Friday, October 26, 2007

A Rebuttal for Exclusive Buyer Agency Agreements Against Erroneous Fallacies

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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.

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