Tag Archives: Buyer-Agency-Agreement

Whose client is it, anyway

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Scenario: buyer says that they will be buying in 3 months. You say, perfect, let’s get you pre-approved so you’ll be ready by then. You believe the buyer until they call you 5 days later with the great news that they just bought new construction from a site agent! Aren’t you happy for them? 

But before you get really mad [photopress:mad_face.JPG,thumb,alignright]and start telling your clients they didn’t have representation, consider the following and you’ll see it’s not black and white. 

Most buyer’s agents hate new construction sites, especially those with site registration policies since they could lose their clients to the site agent. A few builders (notably an ex-agent on the Eastside, name will be supplied upon request!) will only pay the buyer agent 1% if the buyer goes to the site the first time without the agent (whether or not the buyer says they are working with said agent). But normally the site agent, if they are getting paid by the builder will be agent friendly and not give you a bad time and if you write it up, you’ll get paid.

The question is, can a site agent adequately represent a buyer?

The answer:  It Depends.  Here are the different models that I know about 

1. Builder can hire an in house team, where the agents work for the builder, sometimes on salary and are generally the listing agent and are privvy to all the deals that have been written.

This is the best scenario for the builder since the agent can not go elsewhere to earn money. The agent isn’t paid if the site doesn’t sell.  This agent is not able to represent a buyer. 

2. Builder can sub-contract to a marketing team, say “company A”, where the listing agent again can not pick up clients and take them off site under any circumstance. If there is a buyer for whom that product does not fit, then the listing agent is encouraged to refer that buyer to one of the team of agents who is associated with Company “A” but not a site agent. The site agent, the builder and “company A” each share in the referral portion of the commission if the referral agent sells the client. These agents are labeled buyers agents and are often on site to meet with buyers, but first the listing agent must be thoroughly convinced that their site is not a fit for this buyer. This can be a great source of buyer clients for the referral agent although there is a stiff referral fee Not as good for the builder, except for his 1/3 share of the referral fee since there’s not any incentive to sell the builder product especially if the client wants to come back to the site, the referral agent will not get the sale.  Can this work for the buyer? I’d say, maybe but there’s the big problem with going back to the original site to buy in which case the referral agent won’t get paid and may try to talk the buyer out of this.

3. Builder can sub-contract to a marketing team, say company “B”.  Here, the listing agent is not the agent that puts in time at the site. The listing agent represents the seller and hires a staff of agents out of company offices that are buyer’s agents. These agents may get a couple hundred per door, but they say they are buyer’s agents and in general are not privy to insider information.  These agents will likely have a sign, “buyer agent” on their desk and should advocate for their buyer in any discussions with the seller.  However, if this agent continues to work the seller for price considerations, etc, you can be pretty sure the builder will ask for the removal of that agent.  So, I still see a conflict of interest here.  If the agent consistently works on one builder’s site, then I’d wonder to whom loyalty is given.

4. Builder can sub-contract to a single listing agent.  In this case, the listing agent is probably too small to have much of a program in place for a team of site agents. They might casually bring other agents in to the site just to pick up buyers and to work when the listing agent doesn’t.  If the site is small, this is often the case. The listing agent in this case is often the agent that brought the builder the land. The buyer’s agent rarely know anything about inside information and are on site simply to help buyers. I call this Site fill in work:  This is a great avenue for prospecting for a buyer but I’ve never understood why a builder would want to have his site full of agents who earn an SOC either off or on site. At the first negative hint that a buyer might not like the builder product, the agent whips out the computer and starts showing buyer other properties. If I were the builder, I would be looking for 2 person listing teams to cover all shifts.  Does this work for the buyer? [photopress:j0400346.jpg,thumb,alignright]If the buyer meets the fill in buyers agent and connects, I believe this is a great situation for a buyer without an agent already, otherwise you’ll be working against the site agent for this client.  The site agent can represent the buyer possibly better than a non site agent because they know the plat and product better and presumably know new construction better. That agent owes no allegiance to the builder and can very well advocate for that buyer.  For instance,understanding how a builder addendum and limited warranty really affects a buyer isn’t something most agents are familiar with. Did you know that one very prominent builder requires the first buyer to hold the builder harmless if there is a sale before 4 years and the second buyer is part of a class action law suit? Would the average agent understand those 12 pages of builder addendum well enough to read this and have their buyer consider the repercussions? and to realize there is often an automatic removal of the financing contingency in 2 weeks?

So before buyers or other agents decide how bad it is for a buyer to choose to work with an agent they met on site, first you have to know the relationship of that agent to the seller and in some instances, I think the site agent makes a very strong buyer’s agent.  So best move is to tell your buyers ahead of time what will happen when they go to a new construction site without you and study those builder contracts.  I used to give out a blue “buyer passport” book that had a spot for my business cards and a place where the buyers could write down each site they visited. That way, you’ve gotten a step ahead of them and it makes a great opening for the “watch out for the site agent” speech. 

Your opinion appreciated

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[photopress:blog.jpg,thumb,alignright]I’d like your opinions on this one.  Still scratching my head over this scenario.  Five brokers got together after it closed and had FIVE DIFFERENT opinions!  That’s the day I realized that NONE of us seem to agree on “THE RULES” anymore and hence the day that I started supporting alternative business models.  When five real estate brokers can’t agree on the rules, then it’s a free for all and anyone can play it any way they want, is how I saw it at the end of this scenario.  What do you think?

Brand new agent is working with a buyer friend/client who lives in her building.  They see each other most every day, though they first met at an Open House in the same building where they both live.  Agent wrote an offer for this buyer on the property where they first met, but that buyer didn’t get it.  So they continued to look at property together for weeks, maybe months.

Since the agent was new, never sold a house, the broker and associate broker of the company often accompanied the new agent and buyer when viewing property and always when the buyer was interested in the property and ready to write an offer.  So the buyer was well served and well covered on all fronts and had even been to the home of the broker and the home of the agent.

One day the associate broker suggested to the buyer and the buyer’s agent, that the buyer sign a Buyer Broker Agreement so that the agent could solicit For Sale By Owner and unlisted sellers on behalf of the buyer.  This way the seller would know the agent was not representing them, but the buyer, when asking if they might be interested in moving and selling.  Since the buyer knew pretty much exactly where she wanted to live, the associate broker felt a little “door knocking” was in order and a Buyer Broker Agreement needed since the door knocking was in the building where both the agent and the buyer lived.  Both agreed and the buyer signed a buyer agency agreement.

One day the Broker received a call from an agent regarding a property that had been on market a very long time.  Three brand new townhomes that no one seemed to want to buy for many months in a hot market.  The agent wanted the broker to come and see that one with her and the buyer, but the broker had already seen it and felt the agent could “handle” showing it on her own, which she did.  While the agent was showing, the associate broker contacted the listing agent regarding the availability of the townhomes and to ask some other questions.  The listing agent replied saying “Please bring your clients!”

The buyer that same day decided to make an offer on a different property, and she got beat out by a cash buyer.  The day the buyer found out she was beaten by a cash buyer, she called the listing agent to see if the other new construction property was still available.  She could pretty much see the sign from her window and just picked up the phone and called from the sign before bothering the broker (agent having gone on vacation). 

OK – here’s where you have to start paying close attention.

Buyer calls listing agent to see if it is available.

Listing agent says “Yes, but you better HURRY and get your agent to write that offer.” (8 months on market and 3 of them for sale)

Buyer says, “I just wanted to know if it was available, I can’t afford it anyway”.

Listing Agents says, “What can you afford?”.

Buyer says “$90,000 less than the asking price.”

Listing Agent says “I can’t let it go for that, but I can do it at $60,000 less than asking price.”

Buyer almost falls on the floor and says…OK…

Listing Agent again says “hurry”.

Buyer starts to say, thinking to herself, “My agent went on vacation…” before she gets to “I’ll need to call the broker…”

Listing Agent jumps in and says…”No problem, I’ll write up, I’ll even come to your house and do it.”

Listing Agent gets to buyer’s house

Buyer starts backpeddling, “I really can’t afford more than $90,000 less than asking price…”

Listing Agent says, “I can’t let it go for less than $60,000 under asking BUT the seller can pay 2% of the sale price toward your closing costs,IF we only pay your agent 1% of the 3% commission.”

Buyer says, “Can you do that?” 

Agent’s says, “Sure, it’s called a ‘referral fee’ and I do it all the time.

Listing Agent writes into the contract…”Selling Office Commission of 3% to be divided as follows: 1% to Buyer’s Agent and 2% to Buyer to pay closing costs.”

Basically…listing agent “pulled a Redfin” our of her hat.

In doing so, the listing agent sold all three of the townhomes for the seller, as everyone was waiting for someone to buy one.  Once he had a contract on one, he was able to get all three in contract within 48 hours.

So Listing Agent did a GREAT job for his seller client, by getting all three that had been on market for 8 months SOLD in 48 hours by twisting the arm of someone else’s client.  Some say that was his job and a good thing.

Buyer was left totally unrepresented and didn’t realize that “a referral fee” did not give her representation AND she didn’t notice that the contract she signed with the Listing Agent to buy the house said “NO ONE is to REPRESENT the buyer and ONLY the seller is represented”.  It didn’t state it that clearly.  Two little blocks were checked where it said SELLER, leaving the buyer unrepresented.  But the buyer chose to live with that in the end, after it was explained to her by the associate broker of the buyer’s agent a week later, in exchange for 2% of the buyer agent fee.

Your thoughts? A lot of agents know who the Listing Agent is, because the agent does this a lot.  Please do not use the agent’s name in your comment.  I will have to delete it if you do.  Let’s keep this “generic”.