[photopress:50_50_1.jpg,thumb,alignright]For the purposes of this discussion, let’s assume that in normal market conditions, the division of the total commission agreed to by the seller in the listing contract is divided evenly between the agent for the seller and the agent for the buyer. In the diagram, the blue portion represents the listing agent’s compensation and only the yellow portion will be the subject of this discussion.
When a seller or seller’s agent is having difficulty “moving the product”, that being the house, sometimes they will raise the “offering” to the Buyer Agent as an incentive. For instance, if the price of the house is $350,000, each percent of price equals $3,500. So the seller could offer the Buyer Agent a bonus of 1% or 2% above the area norm, and spend less than a price reduction. Let’s say that it would take a price reduction from $350,000 down to $325,000 to get the property sold. That would “cost” the seller $25,000. Instead, the seller might increase the “offering” to the buyer agent in the mls by 2%, which would only cost him $7,000 in this $350,000 example. Even if the seller doubled the “offered fee”, it would cost him less than the price reduction, as doubling the compensation to the buyer agent might cost him $10,500, and dropping the price to the point where it would sell would cost him $25,000. So increasing the offering makes total sense from the seller’s side of the fence.
OK, now for the tricky part. Click here and read this before considering the rest of this post.
[photopress:33_66_1.jpg,thumb,alignright] The seller is increasing the fee to persuade “YOUR” agent to “SELL you” his house. By doing so, “your” agent can double his money. The idea that increasing the buyer agent fee will be effective in selling the house, is a holdover from the days before buyer agency existed. As the agent for the seller, I would still use this strategy when advising the seller, as it is a more cost effective method of selling a home that isn’t “moving”. However, as a buyer agent, the concept that I might be motivated by a higher fee to me, is insulting. While I generally do not believe in buyers signing buyer agency agreements, this scenario points out one of the advantages to the buyer for doing so. Even if the buyer cannot negotiate the buyer agent fee below the area norm, the buyer can stipulate that any Buyer Agent Bonuses would go to the buyer, and not to the agent. However, a more appropriate strategy might be to ignore them entirely, and simply focus on the attributes and value of the house, without regard to these incentives.
The yellow portion of the fee is the amount that the seller offers “to the person who brings buyers to his home”. It is also, and simultaneously, the amount that the buyer perceives that he is paying to the agent for representing him, the buyer, in the transaction. Until we all agree that it is the latter and not the former, buyers will never truly have equal representation in the real estate marketplace.
This duality of purpose for the same monies, continues to be a problem in the industry. One that should be talked about a whole lot more than it is. So let’s talk. What do you think? While you can comment anonymously, please note if you are responding from the point of view of a seller, a buyer, an agent, or a giraffe.
This odd duplicity of purpose regarding the yellow portion of the fee (the mls offering/buyer agent fee) has been going on for about 15 years. It’s time we began the process of coming to terms with it, by discussing it openly. There are NO easy answers to this one, but engaging in a dialogue might help move the topic out of it’s current “holding pattern”. Until and unless agents all agree that they are in the business of representing people and not in the business of SELLING anything, we can’t get to the appropriate answer. And then the consumers would have to likewise view what is happening accordingly, and not hire an agent “to sell” their house, but to “represent them in the sale of the house”.
But we can, at least, open up Pandora’s Box in the hope that the discussions will begin moving things in the right direction.
What happens if you come to a house and buy it with no buyers agent. Can you then assume that you will get the buyers agent commission for yourself? I think not. This is also preventing buyers from having equal share in the market.
Eric, You can’t keep the commission, but you can use it toward your closing costs or reduce the final negotiated price accordingly, IF you disclose up front to the seller’s agent before seeing the house that that is your intention and the seller’s agent agrees in advance.
Eric, Here’s where the duality comes in. If the fee is paid by the seller to whomever caused the buyer to come, then it is paid to the seller’s agent…all of it…the whole pie above. You came to the house because of his sign or because of his photos in the mls, etc. If the fee is paid to the person “who represents the buyer” then the fee could belong to the buyer EXCEPT the lender will generally not allow the buyer to walk away with the cash. If it is a cash purchase, and no lender needs to be consulted regarding the monies, then the buyer could “take it”, but generally would simply reduce the amount he is bringing to closing by that %.
What should happen if the buyer’s agent is the “buyer” himself? Should the fee be paid to the agent? Is it also ethical for the buyer then to ask for assistance with closing costs?
Piper… The trick is that an agent has to be licensed, so unless the buyer is an “agent”, they can’t act as a buyer’s agent in a real estate transaction. They doesn’t mean that they can’t go at it alone, it just means that they can’t collect the agent fee.
In terms of a buyer asking for assistance with the closing costs, I’m pretty sure it happens every day.
Piper… The trick is that an agent has to be licensed, so unless the buyer is an “agent”, they can’t act as a buyer’s agent in a real estate transaction. They doesn’t mean that they can’t go at it alone, it just means that they can’t collect the agent fee.
In terms of a buyer asking for assistance with the closing costs, I’m pretty sure it happens every day.
Any buyer can ask for assistance with closing costs (I assume you mean of the seller). If you ask for that assistance within the asking price, that is a form of price negotiation, as the seller’s net is reduced. If you stack the assistance on top of the asking price, then the property has to appraise for that higher value.
Agents would generally prefer to reduce the sale price or take their fee against their closing costs, so they do not have to pay taxes on the fee. It would be like paying themselves. The same if the seller is an agent. But they can do it either way.
Hi Ardell–YOu bring up an excellent point about the buyer agency commission. You say that you dont really like the buyer agency agreement, and I agree there are things about it not to like. But to me, it makes it clear who I represent, how I am paid, and what the buyer can expect of me. My job isn’t, as you say, so much to “sell” them a house, as it is to provide assistance and representation throughout the process of buying a house. There is an agent in my office who says he “loses respect” for any listing agent that doesn’t provide a 3% SOC. My response is that if he had a buyer agency agreement in place it wouldn’t matter, because he would be assured of that 3% (if it’s so important to him!) either way, and why should the seller have to necessarily pay 3% if it’s not worth that to him. It’s his house, right?
Because, I agree with you, it is insulting to think that I would not show a property to a client just because the SOC was under 3%. I personally feel that as a buyers agent I shouldn’t really be looking at that, I should look at how well the property suits my buyers needs, and not how much I will be paid. That’s why the buyer agency agreement works well for me. I put it to a client that way and they can see that they would rather have me work with them that way than culling out any property that isn’t paying the “full commission.”
And not that I would do that anyway, but there are those who would.
Hi Ardell–YOu bring up an excellent point about the buyer agency commission. You say that you dont really like the buyer agency agreement, and I agree there are things about it not to like. But to me, it makes it clear who I represent, how I am paid, and what the buyer can expect of me. My job isn’t, as you say, so much to “sell” them a house, as it is to provide assistance and representation throughout the process of buying a house. There is an agent in my office who says he “loses respect” for any listing agent that doesn’t provide a 3% SOC. My response is that if he had a buyer agency agreement in place it wouldn’t matter, because he would be assured of that 3% (if it’s so important to him!) either way, and why should the seller have to necessarily pay 3% if it’s not worth that to him. It’s his house, right?
Because, I agree with you, it is insulting to think that I would not show a property to a client just because the SOC was under 3%. I personally feel that as a buyers agent I shouldn’t really be looking at that, I should look at how well the property suits my buyers needs, and not how much I will be paid. That’s why the buyer agency agreement works well for me. I put it to a client that way and they can see that they would rather have me work with them that way than culling out any property that isn’t paying the “full commission.”
And not that I would do that anyway, but there are those who would.
Slightly off topic–but I wondered what the philosophy is out there for net proceeds issue for sellers. In dealing with sales commissions, is a home roughly worth x-amount regardless of whether commissions are in play? For example, appraisers don’t value homes “weighted for commission structure,” correct?
If a home is $100,000, do you discount the price to $94K because that’s what the owner would have netted anyway (6% used as an example)?
We recently had a client bring this up, but the conversation was mostly geared to who really is paying the commission, the buyer (financing the deal) or the seller? Would a buyer in a buyer agency relationship really be a moot arrangement, since our client argued that they were the one bringing the money to the table anyway? I was tongue-tied.
Slightly off topic–but I wondered what the philosophy is out there for net proceeds issue for sellers. In dealing with sales commissions, is a home roughly worth x-amount regardless of whether commissions are in play? For example, appraisers don’t value homes “weighted for commission structure,” correct?
If a home is $100,000, do you discount the price to $94K because that’s what the owner would have netted anyway (6% used as an example)?
We recently had a client bring this up, but the conversation was mostly geared to who really is paying the commission, the buyer (financing the deal) or the seller? Would a buyer in a buyer agency relationship really be a moot arrangement, since our client argued that they were the one bringing the money to the table anyway? I was tongue-tied.
I feel as Ardell does — I show my clients ALL houses I think are right for them. In fact I often don’t notice the SOC until after my client shows interest and I’m looking up other details about a house.
I’ll admit that I do wince when I then spot a lower commission. Afterall, the work I’m about to do in properly representing my client doesn’t get smaller just because the listing agent already negotiated away part of my commission.
And raising a lower commission does seem to work: I had been negotiating on behalf of my client for a new home with one of those ugly 3/1.5 splits, that had lingered on the market for five months after completion. Seemed like time to drop the price, at least as far as my client was concerned. Especially since we went back for several visits with my card still flying solo on the counter. (Which means other agents hadn’t been showing the house) After a bit of back and forth the seller decided he didn’t want to play anymore.
Instead of lowering the price, he then raised the commission to 3.0 on the whole thing AND raised the price to cover the increased commission. Damn thing sold within a week to some other buyer.
No action for five months and WHAM a full-price buyer the minute it goes to full commission. Yes I do believe there are agents out there who don’t show lower commission homes.
Tim-tongue tied? Surely you jest.
It is the duplicitous nature of the same fee, three shells, yet two pea. Clearly it cannot be a ransom paid for buyer fair, but the buyer’s claim of his own right.
The seller cannot PAY it, and still the same, the buyer cannot HAVE it.
The only way for fairness to reign is for the seller to perceive that he is paying the BLUE slice of the pie, and only that portion should show on the SELLER’s side of the HUD 1. The Buyer’s side of the HUD 1 should show the YELLOW portion of the pie, as financed by him.
There is no other way for equality and buyer agency to prevail. On any other basis, “Buyer Agency” are two meaningless words.
I just saw Shakespeare In Love, again 🙂
Tim-tongue tied? Surely you jest.
It is the duplicitous nature of the same fee, three shells, yet two pea. Clearly it cannot be a ransom paid for buyer fair, but the buyer’s claim of his own right.
The seller cannot PAY it, and still the same, the buyer cannot HAVE it.
The only way for fairness to reign is for the seller to perceive that he is paying the BLUE slice of the pie, and only that portion should show on the SELLER’s side of the HUD 1. The Buyer’s side of the HUD 1 should show the YELLOW portion of the pie, as financed by him.
There is no other way for equality and buyer agency to prevail. On any other basis, “Buyer Agency” are two meaningless words.
I just saw Shakespeare In Love, again 🙂
Susan, I too REFUSE to look at the buyer agent fee. Some day it will be $1.00 and I’ll choke LOL. I do have to look at it if I have negotiated the fee with the buyer, and I would not keep a Buyer Bonus, but return it to it’s rightful owner…THE BUYER!
The customers I work with have their searches set up automated through the MLS. The listings are AUTOMATICALLY sent to them without me even looking at them. Then my buyers tell me which homes they want to look at. I never pick the homes I think they will want to look at, I let them do it. So the point of checking to see what commission I get before I send a listing to them never happens, because I don’t even know which homes are being sent to them until after they have recieved them. They call me and let me know which homes they want to look at. I find it’s much easier this way anyhow. I send them the info, they drive the neighborhood, if they like what they see, they call me to schedule a showing for it.
And yes, just like Susan Ryan says….I too also wince at the lower commission, but it’s part of the job. Some deals go smoothly and pay a little bit higher commission and some go not so smoothly and pay a lower commission, but it’s part of being in the business. It usually always evens itself out.
Another point I have…….The buyer is the one that makes the final decision on the house they want to purchase, not the realtor. So the higher commissions with a bonus don’t always work. For instance, I showed a house this past weekend to a couple and the sellers agent was offering 4% to the buyers agent. But when we walked in…..the buyers said the house gave them the creeps…LOL…I thought it was a cute house, but I’m not the one buying it.
I know there are some agents that have probably persuaded buyers to purchase Home (A) versus Home (B) because the agent was getting a higher commission on Home (A). However, not all agents are greed based just looking for a paycheck. Atleast, I sleep well at night….LOL
Besides…..it’s illegal to not show a buyer a home based on the commission you will get for it. BUT….try and prove an agent hasn’t done that before!
The customers I work with have their searches set up automated through the MLS. The listings are AUTOMATICALLY sent to them without me even looking at them. Then my buyers tell me which homes they want to look at. I never pick the homes I think they will want to look at, I let them do it. So the point of checking to see what commission I get before I send a listing to them never happens, because I don’t even know which homes are being sent to them until after they have recieved them. They call me and let me know which homes they want to look at. I find it’s much easier this way anyhow. I send them the info, they drive the neighborhood, if they like what they see, they call me to schedule a showing for it.
And yes, just like Susan Ryan says….I too also wince at the lower commission, but it’s part of the job. Some deals go smoothly and pay a little bit higher commission and some go not so smoothly and pay a lower commission, but it’s part of being in the business. It usually always evens itself out.
Another point I have…….The buyer is the one that makes the final decision on the house they want to purchase, not the realtor. So the higher commissions with a bonus don’t always work. For instance, I showed a house this past weekend to a couple and the sellers agent was offering 4% to the buyers agent. But when we walked in…..the buyers said the house gave them the creeps…LOL…I thought it was a cute house, but I’m not the one buying it.
I know there are some agents that have probably persuaded buyers to purchase Home (A) versus Home (B) because the agent was getting a higher commission on Home (A). However, not all agents are greed based just looking for a paycheck. Atleast, I sleep well at night….LOL
Besides…..it’s illegal to not show a buyer a home based on the commission you will get for it. BUT….try and prove an agent hasn’t done that before!
Becky, In our mls system, when I set it up so that the buyer gets a copy of listings as they appear on market, I also set it to send me a copy simultaneously. This way I can check it out thoroughly before they get out of work, in case it is a perfect house for them. This way I can make the appointment for as soon as they can see it.
Our markets are still very active and the best houses might “get away” if I did not monitor them within an hour or so after they are listed. My buyer clients are working at their own jobs and would miss too many good properties if I just waited from them to read their email and have a chance to drive by the property.
Plus I have an eye and feel for properties that will and should sell for less than the asking price. Four of my last five clients bought a home they did not and would not have discovered in the manner you suggest.
I also don’t believe in the theory that one client pays me more because another one pays less. Why should one buyer pay more because my previous client paid less? Since I perceive the buyer pays the fee and not the seller, that doesn’t seem fair at all. Would you want to go to the grocery store and pay 20% more for your order because the guy in front of you had a 20% off coupon? Do you charge a seller more because the one before him negotiated you down? Of course not. So why should buyers be subject to an overcharge, because the last client paid less? It isn’t his fault you received less on a previous sale is it?
Remember the buyer is financing the fee in his mortgage, so he DOES pay it…sometimes for 30 years and with interest.
Ardell,
I think you took what I said wrong. I don’t have buyers sign a buyers agreement. So sometimes I get less on a house that a listing agent is offering less for say 2% and sometimes I get more if the listing agent is offering a higher commission say 4%. I didn’t mean that the buyer will pay more for one house because I got less on the last house.
We don’t give buyer rebates back to a buyer because I got a higher commission, maybe that’s what you meant? Not sure. I do however pay for my buyers inspections, appriasal and home warranty for them. That comes out of my commission. I think it’s fair.
Some agents don’t offer anything, some may offer more. Each agent is different in what they offer to their buyers.
And our market here is pretty slow….buyers can wait for days….literally….to make a decision of which house to pick from. It’s SLOW! Last year our market was insane, people would list a house today and have 3 offers above asking price for it tomorrow…..that’s not the case today. It’s just the opposite today.
Ardell,
I think you took what I said wrong. I don’t have buyers sign a buyers agreement. So sometimes I get less on a house that a listing agent is offering less for say 2% and sometimes I get more if the listing agent is offering a higher commission say 4%. I didn’t mean that the buyer will pay more for one house because I got less on the last house.
We don’t give buyer rebates back to a buyer because I got a higher commission, maybe that’s what you meant? Not sure. I do however pay for my buyers inspections, appriasal and home warranty for them. That comes out of my commission. I think it’s fair.
Some agents don’t offer anything, some may offer more. Each agent is different in what they offer to their buyers.
And our market here is pretty slow….buyers can wait for days….literally….to make a decision of which house to pick from. It’s SLOW! Last year our market was insane, people would list a house today and have 3 offers above asking price for it tomorrow…..that’s not the case today. It’s just the opposite today.
Ardell,
I guess I am confused. How do you handle your commissions with your buyers? Do you only take a certain percentage of the commission no matter what is offered and anything over and above that percentage you give back to the buyer, or how do you work it?
I get the part that the buyer is truly the one paying the fee because it is built into the price of the home. However the buyer doesn’t pay you directly for your fee…or does he? If the buyer pays you directly, then I can see where you would probably charge the same fee from one buyer to the next.
Just trying to understand…..
Ardell,
I guess I am confused. How do you handle your commissions with your buyers? Do you only take a certain percentage of the commission no matter what is offered and anything over and above that percentage you give back to the buyer, or how do you work it?
I get the part that the buyer is truly the one paying the fee because it is built into the price of the home. However the buyer doesn’t pay you directly for your fee…or does he? If the buyer pays you directly, then I can see where you would probably charge the same fee from one buyer to the next.
Just trying to understand…..
Ardell
You said:
“Remember the buyer is financing the fee in his mortgage, so he DOES pay it…sometimes for 30 years and with interest”
This could only be true if the actual value of the home = sales price less the commission amount. In my neighborhood, three houses have sold recently. One was listed by a traditional full service broker, another was listed by what might be called a “discount” broker and another by a company that just puts the property into the MLS.
When those houses were appraised, are you saying that the appraiser came to his or her valuation based in part of the type of listing and fee paid on each. While I could not obviously know what the actual sales prices were (all three still pending), the list prices did not seem to reflect the commission based on my very amatuer valuation of the homes and they all sold rather quickly so I am assuming little downward pressure on list price.
This whole issue will go away if FHA and HUD will get their act together and allow Buyer’s to finance the buyer’s agent fee in the transaction like they allow on the loan side. It is quite frankly ridiculous that the industry eliminated seller subagency years ago and we are still dealing with a broker pricing/compensation model based on that fiction.
Russ
Ardell
You said:
“Remember the buyer is financing the fee in his mortgage, so he DOES pay it…sometimes for 30 years and with interest”
This could only be true if the actual value of the home = sales price less the commission amount. In my neighborhood, three houses have sold recently. One was listed by a traditional full service broker, another was listed by what might be called a “discount” broker and another by a company that just puts the property into the MLS.
When those houses were appraised, are you saying that the appraiser came to his or her valuation based in part of the type of listing and fee paid on each. While I could not obviously know what the actual sales prices were (all three still pending), the list prices did not seem to reflect the commission based on my very amatuer valuation of the homes and they all sold rather quickly so I am assuming little downward pressure on list price.
This whole issue will go away if FHA and HUD will get their act together and allow Buyer’s to finance the buyer’s agent fee in the transaction like they allow on the loan side. It is quite frankly ridiculous that the industry eliminated seller subagency years ago and we are still dealing with a broker pricing/compensation model based on that fiction.
Russ
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Russ, Glad you popped into this. I’m running out to a couple of appointments, but would you please address Becky’s “illegal” issue?
If a seller offers $1.00 to a Buyer’s Agent, is it truly ILLEGAL for a Buyer Agent to not agree to work for $1.00? That doesn’t seem possible. If it is ILLEGAL for a Buyer Agent to refuse to work for $1.00, can you note the law that makes them HAVE to do that?
Why is my issue “illegal”? Where anywhere did I say that anything I did was illegal or ever would be for that matter? You made a few remarks about what I said was wrong about buyers paying the price for me getting a higher commission…….I asked you about what you do, and didn’t get a answer.
My point is that whatever the amount the LISTING agent puts in the MLS for me to receive as my fee, is what I get paid. Some agents put less, some agents put more. If you read my first comment that I DO NOT hand pick listings to send to my buyers, they are sent out automatically, so what about that is illegal??
There is a law that states that an agent can’t pick and choose which properties to show that buyer based upon the commission amount that agent will receive. HOWEVER….if a buyer I am working with chooses a property and wants to make an offer……and for WHATEVER reason, if I so choose not to work with that buyer…..I don’t have to represent that buyer, they can go directly through the seller or the listing agent! If you remember, I don’t have my buyers sign a buyers agreement.
Tell me what law states that I must represent a buyer based on any reason what so ever, if the buyer chooses a house and I don’t want to represent them. I did my lawful part by giving them the information about each and every property that was available to them!
Laws maybe different in the state you are in, but in Florida many realtors work as transaction brokers (like myself) and not single agent, which means I represent the transaction it self, not either side.
Ardell
I don’t know where Becky is from so let’s focus on Washington state for the present time.
WARNING: VERY LONG POST SO GRAB A CUP OF COFFEE
Under Washington’s Agency law, a buyer’s agent is required “To make a good faith and continuous effort to find a property for the buyer; except that a buyer’s agent is not obligated to: (i) Seek additional properties to purchase while the buyer is a party to an existing contract to purchase; or (ii) show properties as to which there is no written agreement to pay compensation to the buyer’s agent.”
As with most laws, there is always room for interpretation despite the best efforts of the folks who helped draft the law (like me). That is when courts come in handy by putting their two cents as to what the words mean by applying the statute to specific fact situations and real people. Unfortunately, we have no case law on this specific issue in Washington. As a result, lawyers can opine on what they THINK the statute means and then hope some court some day agrees with them, realizing that in many cases the lawyers will be wrong (or maybe the court is wrong but seems like they always have the last word!).
First, there is a requirement that a buyer’s agent use a good faith and continuous effort to find a property for the buyer. Let’s examine the term “good faith” as that is relevant to our discussion.
The term “good faith” has been applied by courts in many contexts but probably more so in the insurance context. Insurers have the obligation to use “good faith” in handling claims by their insureds. If they don’t, they get in big trouble. Here is a quote from an insurance case where the court talks about what the requirement of “good faith’ means.
“First, the company must thoroughly investigate the cause of the insured’s accident and the nature and severity of the plaintiff’s injuries. Second, it must retain competent defense counsel for the insured. . . . Third, the company has the responsibility for fully informing the insured not only of the reservation of rights defense itself, but of all developments relevant to his policy coverage and the progress of his lawsuit. . . . Finally, an insurance company must refrain from engaging in any action which would demonstrate a greater concern for the insurer’s monetary interest than for the insured’s financial risk.”
The last sentence is very instructive on this issue. The court is saying that the insurance company CANNOT DO ANYTHING that indicates a greater concern for their own finances over the interests of their insured.
Switch over to the home buyer. I think that it is quite likely that a court would apply this same type of reasoning when intepreting the obligation of a buyer’s agent to use good faith efforts to find a property for their client. The agent’s financial interest cannot take precedence over which houses are shown to a buyer. In other words, don’t look at the SOC.
Wait, we are not done yet. The Washington Agency law also recognizes that buyer agents should not work for free. That is why there are two ways around this requirement of good faith.
First, buyer and agent can simply agree, in writing, that this requirement does not apply. That’s the easy one.
Second, the requirement does not apply if there is no written agreement to pay the buyer’s agent compensation on the offered property. This was inserted to remove any doubt that a buyer’s agent was obligated to help buyer’s purchase a FSBO. We did not envision, at the time, SOCs of $1. Shame, shame on us.
So the real question here is whether a court would treat an SOC of $1 as a valid offer of compensation or just a de minimis amount that meets the compensation guidelines of the MLS. I tend to think that a court would take the latter approach and not require an agent to show property to a buyer where the SOC was $1. I also think that a SOC of $1000 would probably meet the test. So, there is gray. There is always gray , darn it. It would have been nice had we set a threshold but we did not. All I can say is the further you get away from an SOC of zero, the closer you get to having an obligation to show that house.
Whew! My fingers are tired but hope that helped. I do think the very simple and better way around all of this is to have a written buyer’s agency agreement in place that defines your obligations and compensation and all of this discussion becomes meaningless.
I guess it also goes without saying that the above comments are my personal thoughts and opinions and do not represent legal advice. As I said earlier, I will probably be wrong.
-Russ
Ardell
I don’t know where Becky is from so let’s focus on Washington state for the present time.
WARNING: VERY LONG POST SO GRAB A CUP OF COFFEE
Under Washington’s Agency law, a buyer’s agent is required “To make a good faith and continuous effort to find a property for the buyer; except that a buyer’s agent is not obligated to: (i) Seek additional properties to purchase while the buyer is a party to an existing contract to purchase; or (ii) show properties as to which there is no written agreement to pay compensation to the buyer’s agent.”
As with most laws, there is always room for interpretation despite the best efforts of the folks who helped draft the law (like me). That is when courts come in handy by putting their two cents as to what the words mean by applying the statute to specific fact situations and real people. Unfortunately, we have no case law on this specific issue in Washington. As a result, lawyers can opine on what they THINK the statute means and then hope some court some day agrees with them, realizing that in many cases the lawyers will be wrong (or maybe the court is wrong but seems like they always have the last word!).
First, there is a requirement that a buyer’s agent use a good faith and continuous effort to find a property for the buyer. Let’s examine the term “good faith” as that is relevant to our discussion.
The term “good faith” has been applied by courts in many contexts but probably more so in the insurance context. Insurers have the obligation to use “good faith” in handling claims by their insureds. If they don’t, they get in big trouble. Here is a quote from an insurance case where the court talks about what the requirement of “good faith’ means.
“First, the company must thoroughly investigate the cause of the insured’s accident and the nature and severity of the plaintiff’s injuries. Second, it must retain competent defense counsel for the insured. . . . Third, the company has the responsibility for fully informing the insured not only of the reservation of rights defense itself, but of all developments relevant to his policy coverage and the progress of his lawsuit. . . . Finally, an insurance company must refrain from engaging in any action which would demonstrate a greater concern for the insurer’s monetary interest than for the insured’s financial risk.”
The last sentence is very instructive on this issue. The court is saying that the insurance company CANNOT DO ANYTHING that indicates a greater concern for their own finances over the interests of their insured.
Switch over to the home buyer. I think that it is quite likely that a court would apply this same type of reasoning when intepreting the obligation of a buyer’s agent to use good faith efforts to find a property for their client. The agent’s financial interest cannot take precedence over which houses are shown to a buyer. In other words, don’t look at the SOC.
Wait, we are not done yet. The Washington Agency law also recognizes that buyer agents should not work for free. That is why there are two ways around this requirement of good faith.
First, buyer and agent can simply agree, in writing, that this requirement does not apply. That’s the easy one.
Second, the requirement does not apply if there is no written agreement to pay the buyer’s agent compensation on the offered property. This was inserted to remove any doubt that a buyer’s agent was obligated to help buyer’s purchase a FSBO. We did not envision, at the time, SOCs of $1. Shame, shame on us.
So the real question here is whether a court would treat an SOC of $1 as a valid offer of compensation or just a de minimis amount that meets the compensation guidelines of the MLS. I tend to think that a court would take the latter approach and not require an agent to show property to a buyer where the SOC was $1. I also think that a SOC of $1000 would probably meet the test. So, there is gray. There is always gray , darn it. It would have been nice had we set a threshold but we did not. All I can say is the further you get away from an SOC of zero, the closer you get to having an obligation to show that house.
Whew! My fingers are tired but hope that helped. I do think the very simple and better way around all of this is to have a written buyer’s agency agreement in place that defines your obligations and compensation and all of this discussion becomes meaningless.
I guess it also goes without saying that the above comments are my personal thoughts and opinions and do not represent legal advice. As I said earlier, I will probably be wrong.
-Russ
Becky, I was referring to this sentence “Besides…..it’s illegal to not show a buyer a home based on the commission you will get for it. BUT….try and prove an agent hasn’t done that before! ” Not something you did that was “illegal”.
In some areas of the country, agents are putting in listings with a $1.00 fee to the Buyer Agent. I don’t think it can be illegal to refuse to show the house offering a dollar, do you?
Becky, I was referring to this sentence “Besides…..it’s illegal to not show a buyer a home based on the commission you will get for it. BUT….try and prove an agent hasn’t done that before! ” Not something you did that was “illegal”.
In some areas of the country, agents are putting in listings with a $1.00 fee to the Buyer Agent. I don’t think it can be illegal to refuse to show the house offering a dollar, do you?
I really don’t know…a very large “discount broker” that I won’t mention the name of….used to put listings in the MLS for $202 minus $200…..which works out to be a $2.00 commission for the buyers agent. I questioned them on it to clarify I was reading it correctly and they said “that’s just the way we put it in the MLS, if your buyer wants to make an offer then you have to write your commission in the contract and hopefully the seller will approve it”……now that’s a load of CRAP! And if the seller doesn’t pay your commission….I guess you’re screwed? Gimme a break! Last time I checked, the real estate profession wasn’t classified as a “non-profit” originization!
But what can you do? I hear other agents talk, and hear what they do…..things that they aren’t supposed to do, but they do it anyway, like secretly boycotting certain companies or agents for this very reason. I guess in the long run it worked…..because that “discount broker” doesn’t do it anymore!
Luckily, I haven’t been put in the spot yet where a buyer wants that particular property and the other brokerage is only offering $1 or $2 for a commission.
Becky, I worked in FL when they Outlawed Dual Agency and brought in Transaction Brokerage back in 1996 or so. When you are “working with” a buyer, are you a Buyer’s Agent or a Transaction Broker?
Russ, Thanks for the response. Sounds a lot like “fiduciary duties” to me, so glad I didn’t drop my standards. Without regard to self interest equals fiduciary level of care, doesn’t it? As for buyer’s signing contracts, as long as they get to negoitate commission issues at the same time…but many want buyers to sign contracts and act like the commission is none of their business because “it is paid by the seller”.
Back to Becky 15. and 23. I see you answered my question in that you are a transaction broker and not a Buyer’s Agent. Here in Washington agents represent buyer’s at first contact, without an agency agreement, and we do not have Transaction Brokerage.
As to how do I “handle my commissions with buyers?” Pretty much the same way I do with sellers. I don’t make a distinction between the two different types of consumers. I determine the value of my services based on their needs. It’s a little harder with buyers on the front end to determine the time and effort that will be needed, so sometimes I have to catch it on the back end.
Ardell,
Just a quick clarification. It is legal in Washington to be a Transaction Broker (i.e. representing neither buyer nor seller in the transaction). Not many folks do it but it is allowed.
I guess I am a bit confused on the problem with dealing with low SOCs. How hard is it to sit down with your buyer and address the various scenarios for the payment of the agent’s desired compensation and create a plan to deal with each.
-Russ
Russ, I’m sure TB is allowed, but it is not an option explained in the Washington Law of Agency handout. I think it should be, so that consumers can trade down to Transaction Broker for a reduced fee. Buyer’s wanting a reduced fee is clearly a demand of the marketplace, and that option should be more readily available.
As to how “hard” it is to sit down with a buyer and address payment scenarios of “low SOC’s”. The topic of the post is HIGH SOC’s. I sat down with a buyer and we together determined his fee, based on his price range, needs and qualifications, to be 2% of sale price. So if the property he eventually purchases has a 4% SOC, he gets 2% of that and I get 2% of that.
At present I do not charge Buyers for a low SOC and haven’t run across that problem in properties I have sold. I think we will actually see it less and less over the next six to twelve months here in the Seattle Area.
I would love to see more progress with regard to buyer’s setting the buyer agent fee with their agents. But there is reluctance in our marketplace to accommodate that line of thinking, particularly among the large, traditional brokerages.
Russ, I’m sure TB is allowed, but it is not an option explained in the Washington Law of Agency handout. I think it should be, so that consumers can trade down to Transaction Broker for a reduced fee. Buyer’s wanting a reduced fee is clearly a demand of the marketplace, and that option should be more readily available.
As to how “hard” it is to sit down with a buyer and address payment scenarios of “low SOC’s”. The topic of the post is HIGH SOC’s. I sat down with a buyer and we together determined his fee, based on his price range, needs and qualifications, to be 2% of sale price. So if the property he eventually purchases has a 4% SOC, he gets 2% of that and I get 2% of that.
At present I do not charge Buyers for a low SOC and haven’t run across that problem in properties I have sold. I think we will actually see it less and less over the next six to twelve months here in the Seattle Area.
I would love to see more progress with regard to buyer’s setting the buyer agent fee with their agents. But there is reluctance in our marketplace to accommodate that line of thinking, particularly among the large, traditional brokerages.
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If buyers will directly pay their buyer’s agents, then your argument would be appropriate; but, most buyers want the best of both worlds. They don’t to pay anything, plus no buyer agent bonuses either; that doesn’t even make sense. We must get paid somehow.
If a buyer’s agent bonus is in place, then I will have earned it — but it will not influence me to encourage a purchase.