Exclusive Buyers’ Agency
THE WAY WE WERE
Until a few years ago, real estate was sold the way it always had been. The listing agent — who obtained the listing from the seller — represented the seller. A second agent, the selling agent, brought the buyer to the table, but was acting as a sub-agent (agent of the listing agent) often unbeknownst to the buyer. In this situation, even though the selling agent may have never met the seller, he or she still had a legal obligation to report to the seller any information the buyer revealed, or any information the agent found out about the buyer’s situation that would help the seller’s negotiating position.
That makes the agents sound evil, but in fact, if they had not communicated the information to the seller, they would have been breaking the law. Both agents had fiduciary, legal and moral obligations to work in the best interests of their beneficiary. The seller was the client for whom agents were working. The buyer was merely a customer.
THE REVOLUTION BEGINS
In 1983, however, a classic study started a revolution in real estate sales. The Federal Trade Commission in the United States found that 72 percent of all buyers believed the agent they worked with was representing their interests. That meant that three out of four buyers were providing sensitive information to agents who weren’t representing them. This report fueled an industry wide agenda to disclose for whom the brokerage or licensee worked in every situation. By 1992, Ontario had disclosure requirements in place.
Times have changed. A survey conducted in 2004 found that 86 percent of home buyers used buyer representation. Buyer representation is not the exception anymore, it’s the norm. Consumers now know they have the right to be represented.
TELLING IT LIKE IT IS
Ontario now requires Disclosure of Representation by which every registered agent is required to explain his or her legal relationship with a buyer or seller at first substantive contact. That is if you, as a prospective buyer or seller, start telling an agent information that would compromise your bargaining position in any way, the agent should immediately explain agency and give you a choice in how you want to move forward. Unfortunately, some don’t, so it’s up to you to protect yourself.
Any registered (licensed) real estate agent in Ontario can legally act as a buyer’s agent, while working for a brokerage focused on representing sellers’ listings. But you can now engage what’s called an exclusive buyer’s agent. This is the purest form of buyer representation, but unfortunately, very few firms represent only buyers, since listings are the lifeblood of the real estate industry — listings make the phone ring.
Why choose exclusive buyer’s agency? While any agent will arrange property showings, suggest sources of financing, provide accurate information, prepare forms and agreements, and monitor the entire process, a exclusive buyer’s agent can perform services for you that many seller’s agents can’t. An exclusive buyer’s agent can show you reasons not to buy a particular property; negotiate the best price and terms for you alone; include conditions in the contract that protect you, rather than the seller as in many contracts; and keep confidential any information that could hurt your bargaining position.
What if the house you want is listed by the same agent or firm that’s representing you as buyer’s agent? In that case, you can agree to: Dual Representation, in which case the agent represents both you and the seller. Dual representation — dual agency by another name — creates a potential loss for the buyer who wants true fiduciary representation.
WHO PAYS THE AGENT
One thing hasn’t changed: Almost without exception, the seller is going to pay a percentage of the sale price to the listing brokerage, as a commission fee. Most sellers agree to allow the listing agency to split the commission with the buyer’s agent, which means the seller is paying the buyer’s agent to represent the buyer’s interests. While many people think that whoever is paying the agent is the one getting the best representation, courts have made it clear that paying an agent does not create fiduciary representation or responsibility.
Why would a seller agree to allow half of the commission to go to a buyer’s agent who is representing a buyer against the seller? Simply — the seller wants to sell. But its really the transaction that funds the commission. Yes, the seller is paying the commission, but without the buyer’s money there would be no sale. The whole idea here is fairness: If the buyer is bringing the money to the table to buy the house, shouldn’t that buyer have full representation?
Exclusive buyer agency is finally here.