Buyer Agency??? What Is It and What Does It Mean For Home Buyers?

What is Buyer Agency? Let’s start with a little history. According to Wikipedia, “With the advent of “Buyer Agency” (Buyer Brokerage) in the early 1990s as opposed to seller agency, a real estate Agent/Broker agrees and contracts to represent the Buyer in her purchase of a home/property.” In simple terms this means that a home buyer has separate agent representation from the seller. Before the 1990’s both buyer and seller agents were working for the seller creating seller agency. Wikipedia goes on to explain, “Buyer Agency Agreements were developed to set out the terms and conditions of this representation. They are similar to the written “Listing Agreements”, required between Listing Agents and Sellers (property owners). Buyer Agency Agreements set out the main conditions of the relationship between the Buyer Agent and their Buyer Client including such things as the duration of the agreement, the commission to be earned/paid, and the various rights, duties and obligations of the parties.” We feel the need to point out the fact that this agreement outlines “the commission to be earned/paid” by the buyer to the buyer’s agent.

We put extra emphasis on this “commission” because most home buyers don’t understand that they are paying their buying agent anything at all. This is because many times a buyer’s agent won’t make the buyer aware of the Buyer Agency Agreement. This leaves the buyer oblivious to the fact they are even paying this agent. Most consumers have begun to better understand the commissions/fees that are established when a seller hires an agent to sell their home. In most cases, the seller and the seller’s agent will agree on a commission. Typically, this commission comes out to around 6% of the price the home will be sold for (a $100,000 home = $6,000). This 6% is then usually split with 3% going to pay the selling agent and 3% paying the buying agent. So, the buyer agent’s commission is included in the price of the home.

The buyer’s agent knows their commission awaits them as soon as the buyer decides which home to buy. This is why many buyers agents would rather not go through the trouble of walking a buyer through a Buyer Agency Agreement and explaining when and exactly how much they are paid.

This plan for buyers’ agents has worked great for decades, but now the Internet has begun to create a problem for agents and an advantage for home buyers. Today, buyers are seeing all of the available properties on websites that aren’t exclusively catering only to buyer’s with agents. Online real estate company, OpenTheHome.com allows home sellers to offer the minimum required amount to a buyer’s agent ($1.00). David Blumenshine Co-Founder of Open The Home has cited the Internet as the cause for this change in the way their commissions are decided. David says, “It’s now 2008 and home sellers and buyers are becoming increasingly savvy. Our website [OpenTheHome.com] has averaged almost 2,000 page views a day since the beginning of ‘08. With a highly trafficked website we don’t know if a buyer is going to use an agent [who will request a commission], buy the home alone, or buy with a real estate attorney that will charge a fee decided between the two of them.”

Therefore, Open The Home leaves the commission out of the price of their listings. This gives the seller more flexibility. By not including any agent commissions in the price, OpenTheHome.com seller’s can choose to list at a lower price, which can lead to a quicker sale. Ironically, sellers taking advantage of this flexibility end up with the same return after the 6% that is typically paid to agents is taken out of the seller’s net proceeds.

OpenTheHome.com’s challenge on once standard commissions has some agents dusting off their Buyer Agency Agreements to establish a signed contract with their buyers. Why??? It has nothing to do with disclosing information and helping buyers, but rather a precaution ensuring the agent will be paid. In Bloomington, Illinois, OpenTheHome.com’s first area of business, many buying agents have realized their buyers may decide to purchase an Open The Home listing, which will make it difficult to get paid their usually commission. Thus they have begun using the Buyer Agency Agreement.

However, David of OpenTheHome.com has said on multiple occasions the online company has received phone calls from local agents wanting to discuss and negotiate the $1.00 commission.
To these requests, Open The Home has urged the buyer’s agent to talk to their buyer about commission payments in the same way the seller and seller’s agent determine their commissions.

Thus far David says the buyer agent’s answer to this suggestion has been everything from a simple, “I understand”, to the shocking, “I would rather not talk to my buyer client about things they won’t understand like commissions.”

If you would like to know more about recent changes in the real estate industry and exactly how agent’s commissions are calculated visit the new U.S. Dept. of Justice Real Estate Website.

Marty Ummel, Suing an Agent or an Industry?

Did anyone catch Marty on the ‘Today Show’ Friday morning? Marty Ummel and her husband, Vernon, recently purchased a home in San Diego and are now suing their buying agent. Marty believes she paid about $175,000 over what the actual value of her new home is worth. So, Marty is suing their Re/Max agent for leading her and her husband to overpay for their home.

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I think this story is interesting because, in a way, Marty is suing the real estate industry and not so much her agent. I say that because the actual agent Marty is suing has already and will continue to argue that, “It’s a home buyers’ responsibility to perform their due diligence as a consumer when making purchases”. I sort of thought that is why Marty, and other home buyers, hire real estate agents and pay high commissions. They’re not confident in their own “due diligence”. If I was confident as a home buyer that I could fully assess the real estate market and make smart home buying decisions why would I ever hire an agent?

So, this brings me to the point of this post…
If it is now the home buyer’s exclusive responsibility to perform the due diligence of buying a home, then it ought to be the real estate industry’s responsibility to provide the data and resources buyers need to perform the task. Agents can not play “hide-and-seek” with real estate data, and then blame consumers when they rely on them to help make decisions. This is why I think Marty is suing the real estate industry more than she is just suing the actions of one agent.

As a side note, watch the NBC interview, and see if you can find the moment I started throwing things at the TV? It’s when the so called “MSNBC Legal Analyst” A.K.A. “NAR Legal Analyst” said, “The bank wouldn’t have given them [the Ummel's] the mortgage in the amount that they got if the appraisal didn’t back the value of the house.” HEY, “legal analyst” are you serious! Have you ever thought that perhaps there is a problem in the mortgage lending industry as well!

Comparable Homes, the MVP of our new features

‘Comparable Homes’ is one of our new additions to OpenTheHome.com. Now on every listing buyers can easily check how a particular listing stacks up to the competition. Simply scroll down any listing page and expand the ‘Comparable Homes’ section. This a drop down will then list 10 homes that are closest in price and location to the home you are currently viewing. Buyers can then compare the number beds, baths, sqft, and age of 10 other homes to see if exactly what their dollar is buying. Now, at the push of a button buyers can find out if the home they were interested in is overpriced, under priced, or right on.

So, here it is in action. The home below is listed for $347,700, with 4 beds, 2.5 baths, 3775 finished sqft, and was built in 2000…

A look at the ‘Comparables’ reveals that for about the same price I could get a home that’s a few years newer, a fourth bedroom, and an additional bath. The square footage seems pretty comparable.

So, this tells me that perhaps this home is a little over priced, and I should continue shopping or adjust my offer.

OpenTheHome.com gets ready to take off, again…

We’ve just unveiled our new homepage and website listing apps, which all put a greater focus on the consumer. Whether it’s the new homepage with it’s easy to use search bar and AJAX enabled “more search options”, the new $500 flat-rate listing, or the revolutionary new Buying Advisor program, we’ve received your feedback and have begun to mold Open The Home into exactly what consumers want in a real estate company.

So what exactly were you telling us in your feedback…

1. An easy and comprehensive home search tool. (You want to see ALL homes equally)
2. An upfront listing commission that is fair. (You want marketing that works without paying an outrageous commission)
3. More listing features that better present your home online. (25 photos, OpenTheHome advanced features, Neighborhood descriptions… full control over your listing)
4. Someone to answer buying questions, and that’s it. (You want the advice, you can find homes on your own)

We feel that Open The Home is now firmly planted in Bloomington, and we’re now ready to start business in Peoria (this spring) and other select cities, including Chicago, by the end 2008.