When I am speaking for the first time with potential buyers, one of the most misunderstood aspects of buying a home concerns buyer representation. Although we have had buyer representation in Colorado since 1994, many people still do not understand that, as buyers, they have the right to have an agent who solely represents their interests. Here are some of the most common questions about buyer representation. I hope this will clear up WHY you need buyer representation!
Prior to enactment of The Brokerage Relationships Act in January of 1994, every licensed real estate broker or salesperson in Colorado working to sell a listed property was assumed to be an agent of the seller. As agents of the seller, licensees working with a seller or a buyer owed the same duties of loyalty and fidelity to the seller. The current law recognizes and defines different types of relationships between licensees and buyers and sellers such as single agency (buyer agency or seller agency), and the transaction-broker relationship.
Colorado real estate licensees are required by law to disclose, in writing, the nature of the working relationship to buyers and sellers and the level of service they will provide. A buyer or seller has the right to choose what type of representation best meets their needs, just as they have the right to choose a broker to represent them in a real estate transaction.
What is buyer representation?
When you agree to work with a buyer’s agent, you have the benefit of someone representing your best interests and negotiating on your behalf. The agent has a fiduciary responsibility and pledges to you loyalty, confidentiality, obedience, accountability, reasonable care, and diligence. These are not just words; you have an agent that helps you through every step of the transaction and puts your interests above everyone else’s, including his own.
Can’t I just call the agent whose name is on the sign in front of the house?
You can call that agent, but you must remember that he/she is representing the seller and will work in the seller’s best interests, not yours.
Won’t I get a better deal if I go to the listing agent?
This is a misconception that persists among novice buyers. Some people think that an agent will talk the seller into accepting a lower offer if that agent has both the buyer and seller because the agent will be getting all the commission. The reality is that the agent is representing the best interests of the seller, not yours. In this case you are merely a customer, and nobody is representing you.
If you were involved in a lawsuit, would it be acceptable to you to use the same lawyer as the person who brought suit against you?
NO. In the same way that a Realtor cannot fully represent both parties to a real estate transaction.
Can you show me properties that aren’t your listings?
Yes! Not only can I show you any property that is listed on MLS, but I can also show you For Sale By Owners, as well as New Build Homes in a Model Home community. When the sellers list their homes for sale, they agree to pay the buyer’s agent if they sell the home. The same is true for most FSBOs as well. The owners of FSBOs save money by not using a seller’s agent, but most agree to pay a buyer’s agent a commission. So if you see a property that interests, just let me know and I will arrange for us to see it.
We can also represent you if you are interested in buying a new home from a new home builder. Remember that the salesperson in a model home is an employee of the builder and is representing the best interests of the builder.
How much does buyer representation cost?
In better than 99.9% of the cases, the commission is paid by the seller if the seller chooses to do so, so buyer representation costs you nothing. I have never had an instance where a buyer has had to pay my commission, even with FSBOs or New Builds. The buyer representation agreement, however, will spell out that you will be responsible for my commission if the seller does not pay. But two things are important here: First, it is extremely rare; and second, we generally know ahead of time if there are any issues with the commission because the MLS listing agreement states that the buyer’s agent will be paid by the seller’s agent out of the seller’s agent’s commission, although the amount may vary.
Do I have to sign anything?
Maybe. Let me explain by quoting from a document called Definitions Of Working Relationship. This document was created by the Colorado Real Estate Commission.
DIFFERENT BROKERAGE RELATIONSHIPS ARE AVAILABLE WHICH INCLUDE SELLER AGENCY, BUYER AGENCY OR TRANSACTION-BROKERAGE.
DEFINITIONS OF WORKING RELATIONSHIPS
For purposes of this disclosure, seller also means “landlord” (which includes sublandlord) and buyer also means “tenant” (which includes subtenant).
Seller’s Agent: A seller’s agent (or listing agent) works solely on behalf of the seller to promote the interests of the seller with the utmost good faith, loyalty and fidelity. The agent negotiates on behalf of and acts as an advocate for the seller. The seller’s agent must disclose to potential buyers all adverse material facts actually known by the seller’s agent about the property. A separate written listing agreement is required which sets forth the duties and obligations of the broker and the seller.
Buyer’s Agent: A buyer’s agent works solely on behalf of the buyer to promote the interests of the buyer with the utmost good faith, loyalty and fidelity. The agent negotiates on behalf of and acts as an advocate for the buyer. The buyer’s agent must disclose to potential sellers all adverse material facts actually known by the buyer’s agent including the buyer’s financial ability to perform the terms of the transaction and if a residential property, whether the buyer intends to occupy the property. A separate written buyer agency agreement is required which sets forth the duties and obligations of the broker and the buyer.
Transaction-Broker: A transaction-broker assists the buyer or seller or both throughout a real estate transaction by performing terms of any written or oral agreement, fully informing the parties, presenting all offers and assisting the parties with any contracts, including the closing of the transaction without being an agent or advocate for any of the parties. A transaction-broker must use reasonable skill and care in the performance of any oral or written agreement, and must make the same disclosures as agents about all adverse material facts actually known by the transaction-broker concerning a property or a buyer’s financial ability to perform the terms of a transaction and if a residential property, whether the buyer intends to occupy the property. No written agreement is required.
How long do I have to sign the agreement for?
The period of time that we are under agreement is negotiable. I want our relationship to be a mutually satisfying one, and I believe that we should both want to work together. For that reason, I encourage you to select a period of time that you feel comfortable with. If you don’t want to sign a long agreement at first, that’s fine with me; we can always extend it later if we both agree.
What else do I need to know about buyer representation?
The other thing that many home buyers don’t understand is that buyer representation not just about finding the property and writing up the contract. A buyer’s agent is critical in the steps leading up to the closing. The inspections need to be done, and inspection issues need to be negotiated. After inspections are completed, a buyer’s agent will monitor the mortgage process, make sure that the commitment date is met, and make sure that the final walkthough meets the buyer’s approval. Any extra services, such as coordinating attorney services, utility switchovers, and verifying that inspection issues have been completed may be part of the agent’s responsibilities. This conversation does not happen over the phone. I always meet with a potential buyer first so we can discuss each step in the homebuying process. I want to provide as much information as possible and answer any questions they have so they will feel comfortable about the process. After I have explained what buyer representation is, I will ask them to sign an Exclusive Right to Buy (Buyer Agency) agreement. I want them to feel comfortable that I am going to work for them, but I also want to know that they are committed to me. We go over everything they will need to do for homeownership:
- Do they understand each step of the homebuying process?
- Do they understand that the monthly payment includes mortgage principle and interest, taxes and insurance?
- What do they need to provide to a mortgage lender to see what they qualify for in a mortgage?
- What is the timing? When do they need to move in? Do they have flexibility?
- What are their criteria for their first home? Are they flexible in what they must have and what they would like to have?
- Are there any other decision makers?
I hope this answers some of your questions about buyer representation. If you have any other questions, please ask. Or give me a call and we’ll get started!