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Hamilton-Wenham Chronicle
June 9, 1993

Home buyers often donīt realize the agents theyīre dealing with donīt necessarily have their best interests in mind. A new trend could change all that.

By Micky Baca

David and Danielle Dalton

David and Danielle Dalton found an agent who would represent them - and not the seller - when they bought their home in Newburyport three years ago.

(Photo by David Scott)

When David and Danielle Dalton of Newburyport began shopping for their first home several years ago, they were surprised to discover the real estate agents shepherding them through the process weren't working on their behalf.

In fact, like would-be home buyers around the state, David and Danielle had to sign a form stating they understood the agents helping them take one of the biggest steps of their lives were actually working on the other side of the negotiating table - for the property sellers.

"After they showed you a few homes, after they gained your trust, they'd sit you down in the office and show you the form," David says. "Then they'd say, 'Oh don't worry about it. Everybody has to sign it.'  And that's it."

"It was a real eye opener," he says. "Here you are, you're the one who's putting in all this money and you feel like you're the one who's got something to lose."

The Daltons finally shared their concern with Ronn Huth, an agent who had been recommended to them by a friend.  Huth offered to take part in an arrangement he had heard was being used in other parts of the country.

He would represent them in their home purchase by serving as a "buyer's agent," committed to looking out for their interests and getting the best possible deal for them instead of the seller.

With Huth's help, the Dalton's in June of 1990 found a house in Newburyport and ended up negotiating the price down well below what the seller was asking. And that was no fluke.

In 1992, U.S. Sprint, one of many large, corporations that often pay to transfer executives to new homes, wanted to know if it could save money by buyer's agents. The study concluded that house prices negotiated with the help of buyer's agents were 5.5 percent lower than deals done with traditional real estate agents.

On a $150,000 home, that translates into an $8,250 savings for the buyer.

"It makes the whole thing a lot more tolerable," Dalton says of working with a buyer's agent. "Buying a house is an ordeal. Knowing that a person is representing you makes you feel a lot better,"

Starting July 2, Massachusetts house shoppers like the Daltons will no longer have to stumble across the notion of engaging a buyer's agent. Under a new Massachusetts Real Estate Board rule, real estate agents will be required to present buyers and sellers with a new disclosure form spelling out that option, along with the other choices they have for working with agents.

"Whether you are a buyer or a seller, you can choose to have the advice, assistance and representation of your own agent," the form states. "Do not assume that a broker is acting on your behalf unless you have contracted with that broker to represent you."

The form goes on to describe the traditional seller's agents, buyer's agents and so-called disclosed dual agents that work for both sides. It will have to be presented to buyers or sellers during the first personal meeting they have with a real estate agent to discuss a specific property.

Even before the rule change acknowledging their existence, buyer's agents had been cropping up in the Massachusetts real estate market in the past several years.

More recently, consumer advocate Ralph Nader has been urging consumers to challenge the traditional real estate "cartel," by seeking out buyer's agents.

Both buyer's agents and their traditional seller's agent counterparts agree the advent of this new brand of real estate brokers could well turn the real estate industry as we know it on its head.

Seeking Fairness
Years ago, there was an agreement in the industry that agents should treat everybody fairly. It wasn't a very specific goal, but buyers pretty much hoped for the best.

Real estate agents back then functioned more as "finders" linking buyers and sellers.

But, according to Huth - who operates a buyer's agency called Buyer's Choice Realty out of Hamilton - the scales tipped substantially in the seller's favor around 1981 when the concept of "subagents" came into vogue. That was when real estate agents listing property through the Multiple Listing Service began the practice of offering a percentage of real estate sales commissions to brokers at other agencies (subagents) who came up with a buyer for the properties they listed.

What that meant, Huth says, is that subagents, like the real estate agents that originally listed a property for sale, were working for the seller. So, when a buyer showed up at a real estate agency seeking a house, he was dealing with two agents that represented the seller and no agent representing his or her interests.

What's more, the real estate industry was becoming more professional and began to define the role of agents more stringently. Seller's agents, under an increasing honed set of duties, were committed to getting the best possible terms for the seller. They could not reveal any key information about the seller to the would-be buyer, but were obligated to share any tactical information they learned about the buyer with the seller.

For example, if an agent knew that a seller was eager to get rid of a property - because he or she was moving or had divorced - and might likely take a lower price for it, the broker could not reveal that to the buyer who had walked in to his office seeking a house. On the other hand, if a seller's agent knew how much money the buyer was prepared to spend on a property or whether or not the buyer was under any time constraint, he or she was obliged to tell the seller.

David Hanna, who found a house in Hamilton with Huth's help, said this factor was a big plus.

"I had full confidence in him. I could tell him information, and know that he wasn't going to share that with the seller," says Hanna.

Subagents were also much more likely to have developed a personal relationship with the buyer, with whom they were spending far more time showing them various houses.

If subagents faced a convoluted set of demands, buyers were really confused by the whole arrangement In fact, recent studies have shown that many buyers feel real estate agents are working for them, even though the agents are actually working for the seller.

It was a concept Huth always had difficulty with.

"It just didn't seem fair to me that two (real estate agents) were on the seller's side," he says. "I was supposed to be having full loyalty to a seller I never met, when I was spending months with a buyer - driving them around in my car, forming a relationship."

Huth was something of a pioneer, he says, in launching a buyer's agency back in early 1990. At first, he served as a buyer's agent out of the traditional agency he worked for. But, he says, he found that to be too much of a potential conflict, so he struck out on his own.

Two years ago, buyer's agents formed their own professional group, the Massachusetts Association of Buyers Agents, for which Huth serves on the board of directors. MABA now has approximately 300 members, only about one quarter of whom are exclusively buyer's agents. Locally, there is one in Newburyport, and another, Cain & Polley Real Estate, in Essex. Overall, there are about 14,000 real estate brokers in the state.

Doing their homework
Huth says buyer's agents get better deals for their clients because they, unlike seller's agents, put their knowledge and research efforts into strengthening the buyer's position. He does a full review of any property a buyer is looking at, checking registry records and comparing the prices of other houses in the area.

That means a seller's agent has to do a lot more homework as well to justify the price they're asking for the seller, he says.

This extra effort by Huth was essential in his case, says Hanna, because he and his wife were moving from out of state, and couldn't check out proper- ties in person.

"He really paid attention to things, whereas if the agent had been working for the seller, he might not have checked," he says. "After doing it this way, I'd never do it any other way."

Huth also helped Nancy and Roger Thompson find their Western Avenue, Hamilton, home. The two had just married and it was the first house that they had bought.

"We didn't have time to look around," says Nancy.

The arrangement with Huth, she says, "worked wonderfully." In about a month, the couple was closing on a house in the neighborhood of Cutler School.

Seeking a fair return
Compensation of buyer's agents for their services appears to be a key sticking point to this new, consumer-oriented type of real estate representation.

Under the more traditional real estate transaction, it is perceived that the seller is the one paying real estate agent fees. A seller generally negotiates with his or her listing agent as to what percentage of the property's selling price (let's say 6 percent) that agent will get in commission.

The listing agent, in turn, pays out a portion of that commission to the selling broker (possibly 3 percent) who can either be from the listing agency or, in most cases, from another agency.

But what happens when a buyer's agent enters the scenario is a pretty gray area at this point, many real estate agents agree.

For example, Huth charges buyers a flat fee for his services, contending that tying his payment to the sale price of the house would be a similar conflict of interest to that of the seller's agent. The higher the amount the buyer pays for the property, the higher the agent's commission is.

But that means that the buyer appears to be paying a fee that they wouldn't have had to pay using a traditional real estate agent. It also means that the listing agent, if they still collect the full 6 percent, can be perceived as double dipping - unless some arrangement can be made to reduce the listing agent's fee and pass the savings on to the buyer or the seller.

Huth contends, however, that buyers have always paid the broker fees indirectly in the price of the houses they purchase. And the Sprint study indicates buyers may more than make up any buyer's agent fees they pay through a better sales price.

Some buyer's agents do choose to base their commissions on a percentage of the sales price and collect their fee from the listing agent, much like a subagent does.

But not all traditional real estate brokers are willing to pay a commission to buyer's agents. Some traditional agents fear that buyer's agents will "disrupt normal business in such a way as to effect market share. It's hard to understand the financial repercussions of this new development.

A Hamilton realtor said, however, that she doesn't feel particularly threatened by the new development. Indeed, she said the market for buyer's agents is understandable.

Rae Scott, a realtor with Hunneman, said there are uncomfortable aspects of the cur- rent arrangement.

"It's always struck me as somewhat strange that here I am developing this fabulous rapport with Mrs. Buyer, and I'm working for Mr. Seller," says Scott.

But in general, she says, buyers understand that the agent is working for the seller.

"Buyers are sophisticated enough to understand that," she says.

The affect of the new disclosure law, Scott says, will be "minimal," although she said there were some groans in her office when it was announced.

Just how buyer's agents should be paid and who is actually doing the paying isn't a debate that is likely to be resolved soon.

"If you want to upset a group of brokers, that's the question you raise," Says Monica Staaf, legal affairs manager for the Massachusetts Association of Realtors.

Generally, Staaf says, the association sees the recognition of buyer's agents as a good thing. "In some ways, I feel that it will level the playing field. Overall, people are beginning to accept the concept"

Serving two clients?
If the industry is to be divided into buyer's agents and seller's agents, just how that reshuffling should take place is another sticking point. Should a single agency have both buyer's agents and seller's agents? Should agents act as buyer's representatives in some contract agreements and seller's representatives in others?

And, Perhaps most controversial, can agents effectively serve both the buyer and the seller by acting as a "disclosed dual agent?"

Some brokers are viewing the option of adding buyer's agents to their offices as a means of adapting the traditional seller's agency to the new demands by buyers as consumers.

Others, like Huth, say the two can't be mixed in the same office without conflict.

Huth calls dual agents "the equivalent of Russian roulette."

A dual agent serves neither party with the same level of service as an agent representing one or the other, he says. A dual agent would be acting more as "facilitators," he says.

Explaining the options
That leads to a whole other school of thought regarding the future of real estate. According to Staaf, there are those in the industry in Massachusetts who think real estate agents should become facilitators, not representing either party.

For now, as Of July 2, the choice will be up to consumers.

David Dalton expects the new options will be heartily welcomed by first-time buyers like he was three years ago. "I know for young people coming in, the mountain of money you have to put up is staggering," he says, adding he would definitely use a buyer's agent again if he bought another house.

"There's such a conflict of interest," he adds. "Why didn't this come along sooner?"

Source: Micky Baca, Hamilton-Wenham Chronicle, June 9, 1993