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Are Buyers Customers or Clients?

Published by Joseph Ferrara (2) July 18th, 2006 in Brokers & Professionals and Residential Real Estate. Comments

photo_customer_service.gifAfter reading some blog posts about Buyer Brokers from around the country, I found one, by fellow New York Broker/Blogger Christine Forgione at NYHouses4Sale, that really reminded me how different New York City really is.

New York City Real Estate is unique in many ways. It is fairly common teaching that agents treat their sellers as “clients” and buyers as “customers“. There is a huge difference here. As the listing Broker/Agent, your fiduciary duty is to the “client”, requiring you to provide them with “undivided loyalty and full disclosure”. You need to be honest and fair to the “customer” and treat them with a reasonable amount of “CARE”, but you do not represent customers. You ONLY “work with them”. But do buyers know this?

If the buyer-customer wants to become a “client” with exclusive representation (and the requisite fiduciary duty) for their best interests, they need to sign an agreement with a Buyer Broker. It should detail the services to be performed and the compensation due the Exclusive Buyer Broker from the Buyer. If you sign an agreement with the “Buyer Broker”, you as a buyer now have this valuable fiduciary duty owed to you. I haven’t seen this happen in New York City, have you? What seems to be the norm is that brokerages have agreements with each other that determine their agency relationships as well as a compensation structure. So it appears that in most cases in NYC, the selling and listing broker both work for the client, the party the listing broker has a written agreement with – who usually is the seller.

Is this fair to the Buyer-Customer? Does the Buyer Customer really understand this? Should they be considered a client as well? Are they willing to pay a Buyer Broker a separate fee to exclusively represent their best interests? Are there other models out there that are fairer to buyers and sellers than are currently offered? Is the real issue about representation or compensation?

Must Reads:

NYHouses4Sale – by Christine Forgione – Buyer Agents – They Don’t Exist Here

Bloodhound Realty – NO DUAL AGENCY

Bloodhound Blog – With a very interesting comment by Ardell DellaLoggia

RaincityGuide – Negotiating Fees with the Buyer Client – by Ardell

RaincityGuide – Negotiating the Commission vs. Discounting – by Ardell, again :)

Buyer One Realty – Dual Agency: Recognizing the Danger

Buyer One Realty – Dual Agents Must Be Loyal To Both Buyers and Sellers

ExclusiveBuyerAgents

Relocation Advisors Group (white paper) See their website here

Realtor.org – Top Legal Cases: Know Your Risks

http://homebuying.about.com/cs/disclosures/l/bl_disclosures.htm

RealCentralVa – Dual Agency: Who Benefits?

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  • Excellent string of links! I plan to read each and every one, except the ones I wrote :-)
  • I appreciate the mention - thank you! Great post by the way. I do wish that in NY we would practice more of the buyer broker senerios - if buyers knew why it is in their favor, but the dollar signs seem to get in the way. I would like to know if anyone has been paid as a buyer broker and how well that worked out.
  • I need to write more about this at my own place -- for one thing I owe a reply to Ardell. But your remarks here are interesting, and highlight how jurisdiction-dependent all this is.

    In Arizona, Buyer Brokerage exists as a default ground state. It hasn't been legislated, so far, but the Arizona Association of Realtors has written Sub-Agency (what I would call the situation you describe in New York) out of existence.

    Moreover, our courts consistently rule on the doctrine of Implied Agency: If the customer thinks you're his agent, you are, and he is de facto your client. This, as you might guess, results in some nice judgments for Undisclosed Dual Agency.

    A key precept of all of this is this: Representation Is Not Compensation. I owe a fiduciary duty to my buyer client even if he elects to buy a FSBO with no broker participation. I owe a fiduciary duty to my seller client even if he turns down four nearly-perfect offers and then cancels the listing.

    You can write around this in your employment agreements, but if you just "wing it" -- as many, many Realtors do with buyers -- the Arizona courts are always ready to clip your wings.
  • In the State of Washington, all licensees represent buyers at first contact, with a few exceptions. One being if the licensee already represents the seller. That's "licensee" not "broker" as we are a Designated Agency State where the buyer is represented at first contact. At least that's my read on it.
  • The link you posted "DOJ-Exclusive Buyer Agency" doesn't show the source of the writing. It was written FOR the DOJ, but by whom? It could be the White Paper submitted by Tom Early as the Master of NAEBA, but it also could be Tom Hathaway, given the references to Tennessee. Can you identify the source of the writer in this link, as some might think it is the DOJ if you do not. Thanks.
  • ardell - fixed the link. thanks!

    yeah, the state of washington , along with many other states, most certainly have a different approachs to agency than new york does. i'm not sure what is the best model. i would have to understand peoples real life experiences in each type of agency for both pro and con in order to have a solid opinion on the matter.

    there seems to be no "best" method that would be fair to both buyer and seller. maybe there should be some sort of standardized system for agency. maybe someone is already working on it...

    -rdb°
  • christine - you did one heck of a job with your post!

    i too would like to hear from buyer agents in new york about their experiences. when you say that "but the dollar signs seem to get in the way", what do you mean?

    -rdb°
  • Well, the dollar signs seem to get in the way because the buyers feel that the commission is already factored into the sales price, which it is - but the buyers seem to think that the sellers are paying 100% of the commission - failing to realize that they are in actuality paying the commission. Even though the commission gets paid/claimed from the sellers end, the sale would never take place if the sales price + the commission are not acceptable to the seller. Let me give this example - I go buy a pair of shoes - I the buyer pay the tax - correct? BUT the store is the one who claims it and pays directly to the IRS. But in the end - I the buyer paid the tax on it. The store would never allow me to take the shoes without paying the tax. Correct?
    With a TRUE buyers broker agreement - the buyer is AGREEING that if YOU the sales person get them the house that they want for a certain price (it would be greatly lower than the asking price) and represent them and only them therefore, they will pay your commission, directly to you. I have never in my experience seen that done -
    On our LI MLS - the selling broker commission is X amount of dollars and out of every 100 MLS listings you will see 99.9% the Buyer Broker commission will be 0%.
    Go outside of MLS - if there was an EXCLUSIVE listing that ABC realty had - I as a TRUE buyer Broker could show that house - because I am not getting paid from the sales price - I would be getting paid by the buyer.
    Agents tend to confuse the Buyer Broker and the Dual Agency. They are completly two different things.
  • greg- thanks for sharing arizona's position on implied agency, it sure seems interesting.

    it's just amazing to see how virtually every state has different laws regarding agency. no wonder there are so many confused people out there.

    -rdb°
  • christine - excellent examples!

    you provide a very interesting analogy. the irony of this example however is, that the buyer is ultimately paying the commission, but doesn't get the status as client and is owed no fiduciary duty yet they have to foot the bill.

    -rdb°

    p.s. yes, generally speaking - buyer brokerage and dual agency are compeltey different.
  • Here's one for the rest of the nation (or at least those place that still have sub-agency): What do they teach in your ABR courses? I have always thought of ABR as being about exlcusive buyer representation. That's maybe 70% of the first two days if you take the course in Arizona. What do they teach elsewhere?
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