Exclusive Buyer Agency
vs. Buyer Agency

Home Buyers Should Know The Difference
Written by Ronn Huth

It is more than semantics that differentiates exclusive buyer agents from buyer agents. When home buyers know the difference they almost always without exception choose to work with an agent who could and would be loyal only to them and never change their relationship with them. The only form of agency that meets those criteria is exclusive buyer representation.

When I first began practicing buyer agency in February of 1990. I was the only buyer's agent in a traditional real estate office. The longer I went the more conflict I realized. I had even given up all my listings and only represented buyers. Nonetheless, I was still put in an awkward position when a buyer showed interest in one of the company's listings. In this case the buyer's agent can no longer can no longer represent the buyer without posing a conflict of interest. The result is that the buyer's agent will need to either change his or her relationship with the buyer or refer the buyer to an agent with another company. Thus the company for which I worked would either claim to serve both seller and buyer with undivided loyalty or lose half the commission.

I was initially unhappy with the owner of the company's choice of select disclosed dual agency. As I continued to practice buyer agency, however, I realized that by virtue of our agency relationship with the principal of the company all of us associates were indeed dual agents. It came into play not only With the in-house listings, but in fact every house listed with other companies that I took my buyer into forced me to declare allegiance to the seller of that particular home as a result of the subagency relationship established when another seller's agent in our office had shown that property to a customer. The only situation where I could genuinely represent the buyer's interest fully was when we were considering a property that no agents of our company had yet entered or when when dealing directly with a "for sale by owner."

It was then that I realized my principal, the owner of the company, had made the only choice he could. We were a dual agency office. I'm not convinced that everyone really understood the implications, but as the only buyer's representative in the office I felt like a fish out of water. The people were great, but none of us were able to properly fulfill our fiduciary relationship with our respective clients because of my presence there. This approach is called Disclosed Dual Agency, and I found it unsatisfactory. That's why I eventually left and became an Exclusive Buyer's Agent. Today no one who works out of our office may take any listings. That way there can be no conflict of interest.

Disclosed dual agents are supposedly able to represent both parties' best interests but aren't allowed to counsel or advise either buyer or seller if it might affect the other. In other words, dual agents are not allowed to negotiate for either side, but they do know all of the financial information and motives of both sides. Although it offers more protection to a buyer than subagency, it's not an arrangement I felt comfortable with.

At that point I considered the second option which is Single Agency. An office practicing single agency can take listings and represent buyers but never both in the same transaction. This is a much cleaner approach in that the agent never tries to represent both sides of the transaction, but it is troublesome in that the buyer must be referred out of the office if they are interested in one of the company's listings. Most buyers feel an attachment to their buyer's agent at that point and don't want to have to give up their agent. The likelihood of buyer satisfaction, however, is much greater in a single agency office than a seller's office or a dual agency office. Despite that, I find consumers have difficulty differentiating between this type of single agency and dual agency. I decided that for me the best I could offer a buyer would come out of the strict branch of single agency called Exclusive Buyer Agency. In November of 1991 I opened Buyer's Choice Realty, the North Shore's first Exclusive Buyer Agency.

Why should home buyers take a chance at getting the short end of the stick? Why should they spend time developing a relationship with an agent who may need or want to change that relationship? Why should they pay an agent for services not rendered? Why should they enter a relationship with an agent that limits the number of homes they can choose from? Why should they choose an agency relationship that will take away any liability on the part of their agent? They shouldn't.

The best protection for the home buyer is Exclusive Buyer Agency. It avoids the above problems and eliminates the inherent conflict of interest. An exclusive buyer's agent will

1. Always remain loyal to the buyer and the buyer's best interests.
2. Never accept listings.
3. Determine a property's true market value and inform the buyer of a home's weaknesses and strengths, allowing the buyer to make an informed purchase decision.
4. Negotiate to get the lowest price and best terms for buyers.
5. Keep all buyer information, financial status and negotiating strategies confidential.
6. Show all homes that fit the buyer's needs. This includes homes from the Multiple Listing Service, For Sale by Owner, Bank Owned, and homes not on the market.
7. Investigate the neighborhood, the seller's motives and additional pertinent information to assist the buyer in negotiations.

Why don't home buyers know about these issues? I've had this conversation with a good number of consumers, and one of the answers is that there are not yet enough people telling the story. Buyers who have been properly represented are thrilled with the process and can't stop talking about it. But sadly for right now, there are too few exclusive buyer agents out there to significantly impact the industry. That, however, is beginning to change. There is a growing number of independent exclusive buyer agencies springing up, and there are two growing national franchises for Exclusive Buyer Brokerage. I believe The Buyer's Agent and The Buyer's Resource will help exclusive buyer agency make the larger industry impact, particularly through the relocation arena. Both franchises currently have offices in our state. I personally chose to affiliate with The Buyer's Resource, the larger of the two, over a year ago and have been happy with the results. Negotiations are currently taking place for the opening of a Buyer's Resource Master Franchise for the New England states. This kind of development is what catapulted the growth of Century 21 in other parts of the country, and The Buyer's Resource is positioning itself for similar results.

Certainly the day is coming when there will be exclusive seller companies and exclusive buyer companies. Some additionally interesting things are happening within our industry to hasten it. Some companies, out of loyalty to their seller clients, have already eliminated subagency as an option for their office. Once a seller understands the liability issues of subagency they are eager to avoid it. As buyers become more aware they will demand full fiduciary services as well. I'm surprised by the number of buyers who call our office and ask if we take listings. It is obvious they see the conflict.

As the word gets out why do buyers still use seller's agents to assist them? For some it hinges on having a friend or relative who is in real estate. The danger with this is that the agent's loyalty may be illegally misplaced with the buyer. In this case the seller gets the short end of the stick, and the buyer is vulnerable to the possibility of the seller discovering it. It's a lawsuit waiting to happen. And while consumer education in agency is on the upswing, many consumers fear that buyer agency will be costly for them. The truth is that it should cost no more and usually costs less than using a traditional seller's agent. The buyer agent's compensation usually comes from the transaction the same as any cooperating broker fee. Most listing companies have already agreed through Multiple Listing Services that they, will grant the same compensation to buyer agents as they would any other cooperating agent. Add to that the likelihood that having an agent negotiating on the buyer's behalf will enable the buyer to do better than they would have done with an agent representing the other side.

A 1992 US SPRINT survey concluded that its relocating employees who worked with a buyer broker saved an average of 9 percent off the asking price of their homes. While this survey offers no guarantees for the represented home buyer, it certainly tips the scales on the buyer's behalf. We all know that a home will only sell for what a ready, willing and able buyer will pay without being under duress. Obviously both seller and buyer have to agree on the final purchase price. A well represented buyer will know what that price should be.

The Massachusetts Association of Buyer Agents is a single agency organization but offers support, assistance and education to all real estate agents who want to provide client level services to buyers. This includes Disclosed Dual Agents, Single Agents and Exclusive Buyer Agents.

I genuinely wish them all well because any buyer agency relationship provides so much more for the buyer than was available in the past. At the same time my bias is clear. I like working one side of the street. If you'd like more information on the benefits of exclusive buyer representation, contact our office at 1-800-25 BUYER.