What is Buyer Agency in Real Estate?

If you’ve bought or sold real estate in Maryland since 1999, you’ve been given papers explaining Agency, among the myriad of paperwork your real estate agent hands you.  As a buyer, your agent explained buyer agency to you and gave you a “Buyer Agency Agreement”. If you are a seller, your listing documentation explained the agency relationship you have with your listing agent.

I want to point out from the start of this article that the paperwork the explains the concepts of Agency are grounded in Maryland law, not just industry practice. The Association of Realtors® with the guidance of the Maryland Real Estate Commission creates documents and contracts that help real estate agents work efficiently with consumers, while keeping within the laws written by the Maryland General Assembly. So when your agent presents you with packets of paperwork, make sure your agent takes the time and care to explain the meaning.

Please don’t ever just sign papers because “that’s the way it’s always done.”

Agency is Representation

Maryland is a progressive consumer advocacy state, and as such, was on the cutting edge of the issues of Agency and Representation, compared to many of the states in the U.S. Before Jan. 1, 1999, all Real Estate agents in Maryland represented the seller, (worked for the seller’s best interest). There was no representation for a home buyer, no one to negotiate on their behalf, legally.  Prior to that time, there was a lot of confusion, a lot of misleading information, and a lot of ignorance of the issue. With the advent of Buyer Agency, we (Chris and I) believe the real estate industry improved tremendously. So what is buyer agency in real estate?

A.  Agents Who Represent the Seller

1.  What is a Seller’s Agent?

The agent that lists and markets the property.  He exclusively represents the seller. His duty is to the seller, even though he may assist a buyer who is unrepresented. In the case of an unrepresented buyer, the listing agent must give fair and ethical treatment to the buyer, but his fiduciary responsibility is to the seller.

2.  What is a Cooperating Agent, or Subagent?

An agent from a different brokerage than the seller’s agent, can assist the buyers in purchasing, but has a duty to the sellers. Again, the agents owe fair and ethical treatment to the unrepresented buyer, but still have a duty to represent the best interests of the seller.

If you read that correctly, buyers, hopefully you’re wondering, “Who would want that?? It sounds like the deck is stacked unfairly.” We think it is, too.

B.  Agents Who Represent the Buyer

1.  What is a Buyer’s Agent?

When working with a buyer, an agent must get a written agreement between the buyer and themselves – a Buyer’s Agency Agreement. Then, the agent represents the interests of the buyer, may negotiate on their behalf, and has a fiduciary duty to the buyer. It is also known as Buyer Representation. Having a trustworthy real estate agent looking out for your interests is a benefit that has come about in the last 30 years in the real estate industry.

How much is a Buyer’s Agent? Practices differ in different states. Typically, in Maryland, the buyer’s agent is paid a commission which comes from the seller’s agreement with the listing agent. Sometimes, in some markets, a buyer’s agent will charge a fee to a buyer. That fee can be a flat fee, or it can be a percentage of the home price. It’s all negotiable with the buyer’s agent.

Again, make sure you understand all that is entailed in a buyer’s agency agreement before you sign. We believe having a buyer’s agent is paramount, but not until the buyer understands what it all means.

Can a Realtor® Represent both the Buyer and the Seller?

Not in Maryland. Maryland is a progressive consumer advocacy state, and was one of the first states to institute buyer agency. The Maryland Real Estate Commission understood in the late 1990’s that buyers needed representation.

They also understood that being a dual agent, which means representing both the buyer and the seller is really impossible. A single agent cannot give their fiduciary loyalty and attention to both parties in a transaction.

2.  What is a Dual Agent?

This one is tricky to explain because it is different in different states. In Maryland, a real estate agent may not represent both the buyer and the seller. It’s illegal. It really is a conflict of interest in a negotiation. How can an agent “represent” the best interest of a buyer AND a seller, when they are negotiating? They both have opposing objectives, for the most part…the seller wants to get the best price and conditions, and so does the buyer. In Maryland, the Broker is the only one who can be a Dual Agent. Here’s how that works:

Most of the time, home buyers who are serious and educated on the process will work with a buyer’s agent. However, when an agent shows their own listing to an “unrepresented” buyer, and that buyer wants to write an offer on that listing, they have two choices:

• The unrepresented buyer can work with the listing agent, who must offer what Maryland law calls “ministerial acts”. This means they owe the buyer fairness and good service. They help them put an offer together. But they don’t represent the buyer. They are still negotiating on behalf of the seller. They have no duty to make sure the buyer gets the best price or terms. That duty is to their seller client.
• The other choice, if the buyer wants representation, (and if the agent is smart) is that the Broker will assign another agent from the same brokerage firm to represent the buyer. In the situation where a buyer and seller are working with agents from the same brokerage, the Broker is the Dual Agent. He or she must stay neutral in the representation of the buyer and the seller, but their respective agents are negotiating on their behalf and representing their interests.

If Dual Agency is legal and a practice in your state, you will want to tread carefully. Dual Agency, even if it is legal, does not serve anyone but the agent. Check out fellow real estate blogger, Bill Gassett‘s informative article, What is Dual Agency: Why Buyers & Sellers Should Avoid it, for a detailed look at the unfair practice.

“With dual agency – when the agent represents both buyer and seller – the agent can’t push for what is best for you or the other client. The agent collects twice the commission but does almost none of the specific work of a seller’s agent or buyer’s agent. Dual agency only benefits the agent and should be avoided at all costs if you want a positive buying or selling experience.”

No More Presumptions!

As of October 1, 2016, in Maryland there is no more Presumption of Buyer’s Agency – what used to be the instance where there was no written agreement, but the agent could show houses to the buyer.  There was the presumption that the agent was working for the buyer. Yes, it was as confusing for most people as it sounds. During the course of working with the agent, the buyer would typically sign an agency agreement, certainly before making an offer on a house.

After October first, of that year, the Maryland Real Estate Commission did away with presumed agency. Now, as per law, the first time a buyer meets with a prospective buyer’s agent, they should sign a buyer agency agreement. The terms of the buyer agency agreement are entirely negotiable. A buyer can hire a buyer’s agent for a day, a week, a month, or a year, or any time period of their choosing.

Why A Buyer Should Have Representation

Why should you want buyer representation? A buyer’s agent offers a lot of value to today’s home buyers. In most cases, the buyer’s agent is earning their commission from the home sellers. Typically, the listing agent negotiates a fee from the seller, and has agreed to share the commission with a “cooperating agent”. So it is no cost to the buyer.

When you consider the many moving parts of a real estate negotiation, it is a big benefit to the buyer to have an agent to represent them, helping them find a home that meets their criteria, as well as a local lender who has the right loan product for their needs.  An experienced local buyer’s agent helps to determine a price and a negotiating strategy. A buyer’s agent will be able to do a comparative market analysis, CMA, that will help the buyer make a good offer.  As a buyer, you don’t want to overpay, but you also don’t want to lose in a competitive bidding scenario. You want to make sure that the home will appraise close to your offer price, if you are financing the house.

Should you use a buyer’s agent for a new construction home? When you visit the model home in a new neighborhood, you will talk with the builder’s sales representative (emphasis on that word). The sales agent is representing the builder. The truth is, just like any other type of real estate transaction, you need a buyer’s agent to look out for your interests. There are too many potential pitfalls and complications involved in the process of a new home purchase to guarantee a good result unless you have help. Find an agent who is experienced with new home construction and you will minimize a lot of that risk…and a lot of stress!

Realtors® Represent Every Day

Real estate agents are working in the local market every day. They see the inventory, know the values, and they are negotiating all the time. Most homeowners buy and sell every 7 or 8 years, and most people don’t experience negotiations as an everyday event. Even if they did, real estate negotiations are vastly different from other types of negotiation. Without an agent representing you, you are at a disadvantage. It’s great to have a trusted advocate on your side.

So, I hope that makes it clearer if when asking what is buyer agency or seller agency. Sometimes it takes a conversation to really explain these things well. Be sure and ask your Realtor® to explain it, not just hand you a disclosure about Agency.

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Chris Highland 
eXp Realty
Frederick, Md 21701
301-401-5119/cell  888-860-7369/Broker