Buyer Brokers are exploring more and more ways to work with their buyers, and their fiduciary responsibility is to save "the buyer" money. The professional buyer agent (BA) works by direct buyer agency contract with the buyer client. The buyer broker fee is, of course, negotiable and various options are being used such as fee-for-services (menu), flat fees, rebates, percentages, etc. Some fees come direct from the buyer, some via the multiple listing offer to cooperate, and others via the seller while declining the cooperative.

The old established listing control of both sides has tied the buyer broker fee to the listing and, in essence, via Procuring Cause (PC) it actually controls, maintains or fixes the PC arbitrated amount at the amount of cooperative offer which may include bonuses or incentives to the selling agent. It therefore deters and somewhat dictates that the buyer agent had best work for and retain the "going amount" controlled by the listing (seller) agents and not offer savings, reductions, better pricing or rebates to buyers. This anti-consumer practice prevents, or at least limits, buyers from resources that offer savings.

The buyer may actually become stigmatized by association, as professionals that offer savings may view them as contaminated because they have shopped homes with casual agents and become overly exposed to the PC element. The productive or experienced buyer agent may either avoid the potential buyer or hold them to the exact dollar that might be charged in a procuring cause action.

Many will tell the buyer that until those already viewed homes are eliminated they can't offer services. The properties themselves may become stigmatized as buyers, upon learning that they may be forced to use a particular agent not of their choice because they had already viewed the home with that agent, simply eliminate the property even though they may have an interest. The seller in this case becomes the unknown victim.

Where's the problem? A competitive buyer broker compelled to pass savings to his buyer may agree to work under fee-for-services and pass the differences on to his buyer client. In 31 states, buyer rebates of some type are allowed. Many are working for a flat rate or percentage, agreeing to pass overages, bonuses, or unused portions as savings on to the buyer. Professional buyer agents are placed in the deterring position of having PC claims made by casual persons, even those that work without disclosures or contracts, filing arbitration for amounts exceeding those actually retained as earnings by the buyer agent after passing on consumer savings. The following are examples only and are not intended as a reflection of an actual commission arrangement and do not insinuate a standard arrangement.

Example: A professional buyer broker competing in a tough market promotes buyer incentives and offers a fee selection or menu of services to include hourly rates as fee for actual service, a flat rate of $4,500.00, and still offers to work at the percentage offered via the MLS. He or she passes any bonuses or percentage exceeding three percent back to the buyer as overages paid as part of the purchase price in whatever way may be legal. Let's use the same buyer in three separate cases.

The inexperienced consumer attracted to the competitive promotional piece and seeking full representation or savings calls the broker. The experienced buyer broker asks the buyer if they are currently working with any agent in exclusive agreement. The buyer mentions they had seen one property at an open house and another on a sign call. In addition, they had visited a new construction site and the site agent from the Blue & White company showed them the model. The broker then asks the buyer if they completed any paperwork with any of the agents. The buyer states that the open house agent (scenario #1) did disclose that she represents the seller but would work with them under dual agency on her company listings and could represent them on outside listings. She provided the disclosure in writing. The buyer broker confirms with the buyer that no agreement to represent was made.

The floor agent responding to the sign call (scenario #2) told them nothing about agency, was extremely high pressure, and became very rude at the showing when they didn't buy. They had some questions about the house but the agent would not return their calls. The site agent (scenario #3) sitting the builder's listing did not mention anything about agency or have them sign anything and had let them walk through several homes under construction on their own.

The buyer broker again obtains assurance from the buyer that no written agency exists with any agent. He then completes his 90-minute, in-office presentation. He reviews the state-mandated agency disclosure and his exclusive buyer agency contract. The buyer signs both and agrees to have buyer agent representation. Each of the following scenarios reflects the buyer purchasing one of the "stigmatized" properties.

Scenario #1. The buyer selects a fee-for-service schedule. Total items selected come to $3,000. The buyer agent selects several homes that meets the client's needs and shows the buyer eight properties over a two-day period. At the end of the viewing, the buyer asks to look at the house they had seen at the open house. They buyer's agent makes the appointment and shows the home. Now that they have seen comparable homes, they bring in a professional home inspector and request their agent to provide a detailed CMA. The buyer's agent then obtains additional details from the listing agent and the contract is negotiated at a final purchase price of $200,000, down from the $208,000 asking price.

The buyer includes a buyer-directed protection clause in the contract to include an amount equal to the co-op fee offered to be included in the purchase price to be paid by the seller on behalf of the buyer from the seller proceeds at closing. The seller agrees via the listing agent and, at closing, three percent goes to the listing agent and three percent to the buyer agent. The buyer agent then collects his fee for services of $3,000 and rebates the remaining $3,000 back to the buyer. Final actual price for buyer is $197,000. Buyer saves $11,000 and loves his agent.

Three weeks after the buyer moves in to the house the listing agent files arbitration as Procuring Cause asking for the full $6,000 commission. The buyer broker goes into arbitration feeling confident that he has done everything right. He followed all state laws. The buyer wanted full representation. The listing agent did not offer buyer representation for the listed property nor did the listing agent have a representation contract. The buyer agent loses in Procuring Cause and is required to pay the listing broker $6,000, with $3,000 coming out of his or her own pocket, the same amount the buyer received.

Scenario #2. The buyer, from options offered, selects the fee equal to the co-op fee up to three percent of the purchase price with excess to buyer's benefit. They set an appointment for their return visit in thirty days. The buyer agent selects several homes that meets the client's needs and shows the buyer eight properties over a two-day period. At the end of the viewing, the buyer asks to look at the house seen on the sign call several weeks before. The listing agent (not the one that had answered the sign call) notes to the buyer broker that the house has a $1,000 bonus payable to the selling agent. The buyer purchases the home that was listed at $202,000 after negotiating a final purchase price of $200,000. The buyer agent collects $7,000 in fees for the sale. He returns the $1,000 bonus as an overage to his buyer client. His client realizes $3,000 in savings. The original floor agent that showed the house files procuring cause for the co-op fee plus bonus and wins. The buyer broker has to pay $1,000 out of his or her own pocket.

Scenario #3. The buyer agrees to the flat rate fee of $4.500. The buyer agent selects several homes that meets the client's needs and shows the buyer eight properties over a two-day period. At the end of the viewing, the buyer asks to look at one of the new construction houses previously seen. They don't know the agent's name and the buyer agent can't identify the agent, but makes the appointment with the actual listing agent and shows the house. After viewing the now completed home, the buyer's agent and client meet with the builder and the listing agent to make modifications and negotiate the contract. The home closes at $300,000. The buyer agent collects the $9,000 fee and rebates $4,500 to the buyer client. Suddenly, the site agent surfaces and files procuring cause and wins. The buyer agent pays $4,500 out of pocket in addition to the $4,500 he netted after the buyer rebate.

The buyer agents in all three cases, having lost serious time and hundreds sometimes thousands of dollars doing their job as they are exclusively contracted to do, decide that they can no longer offer buyer incentives or offer exclusive agency to stigmatized buyers and decide they must collect all fees exactly as offered. They wonder why buyers can't select and contract with their own agent the way sellers can. The bigger question might be how the consumer might feel if they knew the buyer agent was "restrained" from making savings offers because of potential PC threats.

From my in-the-field exposure and committee experience, I suspect a strong continuing trend within Grievance and Arbitration that holds to the old "threshold rule" and belief that whoever showed it first wins. Also, that an “under the surface” belief exists that working without proper disclosures and agency agreements is not really a big consideration. After all, "we've all done it" is a very casual and familiar statement. It remains difficult with the existing "Procuring Cause" for a buyer to divorce the casual agent who showed them a few homes or sat at an open house. Ever those agents that failed to properly discuss the relationship up front. Why? Because we won't accept that the buyer has a choice of selecting whom to work with the same as when a seller does after three or four listing presentations. Why are there no arbitrations on "Listing Cause" brought forward?

Many buyers expect representation but make educational discoveries in the early stages of viewing homes. The home-buying consumer is later handicapped or stigmatized when wanting to select their own personal professional representative as many of the true professionals are not willing to work for nothing, spend time defending against the stacked system, or be obligated to repay more than they earned on the buyer agency contract. This situation has raised considerable questions that must be answered.

Has our "duct tape" repairs to protect the listing agent from PC claims harmed the consumer? Are buyer brokers compelled to conform to pre-determined cooperative amounts because they fear the PC hammer used by "casual agents" who work without written agency agreements? When will buyer agency contracts be considered in the same light as listing contracts?

Published: October 11, 2000

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