Buyer Representation is Sometimes Desirable

Q: I am just starting my search for a home and am not sure whether I need to hire a real estate agent to represent me. At the first Realtor's office I was asked to sign an Agency Disclosure form stating that 'I could choose to have an agent represent me or be shown houses by an agent who represents the seller. This particular agent stated that her office represented buyers exclusively, but said that she would ask to have the seller pay her fee. Isn't this a conflict of interest? Will a buyer's agent be able to show me the same houses as a seller's agent?

A: It is permissible and is sometimes desirable for a buyer to be represented. Whether or not it will enable you to negotiate a better deal is subject to debate. Traditionally in Massachusetts the seller lists a property with a Realtor, who agrees to act as the seller's agent. That listing agent, in turn, lists the property in a multiple listing service (MLS). Most of the state is now covered by a single MLS called "MLS Property Information Network," although there are smaller MLSs in certain areas. Agents who participate in the MLS are offered compensation for locating a buyer by the listing broker. Generally, MLS listings compensation is offered to cooperating agents who represent buyers as well as those who represent sellers. Even if a fee has not been offered through the MLS, a buyer's agent may ask the listing broker to share the broker's fee with the buyer's agent. The listing broker can agree voluntarily to share his fee, provided disclosure is made to the seller.

Historically in residential transactions in Massachusetts most cooperating brokers worked as agents of the listing broker (and, therefore, subagents of the sellers), even though the cooperating brokers may have never met the sellers. The significance of being a subagent of the seller is that the cooperating broker owes the seller the duty to get the highest and best price for a property. On the other hand, unless the price is attractive enough to entice a customer to buy, no fee will be earned by the cooperating agent.

A 1983 Federal Trade Commission study showed that about 80 percent of buyers incorrectly believed cooperating brokers who were showing them properties represented them. The same study showed that most sellers who were involved in cooperative transactions incorrectly believed that the cooperating broker represented the buyer. That is why Massachusetts adopted an agency disclosure regulation, which became effective in 1990. In 1993 the disclosure was amended to notify buyers that they could choose to be represented.

One of the issues of greatest concern to buyers who hire their own agents is how the agent is to be paid. Some MLS listings may not offer compensation to a buyer's agent and even if compensation is offered, some buyer's agents choose to reject such offers of compensation. Ask your prospective buyer's agent how the buyer's agent expects to be paid. A buyer may pay the buyer's agent directly either on a flat fee basis, an hourly basis or as a percentage of the purchase price. Alternatively, the buyer's offer may include a    provision asking the seller to reimburse the buyer for the fee paid to the buyer's agent. If the seller accepts an offer with such a provision, the seller will be obligated to pay the fee. Critics of such a provision argue that if the listing agent's fee was set with the expectation that a portion would be paid to a cooperating agent, the total cost for brokers' services will be larger if the buyer's agent is paid separately. Before accepting an offer containing such a provision, the sellers may ask the listing agent to reduce the agent's fee to reflect separate payment of the buyer's agent.

One advantage to having the seller pay the fee of the buyer's agent is that the fee is rolled into the price of the property and the buyer can finance the fee indirectly through a mortgage. The buyer will then be able to apply for a mortgage based upon the total price paid.

Robert S. Kutner is a partner in the law firm of Casner & Edwards in Boston. If you have questions on real estate, send them to Real Estate Questions, Boston Herald, P.O. Box 2O96, Boston, MA 02106-2096.

Source: Boston Herald, Feburary 26, 1999, Robert S. Kutner