Although the majority ( 55%) of home transactions take place with an agent representing the buyer, true buyer advocacy is a relatively new concept, and one that is not only misunderstood by customers, but highly debated among agents. One way to start a lively debate in any real estate office is to pose the question, "Who pays the buyer's agent?"

In an attempt to move away from the sub-agent formula, in which the buyer's agent owes fiduciary responsibility to the seller instead of the customer, the industry has developed buyer's advocacy. Some agents, who believe that the seller pays the commission no matter what the agent calls herself, believe buyer's advocacy is a joke.

Others, such as members of the National Association of Exclusive Buyer's Agents (NAEBA) and the Real Estate Buyer Advocacy Council (REBAC) believe buyer's advocacy will save the industry.

"In exclusive agency, relationships change. The Realtor changes from being a salesperson to a consultant. The buyer changes from being a customer to a client," explains Merrill Ottwein, NAEBA president.

One-third of buyers who purchased homes sign a buyer/broker agreement

In all closed transactions for 1997, 34% of all buyers had a "buyer broker" arrangement with the real estate agent who assisted them in buying their homes. A full 83% of those arrangements were in writing, with another 17% verbal.

But the question is begged - how many unsigned buyers went on to purchase homes or never made it to closing at all? If 20% of all home sales transactions take place with no representation for either the seller or the buyer, and another 45% of buyers transact their home purchases alone, the numbers could be higher than they appear.

As a professional, do you insist that a buyer sign a buyer's representation agreement before you show the first home? If not, what is your guarantee that the buyer will won't purchase the home out from under you? What makes the buyer reluctant to sign a representation agreement?

It may not be the buyer's who is unwilling to sign, but the agent who is reluctant to ask. Of all buyers who initiated home searches, only 39% of agents asked buyers to sign a buyer's representation agreement at the first meeting. Incredibly, 27% of agents asked the buyer to sign the agreement when the contract for the home was written. Fifteen percent weren't offered a buyer's contract at all, and another 19% weren't sure if they were offered one or signed one.

Are Buyers Aware of Agent Compensation?

Buyers appear aware that they are receiving some level of service from the buyers agent, but as long as they believe (68%) that the seller pays the commission and they pay nothing, there is little incentive to develop a relationship with one buyer's agent.

But according to the NAR's poll results, buyers appear to be very aware that the buyer's agent receives some form of compensation. At contract, a little under half of all buyers represented themselves at the settlement of the contract. Eighteen percent used an attorney, 13% used the seller's agent to represent them, and 25% used a buyer's broker. In 21 percent of the transactions, the buyer provided the entire compensation either through flat fee or commission. In 11 percent of transactions the buyer and seller shared the fee and in two-thirds of transactions the seller paid the buyer's agent fee.

Are Unrepresented Buyers Worth the Brain Damage?

Lack of representation or a lack of understanding of representation could be the single most common source of misunderstandings between buyers and agents. As long as buyers believe that sellers pay the commission, instead of the commissions for both the buyer's and seller's agent coming out of the transaction, they have no incentive to be loyal.

All agents have experienced the buyer who returned to the new model home to buy directly from the builder and "forgot" to mention that an agent had shown them the home originally. They have met the couple who wanted to see dozens of homes and then attended an open house and purchased from the listing agent. There are the customers who allow an agent to show them homes, and when they are ready to buy, a Realtor relative or friend pops out of the woodwork. "We can't hurt her feelings," they say. Then there are the ones who buy a home from friends or family and decide that they don't need representation because it's "all in the family. And what about the family that buys a home that is completely different from the criteria they outlined to the Realtor. While the agent is off looking for a three-two with a pool, they end up buying a 4-2 with no backyard. "But you never showed us this one," they justify.

And the worst of all, are the buyers who fully intend to buy a home without an agent after milking the agent for all his knowledge. They use the 3%- 4% commission savings as a negotiating tool to get the home reduced in price.

Just ask

Asking a buyer to sign a buyer's representation agreement may well have to be the first qualifying act a Realtor does to determine the intent of the buyer.

"Without a buyer's rep agreement, there is no way the consumer can have total representation, " continues Lane. "In Texas, if a buyer does not sign an agreement, the agent has a fiduciary responsibility to the seller and can't legally represent the buyer. Therefore, buyer beware!"

Published: November 3, 1998

Use of this article without permission is a violation of federal copyright laws.