A Rebuttal for Exclusive Buyer Agency Agreements Against Erroneous Fallacies

The point of this blog is not to bash anyone, but to present facts as they are in an effort to clear up any misunderstandings, and to allow readers the opportunity to evaluate all the facts, so that they can decide for themselves what is right. I think it is important for people to have all of the information they need from an objective point of view, and not from a biased perspective tilted in favor of ones own business model.


Melson wrote:

“Indeed, an argument can be made that offering a high incentive (locally, 3% or more) to a buyer's agent is one of the better ways to get the property sold. Not only do many buyer's agents shop that way explicitly, but if they have an exclusive contract that says 3% (as many do, because their clients aren't educated enough to know what a crock exclusive buyer's agency agreements are in the first place, but they'll also willingly trust the chain agent as to what is "standard").”

Now the truth:

Speaking for myself, I do not look at commission rates when searching for properties. I look for properties that fit my client’s needs and wants. Secondly, every exclusive buyer agency agreement should have some sort of a realease or exit clause, if it does not, then buyers should not sign it. Having a release clause means that if either buyer or agent becomes “disenchanted,” written notice is all that is needed to terminate the agreement.

Under a non-exclusive buyer agency agreement, a buyer will still be obligated to buy through the agent who introduced the property under contract. An exclusive buyer agency agreement is no different. However, with a realease clause, if no property was found, and the exclusive buyer agency agreement is terminated in writing, then no commission is due. Buyers should review ALL written agency agreements with their attorney. This is how a buyer makes certain that this language is part of an exclusive buyer agency agreement.

Now, going by the "crockery" logic, if exclusive buyer agency agreements are a “crock,” then why aren't exclusive-right-to-sell agreements a “crock,” as well--since these two agreements are, after all, equivalent counterparts?

Melson wrote:

“If the Cooperating Broker's percentage is lower than what it shows on the buyer's agency agreement, that buyer will need to come up with more cash to pay their agent, from out of their limited pool of available cash. When that buyer's agent is in a position to demand 3% whatever property their victim buys, even if they didn't find it and weren't involved, that means properties paying less than that aren't contenders for this buyer's business, unless they've got so much available cash that it just isn't a constraint, and that is rare.”

Now the truth:

First of all, buyers who work with exclusive buyer agents (under exclusive buyer agency agreements) are hardly "victims," but they are progressive thinkers. Buyers can negotiate exclusive buyer agency agreements to include, for example, language that states the commission earned will be X%, OR the percentage offered by the listing office. Furthermore, a buyer and a buyer's agent can agree upfront to waive a portion of the commission if the property listing offers a "selling office commission" that is less than what was agreed upon in the exclusive buyer agency agreement. Three percent is not cast in stone.

Any good real estate attorney can advise buyers on how to accomplish this, and draft the necessary language for such a provision.

Admittedly, Melson is very biased against exclusive buyer agency agreements, so his opinions in this matter are not going to be very objective. However, he applies a double-standard when it comes to sellers signing Exclusive Right to Sell Agreements--the equivalent counterpart of an Exclusive Buyer Agency Agreement:

“As I said in Exclusive Right to Sell Versus Exclusive Agency, it is in the client's best interest to sign an exclusive right to sell, because the agent will have no mental reservations about whether they will get paid if the property sells.”

Melson wrote:

“A better buyer's agent puts a lower number on a nonexclusive contract, and if they get more, that's certainly fine with them, but because they have a non-exclusive contract, they don't get anything if the buyers become disenchanted with them and stop working with them.”


Question: Would a seller's agent consider working this way? Most, if not all, would not. Most listing agents will not offer real estate services to sellers without some sort of exclusive agreement, because they want to be assured that they are not working for free--after all, this is their job. For that matter, would anyone want to go to work, if they knew they might not receive pay; whether it is a real estate job or otherwise? Buyer agents are no different. Melson applies a double standard again. The truth is, buyers who sign an exclusive buyer agency agreement can terminate the agency relationship with their buyer’s agent, as long as the agreement contains some sort of release or exit clause, and there is no property under contract.

An attorney can advise buyers on how to insert a release clause when negotiating an exclusive buyer agency agreement. A real estate attorney is a valuable part of a buyer's real estate team.

As far as being locked in, regardless of whether a buyer agency agreement is exclusive or non-exclusive, a buyer will be obligated to work through a certain agent or broker if that particular agent or broker introduced the buyer to the property under contract. It’s called procuring cause.

Melson wrote:

“This gives a buyer's agent with a non-exclusive contract the incentive to find the property that's a real value to the clients as quickly as possible. I care far less about whether I'm getting two or three percent or something in between on a particular property, than I do about finding the property my clients want that's within their budget.”

Another question—if a non-exclusive contract is such a “value” to buyers, then why is this "value" not extended to sellers, as well? Does this seem fair? Furthermore, any agent or broker who is truly passionate about their profession is going to work hard for their clients, because they want to earn their client’s trust, loyalty, and future business.

Melson wrote:

“My incentive is to make the clients as happy as possible so that I do get paid, because if I don't, I won't. But the buyer's agent with an exclusive contract that pays three percent has a different set of incentives, which is another reason I advise strongly against signing exclusive buyer's agency agreements, and the existence of such creatures is the reason why it may be a good idea for sellers to offer a higher percentage to a buyer's agent.”

Now, the truth:

A buyer’s agent with an exclusive buyer agency agreement is no different than a seller’s agent with an exclusive-right-to-sell agreement. Melson speaks in general terms, as if to say that all buyer agents working through exclusive buyer agency agreements are untrustworthy. However, he is wrong on several points.

The choice of working on an exclusive or non-exclusive basis is not a matter of right or wrong, but a matter of preference—for example, a real estate investor may require minimum service and no guidance from a buyer’s agent. These types of buyers are usually very experienced with many years of real estate investing behind them, they typically have long-term banking relationships established, and because of this, their financing is often times readily available. These types of buyers know exactly what they want, and exactly what they need. In this case, a non-exclusive buyer agency agreement might work best for them. However, buyers that need or prefer to have more assistance and advocacy on their side are better off working on an exclusive agency basis, because this agency option offers full buyer support at every step.

Therefore, it depends on a buyer’s particular situation which form of buyer agency works best for them, but regardless of the chosen form, all agreements should be reviewed by an attorney before signing them around.

The Subprime Blame Game: A Heated Discussion

Many people have different ideas about where to place the blame for all the problems in the mortgage market. This particular blog entertains the idea that maybe agents are somewhat to blame. However, I disagree with this logic, because doing so makes sweeping generalizations against all agents, brokers, and Realtors--which is not right, nor is it fair.

While many disagreed with what this blog implied, there were those who were content to say that "all Realtors" are alike. They claimed that it was the "greed of Realtors" that helped cause the current crisis in the mortgage market, and that Realtors supposedly misled buyers. While there are some agents, brokers, and Realtors who act unethically, to say that all are alike is a flawed and unfair stereotype.

Many buyers do not understand the responsibilities they have to themselves when it comes to making major financial decisions like purchasing a home. Many go into the market without having a plan, and most do not consult with their legal and financial advisors before signing mortgage and closing documents. Buyers should become well-informed--taking the time to plan things out well in advance. A good buyer's agent should be able to assist buyers with the research required for building a solid plan, as well assist in the plan's implementation, but it is ultimately the buyer's responsibility to review and finalize these plans with their legal and financial advisors before starting. In most states, brokers and agents are prohibited from interpreting legal language and giving legal or financial advice unless they are attorneys or accountants, as well.

Here are a few relevant quotes from a book by Charles A. Jaffe, called “How to Hire Financial Help the Right Way.” 2nd Ed.:


Regarding the act of taking financial responsibility:

“One of the most responsible actions anyone can take toward managing their money is to own up to their shortcomings and to pursue assistance for those weaknesses in a strong, self-assured manner. There is virtually nothing in money management that you cannot do yourself, but there is a big difference between simply taking on the task and actually doing it well. Whether it is buying stocks without a broker, building a portfolio of mutual funds, or purchasing life insurance, dabbling almost always leads to disaster. I'm a big believer in doing as much as possible on your own, provided you understand this simple strategy for managing things yourself: Go strong or don't go at all. The problem is that many people do neither. ” (Jaffe p. 1).

Regarding the abdication of financial responsibility:

"They don't have the know-how to do it themselves and don't want to take the time to learn, but they also don't want to hire outside counsel. They get their information in snippets, from friends, in the papers or magazines, from radio and television programs, at the barber shop or beauty salon, or in online chat rooms, and they wind up with a patchwork of products instead of a blanket of financial security. Worse yet, the decision to hire an adviser becomes an abdication of responsibility, rather than an aggressive move to make things better. Instead of choosing their helpers carefully—matching skills to needs and doing the interviews necessary to create the appropriate level of comfort—they look upon the hiring decision as a means to an end, as in ‘If I hire this person to do my taxes, I'll never have to worry about my taxes again’” (Jaffe p. 1 - 2).

Regarding what many people fail to understand :

“And that's where folks like my friend come to the conclusion that people who want or need assistance simply can't help themselves. They perceive financial relationships as an all-or-nothing proposition, either done on your own or handed off to someone in exchange for a hefty fee. Like most, they fail to recognize that the person who hires advisers must then manage those helpers and remain intimately involved in making decisions” (Jaffe p. 2).

Cite Source:

The Right Way to Hire Financial Help by Charles A. Jaffe

In the case of mortgage documents, it should be common sense that an attorney should review them--because in essence--they are legal documents. However, many buyers fail to do this. Then when something goes wrong, critics are quick to put the blame on someone else...like the entire real estate industry. Needless to say, it is the responsibility of consumers to become well-informed and prepared before entering the real estate market; this includes understanding the difference between available agency options, understanding the advantages and disadvantages of certain mortgage products, having a pre-approval in hand before entering the market, having detailed information and demographics about prospective neighborhoods, and saving enough cash to cover a downpayment in addition to any reports or inspections that might be necessary.

Planning is the key to a smooth purchase transaction, and reviewing closing documents with an attorney is key to spotting unnacceptable or risky loan terms.

Buyer Wants To Know Why Broker Is Showing Own Agency Listings Only

In 2005, Realty Times columnist Blanche Evans responded to a Realtor looking for information in order to answer a buyer seeking an answer to why her broker is “showing her only the agency’s listings, and not all of the properties available that would be best for her.”

Blanche did a great job of covering all of the bases. She talks about the traditional way agents do business in real estate, as well as how and why a traditional agent would work to increase their “sides” per transaction, and the logic behind the different agency options available to buyers. I thought her article was both insightful and accurate. Although this article is a couple of years old, the information presented are still very relevant today. Blanche's article is definitely worth the read.

Latest NAR Forecast Indicates Mortgage Market Improving for 2008

On October 10, a press release from the National Association of Realtors paints an improving picture in the mortgage market. According the press release, senior economist Lawrence Yun said that this improving forecast is due in part to “widening credit availability,” and that “conforming loans are abundantly available at historically favorable mortgage rates.” Other factors cited are the reduction of new home starts, because it reduces the amount of inventory, which Yun claims “will help lower inventory and firm up home prices.”

I should note that buyers who cannot qualify for a conforming mortgage might still experience difficulty obtaining the financing they need to make a home purchase. Speaking with a mortgage consultant and obtaining a mortgage pre-approval ahead of time is always advisable. Knowing your home buying limits in advance will go a long way to reduce---if not eliminate---uncertainty and anxiety at closing.

Why Buyers and Sellers Should Not Be Treated Differently

A blog entry recently surfaced in the blogosphere from a San Diego Realtor who claims to be a Buyer’s Realtor, but in reality, he is a traditional Realtor, because he also works with sellers. Although this agent’s name will be spared, the focus of this blog entry will deal with the reasons why buyers should not be treated any differently than sellers. This distinction is very important, because buyers have traditionally been underserved and uninformed in the real estate industry--which is over 100 years old in the United States.

This agent wrote a hypothetical scenario of how he goes about critiquing a property. He did this by using a one-sided role-playing monologue to show how he works. Once he finished his one-man monologue, he started to explain the generic “benefits” of working with him, and then went on to make the assertion that in order to work with him, he would require a non-exclusive buyer’s agreement—along with his interpretation of the “benefits” of working in a non-exclusive capacity. The fallacy of his perceived “non-exclusive buyer benefits” will be explored with the use of critical thinking.

Using critical thinking skills, a person has to wonder if this agent would work in a non-exclusive capacity with a seller—and if not, why? After reading his web site, it has been found that he does not work with sellers on a non-exclusive basis; most listing agents do not. A good listing agent will go the distance for the sellers they exclusively represent. Does a buyer not deserve to receive the same level of service that a seller would receive? Why should buyers be treated any differently? Does this Realtor not understand that exclusive representation for buyers is only fair, considering the level of service and representation sellers have traditionally received for over a century? Why should consumers receive anything less as a buyer than they would as a seller, because a seller will usually become a buyer at some point in the future?

Lastly, this agent claims that it's only fair that buyers work through a non-exclusive agreement, because they are free to work with whomever they want. However, the decision to work under an exclusive agreement--or a non-exclusive agreement--is not a matter of fairness, but instead, a matter of buyer preference; because it depends on the level of service that a buyer wants to have. Buyers must decide for themselves whether they want to be treated as a client, or treated as a customer. As a client, buyers demand and get the best level of personal service from the professionals they work with, while buyers who are only customers are satisfied with—or are unaware of—arms-length transactional-based service.

An agent who offers transactional-based service is not concerned with the overall buying experience of buyers. Instead, they are only concerned with handling the particulars for the properties they find for buyers, also known as "procuring cause." Such an agent cannot call themselves an advocate for the buyer, who takes a personal interest in providing a level of service that includes the entire buying experience.

This level of service is the direct result of agent-client relationships that build over time. This keeps clients coming back in the future, because they know they will not be treated as a sales statistic. Such relationships include getting to know clients over time, getting to know their unique situations, getting to know their individual priorities, and taking all of this information into account when creating customized reports based on client needs, related research, compiled market data, interpretation of market trends, and area statistics. An advocate will synthesize all of this important information into a useful and valuable report that will assist their clients in making well-informed buying decisions based on their own unique situations.

This level of service is what a buyer receives as a client under an exclusive buyer agency agreement--not as a customer under a non-exclusive agreement. It also needs to be said that a traditional buyer agency agreement can be signed on an exclusive basis--meaning that a buyer agrees to work only with a particular agent from a traditional real estate office. However, if a buyer agent asks a buyer to consent to dual agency in writing, then the agreement is not for exclusive buyer agency services--which completely prohibits dual agency.

Seller’s receive a greater level of service from their exclusive listing agents, so why shouldn’t a buyer receive this level of service from their exclusive buyer’s agent? If a buyer is satisfied with an arms-length transaction, then a non-exclusive agreement may be right for them. However, buyers who demand the best service should insist on an exclusive buyer agency agreement, prohibiting dual agency, and they should articulate what they expect and need under the agreement.

Mortgage Problems Continue To Hamper Pending Home Sales

On October 2nd, the National Association of Realtors reported that pending sales of existing homes "will be dampened near-term as mortgage disruptions continue to impact the housing market..."

NAR senior economist Lawrence Yun said that a separate internal survey of NAR members revealed that more than 10 percent of sales contracts fell through at the last moment in August because of cancelled loan commitments.

Read more about it, and get the full story here.