Buyer Agency: Is It The Way Of The Future?
By George Richards

Although buyer agency was first recognized by the National Association of RealtorsÒ in 1992, the practice has been slow to catch on in the MetroWest region of Massachusetts. The misunderstanding and misconceptions are many while the pros and cons are debatable, but when all is said and done, the consumer/buyer, and thereby the profession in general, are the ultimate winners. However, drastic change in the structure and methods of "doing business" in any established profession takes considerable time, lots of education and ongoing mutual cooperation toward reaching a common goal.

WHAT IS BUYER AGENCY?

By definition, buyer agency is a relationship created when a buyer requests an agent to act on his or her behalf and the agent commits to represent the buyer in the transaction, regardless of whether the commission is paid by the buyer, the listing broker through a commission split, or by the seller (or a combination thereof). Unlike the traditional "subagency" and "dual agency" transactions where full disclosure of the nature of the relationship is required but often delayed or even ignored, the buyer's agent discloses up-front to all parties the nature of his or her representation. Given the financial and legal complexities of buying a house today, not to mention the emotional rollercoaster of doing so (and since sellers are almost always represented by a "listing broker"), it is no wonder that buyers in the marketplace are seeking "representation" of their own to assist them throughout such a complicated process with the knowledge that their interests are truly being represented.

HOW DO BUYER AGENTS GET PAID?
This is the most confusing and misunderstood area of buyer agency because there is no set formula-although a buyer may agree to pay an agent a certain percentage (i.e. 2½%), where the money actually comes from is subject to negotiation on every deal. Typically, a buyer's agent would present an offer to the listing broker with a provision in the offer that the seller will pay one-half of the commission due the listing broker (i.e. ½ of 5% = 2½%) to the buyer agent. Assuming the price can be negotiated to the satisfaction of the seller, the seller would pay the same commission (5%) as he would with a traditional subagent transaction. However, if a seller is unwilling to pay a commission to the buyer agent, and the buyer perceives he/she is getting a real value for the property, the buyer may choose to increase their offer to pay for their agent's fee (or pay it directly to the agent).

WHAT ARE THE ADVANTAGES AND BENEFITS?
The advantages to a consumer/buyer are fairly obvious: 1) the buyer agent helps educate a buyer regarding the entire process (including research about property values to help ensure that the buyer pays a fair price based upon comparable sales, possible future development in the area, etc.); 2) the buyer agent takes on a fiduciary responsibility to be loyal and honest to a buyer, as well as to use care and diligence on the buyer's behalf-actions generally not required in a traditional subagency situation; 3) the buyer agent can negotiate terms and price on the buyer's behalf, allowing a more objective and emotionally detached negotiation process; 4) the buyer agent provides information to a buyer upon which a buyer can rely and trust with greater certainty and confidence; and 5) the buyer agent may serve as a buyer's escrow agent and/or account for the buyer's funds within his or her control.

The advantages to the seller are more subtle and indirect, but in the end, buyer agency does in fact benefit sellers by clearly drawing the lines of each agent's loyalties and responsibilities. Buyer agency clarifies the agent's roles and allows sellers to be presented with informed and well though-out offers with less risk of a buyer later claiming they were "pressured" into making an offer or otherwise claim collusion, inaccurate information, misrepresentation, lack of proper disclosure, etc. In essence, buyer agency helps remove the often present "gray areas" with subagency, reduces mistrust of the selling or dual agent(s) and thereby can lead to a more focused and productive negotiation process with much less risk of a buyer "reconsidering" or "changing his mind" after presenting an offer. The rules of the game are better defined with buyer agency-and that alone is a significant benefit to buyers, sellers and agents alike.

WHAT ARE THE DISADVANTAGES?
Although the disadvantages appear to be few (other than a drastic change in how business is conducted), the perception of problems (primarily compensation) with buyer agency seems to be the largest hurdle to clear. Obviously, sellers are not anxious to "pay" a buyer agent to exclusively represent the buyer's interest. However, it should be noted that with dual agency occurring in an increasing number of transactions, the seller may be "paying" an agent to represent both parties interests-I'm not sure which is a greater disadvantage for a seller. Arguably, the cost of any commission being paid is factored into the agreed upon price by both parties-not just the seller-and as a result, both parties indirectly pay the commission equally (even though the seller has the obligation to pay per the listing agreement). This view will obviously need to be more commonly accepted in order for buyer agency to succeed. Although it may be viewed that the seller will "lose" an agent, buyer agency is based on the underlying assumption that a listing agent (and attorney, if appropriate) can adequately represent the seller's interests while allowing the buyer to have comparable representation at the same time. Such a change may be viewed as a short term disadvantage to sellers in an effort to promote greater fairness to the process and thereby provide a long term benefit to the profession and marketplace in general.

WHAT ARE THE LEGAL IMPLICATIONS?
From a legal standpoint, buyer agency is like preventive medicine. Having purchased two houses (while a lawyer) through both a "dual agent" and a "selling subagent," I can attest to the fact that prior to the required disclosures being made (i.e. when I was actually making an offer), the agent seemed to be working on my behalf. From that point on, however, the process became adversarial, distrustful and generally unpleasant-the uncertainty and unknown of what was being disclosed to whom became quite troublesome. In addition, having represented many buyers, sellers, and agents involved in disputes over alleged fraud, misrepresentation, collusion, lack of disclosure, etc., I am even more aware of the difficult fine lines and "gray areas" with which sellers, buyers, and agents are constantly faced. Given the existence of and continued potential for ongoing misunderstanding, confusion and mistrust in the traditional subagency situation, buyer agency offers a refreshing alternative to the status quo where boundary lines are clearly drawn and everyone knows the rules of the game up-front. In the long run, such an arrangement can only reduce the risk of liability and legal challenges to sellers and agents alike.

Is buyer agency the way of the future? Only time will tell.

George Richards is an attorney with the law firm of Goguen, McLaughlin, Stoddart, Richards & Mahaney, P.C. and can be reached at 508-655-1660.