Recently these questions were posed to me: Why should I sign a Loyalty Agreement/ Buyer’s Exclusive Right to Represent Agreement? and Is there a benefit to signing with the listing agent?
Let’s start with some history about the Exclusive Right to Represent Agreement. Originally everything in real estate was done with a handshake. Then as the world became more legally aware and people wanted clearer expectations about their business relationship, seller listing agreements became the norm. In those days, the way all agents worked is that he/she always represented the seller. It seemed to make sense since the seller was paying the commission at closing, right? Wrong. Realtors who had never met a seller were being asked to negotiate on behalf of the seller and not the buyer with whom they had actually built a relationship. Realtors began to lobby for more clarification and the right to represent their buyer. Realtors wanted the ability to have a client relationship with the buyer that they were working with and not with the seller. The law did not previously clarify this relationship. My research doesn’t produce a date that buyer’s agency became defined in New York State but I know it has been in effect for less than 15 years. For liability reasons (based on the theory of how can you can represent my seller whom you have never met?), most listing agents will only compensate a cooperating agent if they are acting in the role of buyer’s agent.
Over the last decade, as Buyer’s Agency has become the norm; the handshake is also being replaced with a formal agreement. An Exclusive Right to Represent is simply a document that outlines the working relationship. In many states this is mandatory but it is not yet the case in New York State. Similar to the Listing Agreement with a seller, agents and buyers want clarity and exclusivity in their relationship. The Exclusive Right to Represent or Loyalty Agreement ensures that the relationship is defined, the commission is spelled out and the duties of the broker/ agent and the client are set forth. The client agrees to work only with one agent, and to be truthful and honest in his/her ability to purchase, both financially and in their personal motivation. The buyer’s agent has the following fiduciary duties to the buyer: reasonable care, undivided loyalty, confidentiality, full disclosure, obedience and duty to account. This is the law and the ethics that we as agents pledge to uphold.
Can you get this without a formal agreement? Yes you probably can find an agent who will work without a formal contract but do you want this agent working for you? Ask yourself these questions- Do you want to hire an agent who can not have a formal business conversation, one who does not sit down and walk you through the process, one who avoids the discussion of compensation? Surely, an agent who can have these discussions up front will be a better communicator with you later in the process. The experience of the agent shines through when he/she creates transparency, giving you confidence that the agent will communicate with you and with other agents, confidence that the agent can get the deal done. Yes, Sign the agreement but ask for procedures on how to cancel the relationship if it isn’t working for you. Most will only require an email stating that you want to dissolve the relationship. I leave you with this thought: Consider for one moment, that an agent has two buyers who want the same house; how will the agent determine whom to advise in the bidding? A formal agreement would put you at the top of their fiduciary duties. Be the agent’s top priority!
The second question: Is there a benefit having the listing agent to represent you. Is there a benefit to seeking out the company with the best listings, surmising that you, as a buyer, would be better served using an agent from the listing agent’s office- inside deals. First let me say, in my experience, there is not one office that controls all the inventory. (I’ve worked for three companies in my 12 years) Do not let someone tell you that their office/company controls the listings in a certain area, it’s simply just not true. And “No”, there is not a benefit to signing with the Listing Agent- in fact it is a complete conflict of interest. The listing agent has already been hired by the seller to get Mr. Seller the highest price, how can the agent also have a fiduciary relationship with you the buyer, as well?
Some companies have many offices. Some companies are franchises, creating the image of a large company but are really a one-office company with a brand. It’s the agent that you need to focus on. Choose an agent based on knowledge of the area, track record, referrals or testimonials provide insight in this process. Most importantly work an agent with whom you feel comfortable and trust. Ask questions—about how the agent works, his/her past experience, the number of units he/she has sold, the number of deals that have fallen through and what additional training she has past the basic requirements. Does the agent work with sellers and buyers? Does he work on a team? How often will you speak during the search phase and how often will you speak during the contract phase? Does he have a buyer’s guide, a checklist of to-do items? Does he have lenders that he can recommend, attorney contacts, title insurance and homeowner’s insurance referrals? This is a relationship business. Know that relationships are what put deals together and what gets them done. Trust an agent who has a proven track record, meets your communication style and understands your needs.
My final point on this topic introduces dual agency. You want to make sure that the agent who is working with you is working FOR you. (See buyer’s agency, above.) You do not want a seller’s agent to be presenting your offer to his client. You do not want to be the customer (no representation), you want to be the buyer client and have client privileges. Do not accept dual agency without some serious thought behind it. Ask for a designated agent to represent you if you do find a house that you want to buy through the listing agent. This happens most often when you visit an open house and fall in love with the house. The only other time dual agency versus designated agency would surface is when you already have a buyer’s agent and he/she lists and shows you a home. Remember that disclosure and transparency are key. You must be informed prior to a showing that it is a dual agency situation! Again, in this situation, you can request a designated agent to negotiate on your behalf.
As professional Realtors, we are working for transparency in our relationships- The Exclusive Right to Represent/Loyalty Agreement is the best way to define and clarify this relationship. Reach out to me with questions- Lorimorrow@kw.com. Ask for my Buyer’s Guide or request a copy of “Your First Home” by Gary Keller (email me with your request). I promise to guide you as best I can. I have partners all over the world—130,000 in North America—so please ask me for a connection in your region. Happy Buying!