of the MLS rule change, partially because regulators in many states are "pushing full disclosure to consumers of all their options," and third, because national consumer groups like the American Association of Retired Persons, the Consumer Federation of America and even Ralph Nader are all in favor of it.

"It's really the only way to protect the consumer," he says.

King says the Greater Salem Association is not in the business of promoting or discouraging any specialty within the industry, but will provide all the education it can to its members.

"We want to help all the different specialties to flourish," he says, "and this is one where there is a lot of confusion and a need for education."

To help educate its members, the Association will be holding seminars on Dec. 11 in cooperation with the Greater Lawrence Association, and again Dec. 16 for MLS managers.

Huth believes once the adjustment is made, that all sides of the industry can get along.

And Burnham is willing to try out the coming changes. Allowing a choice in cooperating or compensating buyer brokers is good, he says.

"Ultimately, what you want is what is in the best interests of your customer," he says.

Source: Taylor Armerding, North Shore Sunday, December 6, 1992