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The whole point of working with a real estate agent is to have a knowledgeable professional represent your interests throughout the home-buying process, from identifying possible homes to closing the deal. So you want to find an agent who has your best interest at heart.
The concept of a buyer's agent arose because of concerns about conflicts of interest between buyers and the agents. In the past, a real estate agent always represented the seller - whether the agent had listed the house himself or was simply showing it to buyers, he worked on the seller's behalf. So a buyer could go to an agent, explain what he was looking for and how much he was willing to pay, and grow to trust that agent. But the agent had no obligation to fulfill that trust. In fact, as a subagent of the seller, he was legally bound to give the seller any information that was in the seller's best interest to know. So if a buyer said, "Let's ask for a $5,000 credit to pay for roof repairs, but I'll buy the house even if the seller doesn't go for it," the agent would have to let the seller know that the sale didn't hinge on granting that credit. No one protected the buyer's interests.
By the mid-1990s, the idea of a buyer's agent was in place, and most states had disclosure laws that required real estate agents to tell you whom they represent: the seller, the buyer, or both. When you agree to work with an agent, the agent must clarify your relationship, spelling out her responsibilities toward you. In some states, a conversation is sufficient; others require a written statement (as the next section explains).
Your buyer's agent may represent you in one of several ways:
- Buyer's agent - single agency. In this role, the agent works for a brokerage that represents both buyers and sellers. However, this agent represents only you, the buyer, as you shop for and purchase a home.
- Buyer's agent - dual agency. Dual agency happens when a single agent represents both the buyer and the seller (for example, when you call a home's listing agent to see a house and decide to work with that agent) or when the buyer's agent and the seller's agent both work for the same broker.
- Exclusive buyer's agent (EBA). This kind of agent works for a real estate agency that represents only buyers. The agency doesn't list properties, so the agents who work there never represent a seller. If you work with an exclusive buyer's agent, you may have to pay an up-front retainer - and you may not get a refund if the agent fails to find you a home.
Buyer's agents usually get paid a commission, splitting the fee with the listing agent. But buyer's agents can be paid in other ways, so make sure you know how your agent earns his money. Here are some of the ways buyer's agents may get paid:
- A percentage of the purchase price. This is the most common method.
- A percentage of the purchase price and a bonus based on the difference between the listing price and the purchase price. In other words, the agent gets a bonus if she negotiates a sale price below the asking price. For example, you might give your agent a bonus of $100 for every $1,000 below the asking price you buy the home, up to whatever maximum you're willing to pay. This gives the agent an incentive to bargain hard on your behalf.
- A flat hourly fee.
- An hourly fee plus an up-front retainer.
- An hourly fee with a specified minimum number of hours.
Commissions and fees are always negotiable. Don't be afraid to ask for a lower commission or a lower hourly fee.
Although your buyer's agent has a fiduciary duty to represent your interests in a transaction, the commission system comes with a built-in conflict of interest: The more you pay for a home, the more money the agent makes. So some unscrupulous buyer's agents may steer a buyer toward certain listings or advise you to overbid.
Fiduciary duty means a legal responsibility to act in the best interests of another party.
A good buyer's agent puts your interests first because it's the law. But smart buyer's agents also realize that a satisfied client (and the good word of mouth that comes with it) is more important than a few hundred bucks. An extra $10,000 in the purchase price puts between $150 and $300 in the agent's pocket. Ethical agents realize that a client's trust in them has value far beyond that.
Look for agents who've earned the Certified Exclusive Buyer Agent (CEBA) or Accredited Buyer Representative (ABR) designation. These certifications, respectively administered by the National Association of Exclusive Buyer Agents and the National Association of Realtors, show that the agent has completed specialized training in buyer representation.
