Paralegal 101: A Buyer's Broker Is Brokerage Without Subagency To The Seller
This is not legal advice, it's just a NY State fact so if you have legal questions call your lawyer. I am in the middle of a real estate continuing education class right now and wanted to share several nifty little quotes to whack the myth ignorant listing agents like to perpetuate when they try and convince people who walk in to their open houses that signing their visitation sheet means something more than what it really is.
When a listing agent signs a contract to sell a house they are obligated to put the best interests of the homeowner first. Translated: not the homeowner selling the property equals/means what you want is secondary to what the seller wants.
Real World Scenario: Buyer A has a relative in real estate. Buyer A is my girlfriend. Buyer A invites me over to dinner to talk about her home she purchased waaaaay before I ever applied to get a real estate license because she wants to refinance and knows I have friends in the industry. I come over to dinner. I am impressed with her home. I ask how much she paid for it. Half a million she says. I whistle long and low because she's paying this mortgage on her own so with the interest rate drop I think a refinance is indeed a stellar idea. I hop on her computer and pull up the history of her home from the City Register and go over what was paid for the most recent ten deed filings and notice the people she purchased the property from where on the verge of losing the home - preforeclosure. I ask a simple question. If they owed three and change why did you pay five even when you could have gotten it for four or less which was the average going rate for homes at the time of your purchase? She had no idea what the comparative market rates were because the Listing Agent told her she needed to make a big down payment so she could afford her monthly mortgage so chicka put a six figure down payment down which meant the house appraised enough to actually get a mortgage because the appraisal needed to come in at four hundred thousand for the deal to go through... After all, houses were selling for four and change at the time, not five for the type, size, location and work that needed to be done on this particular property. Because it was a relative in the business Buyer A assumed the listing agent was looking out for her best interests when she suggested the big down payment and offering FULL ASKING PRICE.
Guess what? The Listing Agent did her job. She got the best price for her client out of a qualified buyer. She still would have done her job had she sold the home for less so too bad I wasn't a Buyer's Agent agent back then... Too bad the Buyer's Agents who were available didn't bother to tell people what it is was that they really did/do for their clients because I'm sure had my girlfriend knew the difference between the two she would have hired a professional to look out for her best interests like the homeowner selling her property did.
Too bad most brokerage firms are so seller centric that they don't actively recruit more Buyer's Agents into their folds or make it their business to cross train the agents they have to switch modes. After all it is a buyer's market right now... Just sayin the two are competitive business models...
What did I learn in class today that I want to share with you? We brushed up on Brokerage Without Subagency today. In sum and substance I quote:
Brokerage Without Subagency: "As a principal, the seller is liable for actions not only of the listing agent but also of subagents. This potentially enormous liability—for human rights violations, among other problems—is the reason some sellers do not want to offer any form of subagency relationship. If a seller does not wish to offer subagency to MLS members but still wants to gain exposure through an MLS, he or she can direct that the listing agent may split the commission with another broker who produces the buyer, without the other broker acting as the seller's subagent. The seller agrees to pay the selling broker part of the commission but does not risk being held liable for any statements or actions on the part of the selling broker. With more and more buyers being represented by their own brokers these days, this simple offer of cooperation and commission sharing solves problems that used to arise about how the buyer's broker is to be paid. Please note that although New York City does not have a formalized MLS, the attorney general's office has determined by letter ruling that if the selling agent is from a different brokerage company than the listing agent, the selling agent is a buyer's agent and not a subagent of the seller or selling agent." 45-Hour Broker Qualifying Course: Local Concerns for Downstate New York
P.S. In New York State the Buyer's Agent can also be from the same firm the listing is at, so make sure your paperwork clearly delineates who represents whom for what (e.g. Buyer's Agent, Seller's Agent or Dual Agency). The next time someone opens their mouth and tells you you don't need a buyer's brokerage agreement I want you, the buyer, to think about who is going to represent your best interests...
According to the New York State Department:
Buyer’s Agent: "A buyer’s agent is an agent who is engaged by a buyer to represent the buyer’s interests. The buyer’s agent does this by negotiating the purchase of a home at a price and on terms acceptable to the buyer. A buyer’s agent has, without limitation, the following fiduciary duties to the buyer: reasonable care, undivided loyalty, confidentiality, full disclosure, obedience and duty to account. A buyer’s agent does not represent the interest of the seller. The obligations of a buyer’s agent are also subject to any specific provisions set forth in an agreement between the agent and the buyer. In dealings with the seller, a buyer’s agent should (a) exercise reasonable skill and care in performance of the agent’s duties; (b) deal honestly, fairly and in good faith; and (c) disclose all facts known to the agent materially affecting the buyer’s ability and/or willingness to perform a contract to acquire seller’s property that are not inconsistent with the agent’s fiduciary duties to the buyer."
You need to read this NY Dept. of State PDF people... http://www.dos.state.ny.us/forms/licensing/1736-a.pdf
Lunch is over. Back to class I go... Buyers can hire an agent to represent their purchases if they want to regardless of what house they wander in off the street to see. Signing an attendance sheet doesn't kill that right.
I'll be in school for the rest of the week. Real Estate Paralegals are always going to school for something because the continuing education challenges never ends with us (oh joy - LOL).
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