The Ummel Verdict Is In - Buyers Need to be Careful in Choosing Their 'Buyer Agent'

The Ummel Verdict Is In - Buyers Need to be Careful in Choosing Their 'Buyer Agent'

Good article. Exclusive Buyer Agents go way beyond analyzing comps (which is a given) - to looking at recent market trends and statistics, neighborhood information, city plans, community plans, and helping the buyer do Due Diligence on other things.

Interestingly - the general public and many Real Estate agents - don't even know that Exclusive Buyer Agents exist.

Exclusive Buyer Agents are experts at collecting information on the seller's situation - while keeping their buyer client's situation confidential.

Because Exclusive Buyer Agents are specialists - they a very good at what they do.
Since they are generalists - some "buyer agents" may spend 95% of their time listing property for sale and representing sellers - or may have dual agency conflicts of interest.

Evidence That Traditional Agents Can Have Home Showing Biases

Some people don’t believe me when I tell them that “buyer agents” at traditional firms tend to push their own listings over others…due to perhaps getting in-house spiffs…. Remember - as a home buyer, when you hire an Exclusive Buyer Agent to represent you - that agent and their company never list property for sale - and so there is no biased home showing or dual agency conflicts of interest situations.

This is evidence….

“Besides camaraderie, @properties uses other techniques to encourage sales, including rewarding the two brokers who sell the most properties listed in-house with overseas trips. One quarter last year, the winners went to Italy. Another time, to Paris. And any broker who sells $10 million worth of real estate, in any type of transaction, is offered the choice of a Rolex or a Cartier watch.”

Obviously – when an agent pushes their in-house listings or worse yet - their own listings - the buyer experiences biased home showings - and can experience dual agency conflicts of interest with the buyer being equally represented with the seller. The buyer doesn't have someone fully on their side in that case – and doesn't have all the information available to get a good buy on a property that they would have had - had their agent not declared "dual agency" on them.

CNN Money article about the benefits of using an Exclusive Buyer Agent

A new article on CNN Money talks about how people should use an Exclusive Buyer Agent.... Unfortunately - the terminology they used was "buyer agent" in this article at CNN Money

But the point is clear... use an agent that is on your side - and the only type of agent that you can be assured of that does that - is an agent that doesn't list properties - so they can give you unbiased home showing, no conflicts of interest, and always be on your side 100% of the time.

I think most people get confused - as there are so many terminologies in Real Estate that they don't understand... An agent that works at a company that lists property for sale calls themselves a "buyer agent" - that is what most people think they are getting - someone that will always be on their side 100% of the time.

It is too bad for the consumer - that that isn't the case. These agents can get into what is called "dual agency" situations where they are representing you and the seller equally. Unfortunately - there is only a 20% upfront disclosure rate by "buyer agents" about how they can get into such conflict of interest situations - even though the law says that they should always disclose that they could get into that - with the potential client (upon first meeting.)

Without "named differention" the consumer can get confused. Hmmm - buyer agent - sounds like they will be representing my interests 100% of the time...

That is what is so nice about the use of the term "Exclusive Buyer Agent" - because officially - it means that the agent and their company don't list property for sale - and so they can never get into a conflict of interest situation.

In any case - though they blew that terminology in the article -- that is what it is talking about...

And even more unfortunately - many traditional agents sometimes use the word "Exclusive Buyer Agent" - when they aren't - which confuses the public even more.
What is what? What kind of representation is someone giving me? What name can I trust? What does the name mean? etc.

As a Buyer - Why Take the Risk of Hiring a "Buyer Agent" (Dual Agency Possibility) When You Can Have an Exclusive Buyer Agent (No Dual Agency)?

The answer is - you shouldn't take the risk... It's a no-brainer. When you use an Exclusive Buyer Agent (they and their company never list property for sale) - and you are assured of 100% representation - 100% of the time.

Unfortunately - Dual Agency is legal in Illinois because traditional firms lobbied for it - in order to preserve the ability for their agents to obtain "double dip" commission. Never mind that it isn't good for the consumer...

How can a Realtor, in all honesty, work for two Clients on opposing sides of a transaction? How can you place your Client's interest first, when there are two of them, one trying to get the highest price possible and the other trying to get the lowest price possible? You can't.

Unfortunately when consumers meet with a so-called "Buyer Agent" the first time - and there is no contract - over 80% of consumers in Illinois aren't told by their agent that they can get into a "Dual Agency" situation until it happens.... when their buyer client wants to write a contract on their own listing (that they happened to "sell" to their client.) The law says they were supposed to disclose that they could - upon first contact - but it rarely happens. Thus - the home buyer is left in the dark - and doesn't realize the conflicts that can crop up. (Would have never happened - had they used an Exclusive Buyer Agent.)

An Agency relationship creates a fiduciary between the Agent and Principal. Take away the fiduciary and there is no Agency. When entering into Dual Agency relationship, this fiduciary must be modified, to the point of no longer existing, in order to assist both clients equally. A fiduciary is NOT equal. Here lies the problem. Dual Agency, by it's very nature, is not an Agency relationship. Below are some excellent links that delve into the problems with Dual Agency a little further.

http://www.realestatelawyers.com/Dual-agency.cfm

http://www.realestatejournal.com/columnists/housetalk/20031010-barta.html

http://realtytimes.com/rtapages/20050208_dualagency.htm

This is why I've chosen to sacrifice half of my potential income - to only be one "one side of the fence" - that of the buyer. If it was about the money - I'd be like every other agent - working both sides. It is about the ethics to me..

The Difference Between an Exclusive Buyer Agent and a "Buyer Agent"

Unfortunately - most of the general public isn't aware of the distinction...

In the 1990's NAR defined the difference in one of their brochures - but that is the last we've heard from them in terms of the definition. Only two states proactively let the public know that Exclusive Buyer Agency is a choice that they can have when they are purchasing Real Estate -- Ohio and California.



An Exclusive Buyer Agency is a real estate agency employing only agents working with buyers - and never engaging in agency for sellers. They have a fiduciary obligation and service to buyers, independent of all obligations and inducements to adverse interests (example - sellers, other agents, service providers).

An Exclusive Buyer Broker would be the managing broker of such an agency.

An Exclusive Buyer Agent is an agent who represents only buyers and neither accepts listings nor works in an agency which represents sellers or accepts listings. They work for the broker of the Exclusive Buyer Agency. They can never get in a dual-agency conflict of interest situation with their client.

A "Buyer Agent" works for a company who lists property for sale - and they list property for sale themselves. They can get into dual-agency conflict of interest situations with their buyer client - and unfortunately for the consumer - typically disclose that they can when the contract is written - rather than up-front with the consumer - as is typically required by most state laws.

An Exclusive Right to Represent Agreement does not give the right for a Buyer Agent to call themselves an Exclusive Buyer Agent. It only means that their buyer is working exclusively with them - and no other agent. They can still get in dual agency situations for example.

More About Dual Agency Conflicts of Interest (What You Get if You Hire a Buyer Agent)

A "Buyer Agent" is an agent that is supposed to be representing the buyer - but can get into Dual Agency conflict of interest situations because they and their company list property for sale. Most of the public is clueless about this fact - and the implications when their "Buyer Agent" turns into a dual agent. (And most don't receive full-disclosure up-front)

An Exclusive Buyer Agent does not list property for sale - nor does their company - ensuring that they are always looking out for their buyer's best interests.

One person e-mailed me today:

I just found this "dual agency" guide on the Internet. Questions You May Want to Ask a So-called "Buyer Agent" Before You Hire Them I'm sorry I didn't know about this guide three years ago. Being a completely uninformed consumer (like the great majority of the public) back then, I became an easy mark for two incompetent, unethical agents who failed to explain or disclose crucial material facts about Company X's (name deleted) representation policy. Now I'm a lot wiser.

The most disturbing aspect is the fact that Company X's is using the absence of a separate written contract with my so-called buyer's agent Ms. X (which she never offered to me, by the way) to argue that she NEVER had a fiduciary duty toward me--although she showed me 8-10 houses over a three-month period, called me several times a week to announce new listings, encouraged me to attend open houses at them, drove me in her car to three of them, and gave me advice on what to bid on my house of choice.

In other words, the Company X management seems to believe that Ms X's statutory violations--failure to provide the mandatory written disclosure form when showing me Company X's properties, to function as a dual agent, or to assign me an intra-company agent if she refused this role---can be grounds for claiming that she was not my buyer's agent at all, even though she openly functioned as such and testified to this effect in two depositions!

Even one of the members of her real estate team wrote in a document that she thought Ms. X was serving as a buyer's agent in the negotiating process, and even the seller of the house of choice believed she was representing me!

The concept of dual agency obviously serves the interest of real estate companies by encouraging the practice of double dipping. It is inherently deceitful and unfair. .

Why Dual Agency and Designated Agency Are "Legal" Even Though They are Bad for the Consumer

Dual agency, designated agency, transaction broker, and facilitator are all efforts to undermine and circumvent the common law of agency. During the past ten years - The National Association of Realtors (NAR) issued instructions to all state and local associations to ask for new state laws that specifically abrogate the common law of agency.

The common law of agency dictates that the agent/firm must put the interests of the client/principal ahead of all others, including those of the agent/firm.

Agency disclosure in the late 1980s revealed that an in-house sale might be impossible if both sellers and buyers requested representation. The fact that dual agency was, and is, dangerous for the agent, and an oxymoron by definition, gave rise to possible alternatives to save the in-house sale and the 10 billion dollars it brings.

To get around the drawbacks of "dual agency" - states have been adopting "designated agency". The is the case in Illinois - and most recently - Wisconsin - where the employing broker designates one agent within his/her office to be an agent for the seller and another agent within her/his office to be the agent for the buyer. However - designated agency is really undisclosed "dual agency" - and not very good for the consumer. Unfortunately "designated agency" has been legalized in Wisconsin, Illinois and many other states - in order to assure that traditional Real Estate companies can maintain and legalize the "double dip" - despite all the conflicts of interest for the consumer. It is about greed - rather than what is best for the consumer.

Law firms don't allow you to hire an attorney while your adversary uses another attorney at the same firm. So why should this be legal in Real Estate? Greed. The buyer's information and negotiation power can be compromised in these offices.

As a buyer - if you have one agent in the office representing you - all the other agents in that same office are your adversaries. As a buyer - there is a good chance that your confidential information may be compromised through shared fax machines, file cabinets - overheard phone conversations etc.

So who is it then that benefits from these new real estate laws? Usually its the party that initiates new legislation that has the most to gain. NAR and state associations do the leg work because they are beholden to the membership - 99.9% of which represent "both sides" to get the double dip - and use the seller's money very inefficiently (print ads which are known to be less than 2% effective in helping sell the home (of course - no agent tells the seller that) - but generate "buyer leads" for the agent - using the seller's money. Nothing like free advertising on the seller's dime..) Who represents the public?

Unfortunately - the state real estate associations (with the exception of Ohio) do not disclose the existence of the consumer option of Exclusive Buyer Agency in their "Consumer Options" brochures. The board on the State Associations are typically members of the mega-brokers - who of course - advance their own interests to the detriment of the consumer - and they surely don't want the consumer to know about the existence of Exclusive Buyer Agents. (It would be a no-brainer to use them if the public knew.... so fostering disclosure of it it - would be a major threat to their business model.) Who wouldn't want a better form of buyer representation for the same price? (i.e. - nothing out of pocket to the buyer)

Though Exclusive Buyer Agency represents a much higher level of representation to the buyer - the clout and special interest groups and PAC money of the large brokerages ensure that the general public is left in the dark.

The fact that dual agency was, and is, dangerous for the agent, and an oxymoron by definition, gave rise to "designated agency" (which is really dual agency is sheep's clothing) to save the in-house sale and the 10 billion dollars it brings.