Exclusive Buyer Agency Contracts. Don't Sign Them... Yet.

tag:blogger.com,1999:blog-4797432599663441966.post-61053789613680955862007-02-13T16:36:00.000-05:002007-08-21T17:01:31.046-04:002007-08-21T17:01:31.046-04:00Exclusive Buyer Agency Contracts. Don't Sign Them... Yet.<img src="http://s68.photobucket.com/albums/i18/franklyfrank1/th_b95b9993.jpg" align="left" />What is an "Exclusive Buyer Agency Agreement"? This is a contract that a buyer is oftentimes asked to sign by a buyer agent Realtor. In part it commits the buyer to use this one agent exclusively for several months. Why in the world would you sign this? How could signing all your rights away ever help you, the buyer? Where is the "What's in it for me?" in that proposition? Don't you still want to be able to: <ul><li>Use another Realtor if you don't like this one?</li><li>Buy a FSBO and have no commission be paid!</li><li>Bypass the buyer agent and make the listing agent give me the commission? </li><li>Walk into a New Construction and sign papers, who needs a Realtor for that? I got them down $50k! </li><li>Have 2 or 3 eager Realtors compete for your business. Each one working their tail off to find you that hidden gem. Doesn't cost you anything, so why not? (just like the Double Agents show, where 2 Realtors compete: see <a href="http://www.youtube.com/watch?v=fMS2SbvBOVc" target="new">Video</a>) </li><li>If you find the home, why should he get paid anything?</li><li>Why sign an "exclusive" agreement, when you can sign a "non-exclusive" agreement? </li></ul>And that sales pitch is so hoaky sometimes: <ul><li>"My broker requires it before showing you anything."</li><li>"This is standard."</li><li>"If you don't sign this, then I am legally working for the seller. If you sign this, it acknowledges that I am working for you, the buyer." (my favorite, as the law reads, it is true, but in reality, it is just a pitch) </li></ul><img src="http://s68.photobucket.com/albums/i18/franklyfrank1/th_2d2e7cea.jpg" align="right" />What a ton of B.S. So let me know if I missed anything. All of the above is the typical viewpoint of the buyer right? I know it well. I grew up with it. My mother was the most cynical person and would never sign one of these agreements. She didn't see the "how can this help me." In part it is the Realtor's fault for not explaining the process clearly. <img src="http://i68.photobucket.com/albums/i18/franklyfrank1/f03c6409.jpg" align="left" />But, and here is the big butt, I have seen the other side! It isn't always as shady as it initially appears and it can help the buyer. As a Realtor, many newbies feel bad getting their clients to sign these contracts. Sometimes they let it slide, until one day they understand why it protects the Realtor. Then I'll go into how it helps the client. What? This exclusive contract can help the buyer? How in the world is this going to come around full circle? Ah, the suspense. <ul><li>Background story: I was helping some clients buy a home in 2004. Many buyers might think we are paper pushers, but some of us Realtors go above and beyond. Including once driving to Chantilly to take 100+ photos of the interior of one unit. Why? Because of <a href="http://franklyrealty.blogspot.com/2007/01/for-realtors-sucky-listing-agents-i.html">Sucky Listing Agents.</a> The agent only had 1 photo, and the buyer was out of town, so I created a virtual experience for them. (I do this for all of my buyers, I take about 50-100 photos of EACH place we see together and I create on online private album for them to remember everything. Does your B.A. do this?) Anyhow, we put an offer in on one place. We didn't get it. I'm ok with that. I could have talked them into a higher price, and won, but I didn't do that. I worked for their best interest, not mine. Then they found a For Sale By Owner. It was literally 20% overpriced (as many FSBOs are). They had me run the numbers and do a full analysis on the<img src="http://i68.photobucket.com/albums/i18/franklyfrank1/8b3f8899.jpg" align="right" /> neighborhood etc. I even helped them talk through what they wanted to offer. I warned them no matter how upgraded it was, it was a really high price. It was like buying the best house in the worst neighborhood. They decided to offer anyhow.I then get an email the next day saying that my services were no longer needed (You're fired), they had bypassed me and bought the FSBO for $30k over what it should go for. Payment to Frank was $0, (hours wasted). Buyer overpaid $30k. Having some consolation knowing they overpaid= Priceless. </li></ul> Since then I require my clients to sign an "Exclusive Buyer Agency Agreement" early on. Not before the first showing, like some, but shortly thereafter. I give them enough time to feel me<img src="http://s68.photobucket.com/albums/i18/franklyfrank1/th_8653d902.jpg" align="right" /> out, but I can't invest a ton of time with a customer that is still shopping around agents and might bolt at any moment. A catch 22 of sorts. So, ok, you got screwed, that sucks, help me understand how this helps me, today's buyer? <ol><li>The contract outlines what the agent gets paid. Mine says 3%. And that means if a listing is offering 2% (only a few homes do), my buyer pays the balance, and if there is a FSBO offering 0%, my buyer pays the full 3%. </li></ol>Wait a second, that sucks. I've always been told that the "seller pays." Again, a sales tactic brainwash: "Buyer agents are Free." Don't believe that. Guess who is writing the check/loan for a $400,000 house? Guess where the Realtor fees get drawn from at closing? Correct, that check. You are indirectly paying for all the fees. <ol><li>b. Wait it gets better. My exclusive agreement also states that if the buyer compensation exceeds 3%, the rest is rebated to the buyer! See (<a href="http://franklyrealty.blogspot.com/2006/12/shady-realtor-bonuses-10-free-cruise-be.html">Shady Realtor Bonuses? 10%!! Free Cruise? Be Aware.</a>") Isn't it great... no... just normal... that you have a contract that outlines what your Realtor is getting paid? Overpayments/bribes go back to the buyer, and there are no behind the scene shenanigans going on. (Buyer benefit 1: The buyer agent's commission is fixed and you aren't pushed into a property that bribes the agent)</li><li>The agent can remove the fear in the back of their head that their client will walk, and they can give unbiased advice.Come on, human nature is going to kick in. How can you ask a Realtor "What would be a good deal for this", (a question I don't directly answer, but that is a long story) knowing that if the buyer doesn't buy this place, the buyer still has the right to snatch up another place and fire the agent. How can an agent be aggressive for you if their commission might drop from $10,000 to $0 if they tell you the truth and guide you through a lower bid? It just can't happen. The agent in this situation is NOT WORKING WITH THEIR BUYER, BUT AGAINST THEIR BUYER. This does NOT help the buyer. (Buyer benefit 2: Buyer agent is working FOR the client, not competing against them).</li><li>Double their efforts. What Realtor in their right mind is going to go above and beyond and try to find you houses that are off the market or spend too much time on a buyer that doesn't see the process as a team effort? I oftentimes send out letters to entire communities that my buyer likes. And that works. Usually for every 10 MLS places I show, I'll scrounge up 1 or 2 places that are yet to be listed, withdrawns, FSBOs, or another hidden gem. Without that commitment from the buyer, I'd see it as a waste of time, or too risky. (Buyer benefit 3: More time invested in finding you more places equates to a better price or more inventory/options.) </li><li>Help you or help another committed buyer? A good buyer agent will be turning away clients, or referring to another good agent, when they get too busy. If you want a new Realtor that has nothing better to do than drive you around forever on the 50/50% chance you will use them, great, but why not use a Realtor that respects your time as well as their own time and puts his foot down and sets guidelines for the work that they perform? </li></ol>What about non-exclusive buyer agency agreement? I heard some agents will use that. Doesn't that help me while protecting me? All that does is a) squelch the "I work for the seller" trick and b) outlines how the Realtor gets paid. Both good things, but knowing that the buyer might go buy something after seeing something at an Open House or a new construction without them, the bias will still be there for you to buy quickly and for a higher price. What about New Constructions, isn't it better if I'm Realtorless? Almost always the price for the buyer is the same with or without a Realtor (wow a pitch that you might have heard, that is essentially true). But, yes, on a rare occasion the sales office might get a bonus if they sell a unit to you without a Realtor, but who cares? You still don't have anybody working for your best interest. Who cares if you got them to drop $50,000, a good Realtor might be able to say "Wait, in another community across town, they have been dropping $100,000!" or "Don't believe their comps, they are illegally not posting the seller subsidy (see <a href="http://franklyrealty.blogspot.com/2007/02/beware-arlington-condos-new.html">Beware: New Constructions Illegally Not Disclosing Seller Subsidies</a>). Recently I helped a client get a new construction for $10,000 under the price he was initially told was non-negotiable AND I wrote into the contract a clause that allowed him to exit the contract if the prices of the condos continued to drop (a pricing guarantee). That single handedly could save him $40,000. And all you thought we did was show up with a smile and cash our check? What about the Jaguar the money I saved you can buy? Will I get a free ride at least?<img style="WIDTH: 113px; HEIGHT: 174px" src="http://s68.photobucket.com/albums/i18/franklyfrank1/th_28440920.jpg" align="right" /> Also in one case with an Arlington new condo, is the sales office going to tell you about how the building was almost condemned and slated to be destroyed because it was sinking? Um, I don't think so. What about bypassing the buyer agent and making the listing agent give me the commission? Heck even Money recommended this step (see <a href="http://money.cnn.com/magazines/moneymag/moneymag_archive/2007/02/01/8398744/index.htm?cnn=yes">article</a>) From somebody that has been in over 10 national publications, (CNBC, WSJ, NYTimes etc) magazines sometime give new reports a "beat" to cover. Sometimes they are not experts and they think they can jump in and reinvent the wheel. This reporter is an idiot. When a listing agreement is signed, it is between the seller and the agent. If an offer comes in with 3% back, the buyer can't simply void the listing agreement. The offer is netted out and the listing agent can still get their double commission. Even if they don't still get it all, (oftentimes they do) you still have nobody representing you to help you get the best price and help you avoid all the shady Realtors tricks that are out there (DOM fudging, etc). Who cares if you "save 3%" if a good buyer's agent might have been able to get you 5% or more? What about these FSBOs, isn't it better if I find one without a Buyer Agent? Yes. In theory. But those FSBOs tend to be cheapskates. This is fine, but cheapskates (like my mother!!) are notorious for overpricing! Great you "save" on Realtor fees, but you get a horrible deal. With a Realtor who is on the same team as you, can help you evaluate the pros and cons of that unit and also strategize how you can get the seller down. No not just with a low offer, but other ways. I love dealing with FSBOs that think they know it all. My client pays the Realtor fee (wink wink) but then they get the place for $50k under true value. Again, yes, signing the agreement might preclude you from buying a gem FSBO that is underpriced and not offering Realtor commissions. That is a "risk" that you have to understand and be willing to accept, in trade for the other benefits of having a dedicated Realtor. <img style="WIDTH: 82px; HEIGHT: 104px" src="http://s68.photobucket.com/albums/i18/franklyfrank1/th_d433983f.gif" align="left" />Buyer's can't have it both ways. You can't expect an agent to work their tail off for you, offer unbiased data analysis, and offer aggressive negotiations while the agent knows you hold an "out" card. What, is the agent expected to just cross his fingers that his time invested will work out favorably? Is it worth holding onto that out card? That is up to the buyer, and if they see any value in their agent. To recap: I've put myself in the buyer's shoes. I know where they are coming from and<img src="http://i68.photobucket.com/albums/i18/franklyfrank1/8939801c.jpg" align="right" /> their hesitations. I can understand and respect that initial viewpoint. Now put yourself in the shoes of the agent. How likely is that agent going to be to help you try and fight for an extra $5,000 or $10,000 off? Human nature would kick in and say, "Why should I be aggressive on this offer if they might just go elsewhere if this deal doesn't happen?" If I sign one, when should I sign it? <ul><li>Wait until you are comfortable with your agent.</li><li>Even if the agent didn't ask for one, consider signing one before you put in an offer. That way you are saying a) "What are you getting paid?" b) "Don't worry, I will use you, now tell me honestly about the value of this place." </li></ul>Good luck. Hopefully after reading the rest of this blog that highlights the<a href="http://franklyrealty.blogspot.com/search/label/Shady%20Agent%20Tricks"> insider tricks of Realtors</a>, you will better understand why this exclusive buyer agency contract is requested by some and required by others and how it ultimately helps the buyer. Also make sure to leave a comment and read others comments. - Written by Frank Borges LL0SA- Broker/Owner <a style="FONT-WEIGHT: bold" href="http://franklyrealty.com/" target="new">FranklyRealty.com</a> 703-827-4OO6 Please report all typos, I don't like looking stupid. If you like this post, sign up for new blogs daily. Videos at <a href="http://youtube.franklyrealty.com/" target="new">YouTube.FranklyRealty.com</a> <form action="http://www.feedblitz.com/f/f.fbz?AddNewUserDirect" method="post">Receive future blogs (spam-free) <input maxlength="205" value="Your Email" name="EMAIL" width="20"> <input type="hidden" value="142497" name="FEEDID"><input type="submit" value="Subscribe!"> <a href="http://www.feedblitz.com/f?previewfeed=142497" target="ss">Preview</a></form><div class="blogger-post-footer">.::. Don't forget to come back to the site to post comments. A blog without reader interaction is a boring blog. Also go and see the comments and debates. .::.</div>FRANK LL0SA Va Broker- BLOG.FranklyRealty.comhttp://www.blogger.com/profile/12647085935682292923noreply@blogger.com40