There's been a debate over the merits of single agency vs. dual agency over on Voldemort's blog for the past few days. There have been several posts up and back between Russell Shaw, Jeff Brown in San Diego and Voldemort himself.

And somewhere along the way, Tobey and I even worked our way into the conversation.

(c) Jonathan Dalton, 2006 / Jonathan Dalton's Arizona Homes

In writing the article "Why Didn't My House Sell" I neglected to mention another trend becoming more prevalent though it has no proven track record of success, and that is higher-than-average co-brokerage fees paid to the buyers' agent and other inducements to provoke a showing.

In culling the expired listings I ran across everything from a 6% co-broke fee to a drawing for a free week's vacation in a beachfront condo in the Caribbean. And, as previously noted, these listings all had expired.

Some argue that most agents will steer their clients toward the homes with these type of inducements without disclosing the extra payoff they will receive if their buyers purchase. While I can't say this never happens, the implication that a majority of real estate professionals would violate their ethical fiduciary responsibility to their client over a few hundred dollars is repugnant. And it's also untrue.

For all the discussion and hand-wringing among real estate professionals about disintermediation - the elimination of the so-called middle man in transactions (and the real estate agents in terms of real estate) - we as a whole seem slow to recognize that the rise of the Internet and buyers' increased use of the web in searching for real estate is making such buyers' agent bonuses irrelevant. It is not the agents driving the bus, so to speak. It is the consumers.

I send properties to my clients (regardless of the co-brokerage fee being offered, incidentally) and inevitably my clients will have selections of their own that they found either through the property search on Dalton's Arizona Homes or elsewhere. To believe that I am the sole selector of homes and therefore able to guarantee myself these bonuses is ludicrous. (It's equally ludicrous to believe the Internet will eliminate my role in a real estate transaction, which is at the heart of disintermediation theory. Change? Absolutely. Eliminate? Never.)

All these financial inducements cannot compensate for proper pricing and aggressive marketing. The rest is just fluff.

(c) Jonathan Dalton, 2006 / Jonathan Dalton's Arizona Homes

This morning I crossed paths with the concept of procuring cause, the tenet by which real estate professionals earn their commissions. While it seems to be an agent-vs-agent issue, it also can have ramifications for the consumer.

In short, procuring cause is the action (or actions) which leads a prospective buyer to write an offer on a given piece of property. Simply sending automated listings, as I do to two dozen clients and prospects on a daily basis, generally would not be recognized as sufficient action; showing a property to a prospective buyer can elevate a burgeoning real estate level to the level where procuring cause can be shown. Other such actions are recommending lenders, other professionals related to the offer and, naturally writing the offer.

This morning I met with someone who had driven past a horse property in Avondale. Since he was not working with a buyers' agent, he called the listing agent and discussed the property. He set an appointment with the listing agent and met with her over a weekend to view the property. She even went so far as to recommend a lender to this prospective buyer.

Rather than use his lender, he called USAA Mortgage and was prequalified with the caveat that he sell his house. This set in motion of chain of events (USAA calling my company's relo department, as we're a preferred vendor; my relo folks calling me as I'm a USAA Certified Relocation Specialist; me calling the client yesterday to set an appointment) that led to me meeting with them at 7:30 a.m. The rush was needed because the listing agent had told the buyers that she was expecting another offer and they needed to hurry if they wanted to submit an offer. And having to submit their offer quickly and given they had to make the offer contingent upon the sale of their house, they needed to get them home on the market pronto, ready or not.

Nothing about the above scenario was particularly complicated except this ... along the way, the buyer decided they would prefer independent representation in negotiating the purchase of this horse property. And it was here that the challenges began to mount.

Legally, any licensed agent could write an offer on the buyers' behalf.  But since the listing agent clearly could show procuring cause, there was no guarantee this agent writing the offer would be paid in the transaction unless the listing agent were willing to make some sort of accomodation in the interest of selling the property. This agent was not so inclined. That left three possible scenarios:

1) The buyer pay for their own representation out-of-pocket. In what adds to the body of evidence suggesting that the idea of buyers paying for their own representation out of pocket isn't as cut and dried as some would have you think, requiring this of the buyers likely would have left them without enough of a down payment to purchase the new property.

2) The buyers make their offer contingent upon their agent being paid. This would be a delicate maneuver for two reasons: first, agents are not permitted to negotiate commissions in the contracts they write. But if the buyers are the ones making the request, welcome to the Grey Zone. Second, even if the sellers were willing to pay the buyers' agent, this doesn't lessen their financial responsibility to the listing agent - the commission is set in the Exclusive Right to Sell form and cannot be altered outside that agreement by anyone other than seller and listing agent/broker.

3) The agent could write the offer and not receive any compensation; the sole compensation would come with the listing. Idealistic, perhaps. Realistic, probably not - not for reasons of greed but for logistical and legal reasons. Once the offer is written, the agent has assumed responsibility on behalf of his brokerage and now becomes liable for a number of different items in the transaction. Liability without compensation is professional suicide.

In the end, the client elected to use the services of another agent to write the offer and cross swords with the listing agent. Again, legally, anyone can write the offer - not anyone can get paid. But these buyers also now will be dealing with a listing agent being forced to present an offer from clients (and a possible commission) she fully expected to have herself. Could that make for a less than ideal scenario when their offer is presented?

You can be the judge.

So how can this be avoided? In some cases, the urge to call on a property can be overwhelming for a prospective buyer, even one who had no intention of moving when they left the house in the morning. However, in their own best interest, it might be best to stifle the urge to schedule immediate appointments and instead come home and plan ... if you do not already have a real estate agent, find one. Independent representation always is the better course of action (though I'm not as manic about it as some anti-dual agency advocates.)

Call a family member, ask who they have used. Talk to a friend. Or jump on the Internet and e-mail or call the first guy you see with a really cute beagle - who also, coincidentally, knows the contract more thoroughly than a large percentage of his peers (the man, not the dog.)

Picking up the phone may seem harmless enough but it truly does have far-ranging ramifications.

(c) Jonathan Dalton, 2006 / Jonathan Dalton's Arizona Homes

SCENE: Interior, day. A darkened 8-by-8 room. A bare 60-watt light bulb provides the only illumination (we'll make it an energy-efficient bulb in deference to my rabbi.) In the center of the room, an inquisitor interviews a real-estate agent seated on a metal folding chair.

[INQUISTOR:] "So, Mr. Buyers' Agent ... How much do you charge your buyers?"

[BUYERS AGENT:] (stammering) "I ... I ... " (look of surprise) ... "Wait ... that's the question?"

[INQUISITOR:] (sneering) "Yes, that is the question. HOW MUCH DO YOU CHARGE?"

[BUYERS AGENT:] (laughing) "What a relief. I thought you were going to ask me about mold."

[INQUISTOR:] "This is no laughing matter, sir!"

[BUYERS AGENT:] "Sure it is. There was no need for the theatrics, just as there was no need for you to assume I wouldn't readily provide you the information. I don't make a secret of what I receive for working with a buyer. If you elect to sign a buyer broker agreement, you will see that I personally work for 3% of the sales price or what's offered in the Multiple Listing Service, whichever is greater. The amount is the same even if you don't sign a buyer broker; the main difference is with a buyer broker, it's in writing."

[INQUISITOR:] "A-ha! You said whichever is greater! So you're going to talk your clients into a certain property only because of the commission being offered."

[BUYERS AGENT:] "Don't be ridiculous. Is it possible same agents would? Yes, it's possible. Do I? Absolutely not. My job is to help clients find the homes that best suit them. In the long run, as a profession in a commission-based career, am I going to make more money squeezing an extra 1 percent on one house or by earning the referral business of a client who has been settled into the right house? It's a no-brainer, really."

-----

There has been a thread permeating the real estate blogosphere of late regarding what buyers agents charge their clients. It even worked its way into print in the Arizona Republic, courtesy of Bloodhound Realty. At its root, the question is meant to expose agents who are leading their clients to homes with higher co-brokerage fee offers in an effort to make a few more bucks. Builders are at the heart of the debate, as these same companies who wouldn't pay an agent a cent a year ago now are offering co-brokerage fees of up to 10%.

But the debate goes beyond the larger co-brokes. It cuts to the idea of buyers negotiating their own fee regardless of what is in the MLS. One of Bloodhound's suggestions is for the co-broke to be credited to the buyer and split according to a previously-negotiated compensation agreement between buyer and buyers' agent.

It seems like a simple solution but the devil is in the details:

1) The commission on a sale is negotiated between listing agent and seller on the Exclusive Right to Sell form. This commisson amount, unless otherwise stated in the agreement, remains the same whether there are one or two agents (i.e., a listing and a selling agent) involved in the transaction. The buyer has no say in the commission debate, at least from this standpoint.

The argument made most often when discussion commissions, particularly from the unrepresented seller crowd, is the list price is inflated by the presence of the commission; if buyers were paid directly in all transactions, or if the seller were agreeing to a lower co-broke and lower overall commission, prices would be lower.

Poppycock.

In a market such as the Phoenix area currently, market averages dictate price. The presence of a commission will impact the seller's bottom line, no doubt, but the lack of a commission will not necessarily cause them to lower their price by 5% to 7%. The price will remain the same (or higher, if they are like most unrepresented sellers) as they grasp at a higher net.

2) Buyers willingly will pay the buyers' agent fee in exchange for representation. The basic fact, right or wrong, is buyers' agency and buyer representation is less an issue to the public than we tend to believe. Problems in the past arose when buyers believed they were being represented in a transaction when all agents in fact were representing the seller. Those days are in the past. Yet it is still extremely common to find buyers calling listing agents off their signs, looking for the best deal on a home. Sometimes they have an agent, most often they do not. There's a common misconception that they can buy a house for less through the listing agent (possible under a variable commission agreement but not automatic, as per point #1) and the idea of representation is less important than the idea of price.

3) Under the current system, imperfect as it may be, buyers are financing the commission because it's wrapped into the sales price. Maybe not the wisest of decisions, but for buyers struggling to find money out-of-pocket to purchase, it's no worse a decision than financing closing costs by offering higher and obtaining a larger loan. Ask these same buyers, or worse yet force these same buyers to pay out-of-pocket for representation and we'll soon have a majority of buyers entering into real-estate transactions unrepresented, just the situation that was supposed to be corrected with the introduction of buyers' agency.

4) What of higher co-brokes? I have no issue with passing along some of the extra commission to a buyer as part of a previously agreed upon employment agreement. I also have no issue with adjusting my commission to consumate a deal, if that's what needs to be done. But I also would expect my buyers, in the case of a co-brokerage offer lower than the minimum I have set for my own business, to pay the difference. This should be a two-way street. It's often not, as evidenced by the below-minimum co-brokers I'e accepted in the past.

The argument's been made that my agency is being bought with a higher co-broke. Personally, this isn't the case. My job is to find the right home for my clients. And I have enough of a long-range view to understand I'll earn a better living in the long run doing what's right and getting my clients into the homes they want.  Earning their referral business wil be far more financially rewarding than trying to squeeze an extra percent or two on a one-time deal.

5) Lastly, there are the sellers. Most have little issue with paying a buyers' agent to bring a buyer to their home. The bulk of the sellers I've worked with, however, would balk at handing additional cash to a buyer - particularly in this market, where below-list offers and closing-cost assistance has become the norm. Obtaining the buy-in of sellers to post these co-broke credits to the buyers isn't impossible, but it's far from automatic.

(c) Jonathan Dalton, 2006 / Jonathan Dalton's Arizona Homes

Tags: Buyer Agency Compensation

For the past few days I've been reading dualing (dueling) blogs about Agency - who represents whom in a real estate transaction.  It's not far different than the months/years-long debate continuing on a popular real estate listserv.

Agency is the concept behind who's representing whom. Until the mid-1990s there was nothing to debate as all real estate brokers represented the sellers and the sellers only. It wasn't until the mid-1990s that someone asked the buyers who they thought had represented them (or if they thought they had been represented) when they bought their homes. The majority of buyers thought the agent who had written the offer for them was representing them. Problem.

And so Buyers' Agency was developed - the idea being a real estate agent (really the brokerage firm, as all licensees are working as representatives of their broker but I'm trying to keep this approaching simple) can represent a buyer solely just as agents had been representing sellers solely for decades.

In Arizona, Realtors (and not all agents are Realtors - only members of the National Association of Realtors) use the Arizona Association's Real Estate Agency Disclosure and Election form. The language is tedious but it boils down to a handful of basic precepts:

• A buyers' broker, while compensated (in most cases) by the seller, represents the buyer and has the fiduciary duties of loyalty, obedience, disclosure, confidentiality and accounting in dealings with the buyer
• A sellers' broker has the fiduciary duties of loyal, obedience, disclosure, confidentiality and accounting in dealings with the seller
• A broker performing dual agency (either with one agent representing both sides, or two different agents employed by the same firm handling each side) can do so only with the knowledge and informed consent of both the seller and the buyer. Quoting the form: "the broker will not, without written authorization, disclose to the other party that the Seller will accept a price or terms other than stated in the listing or that the Buyer will accept a price or terms other than offered." Also, "there will be conflicts in the duties of loyalty, obedience, disclosure and confidentiality. Disclosure of confidential information may be made only with written authorization."

The idea of inherent conflicts in part led many firms to decide proactively not to permit dual agency situations as a matter of firm policy. In a more extreme example, it also has led to the creation of "Exclusive Buyers Agents" - firms who will not accept listings and instead represent only buyers.

I disagree with the necessity of either step, outside of a company filling a niche in the real estate business.  

Many agents spend a considerable amount of time wringing their hands over the evils of dual agency, even those who according the local MLS have engaged in dual agency in the past. The primary argument against dual agency is neither side is benefitted, that neither the seller nor the buyer can be represented fully when both are represented by the same broker. To these folks, it is very much a black-or-white, my-way-or-the-highway type of argument. Practitioners of dual agency will burn in their own personal circle of hell while those who eschew the idea will enjoy an afterlife of ambrosia and Charlie's Angels re-runs.

But the answer is not so simple. According to the Arizona Association of Realtors' Agency Disclosure, our fiduciary responsibilities lay with both parties. Must one absolutely come at the expense of the other? At heart, we're talking about working in our clients' best interest In some instances, is it not possible for the buyers or sellers "best interests" to be served through dual agency? Are we to be the arbiters of what is and is not in the clients' best interest or is it not possible for grown adults to make an informed decision? We're not talking about splitting the atom - we're talking about the compartmentalization a real estate transaction, either within one firm or one agent.

If "best interests" are defined solely as the seller receiving an extra thousand for their home or for the buyer spending a thousand less - if they are defined solely in monetary dollars, then perhaps the argument against dual agency holds water as a negotiated middle ground as determined by the buyer or seller often is the final settling place. But if "best interests" are viewed as more than just monetary, then the argument's not as cut and dry.

And before I continue, please keep in mind I'm not advocating for Dual Agency in every situation. But I'm also not advocating against it in every situation. To me, the circumstances dictate the appropriateness.

Last fall I took a listing from someone referred to me by a previous seller. He asked if I discount my commission (of course) and I gave him my stock reply - only in two circumstances. One, if you complete multiple transactions with me. And two, if I bring the buyer and represent both sides. In this instance, I already knew of a buyer looking for another townhouse in this particular area. He was interested in the latter option so I added it to the listing contract.

When it came to determining the listing price, I handed him the comps and he made a decision. We ended up with three offers within a day, one belonging to my buyer. All were for roughly the same price but the seller elected to go with my buyers' offer because his net would be higher. (And all was above board - in the Arizona Regional MLS we are required to disclose is there is a variable commission rate, such as in this case. This way, agents and their buyers know there may not be an even playing field if an offer from the listing agents' buyer comes through and can adjust their strategy accordingly.)

I actually would have made more leading my buyer to another property where I would have received a full 3% co-broke. But instead, looking at his desire to purchase a property and the sellers' desire to sell his with the least amount of stress and hassle, I spoke to both and made the match. The transaction went smoothly and all walked away happy.

So, did I serve the clients' best interest? If both of my clients say yes, and I'm certain they would to this day, where does an outside have cause to claim I did not? Those who say yes maintain the public needs to be shielded from such practices. I say educate them and let them choose, especially since more often than not their choice is apathy.

Sign calls are a normal part of this business. When I answer the phone, I represent the seller. I know this. In most cases (say, 98.763%) the caller knows this. And yet they call anyway. Based on what many of these callers tell me, they call multiple agents from their signs looking for information on the house. They may not know buyers' agency theoretically costs them nothing, but they do know they're calling the sellers' agent when they pick up the phone. Yet they do so time and time again. Ignorance? Probably not. Apathy? Almost certainly.

We as real-estate professionals have an obligation to the public at large to educate them about the business - there are any number of legally binding documents and guidance is needed. Where I think we run into the most problems is when we decide ourselves what the public as a whole should want - let the public decide what fits their needs and move on to the next hand-wringing subject:

Open houses.

(c) Jonathan Dalton, 2006 / Jonathan Dalton's Arizona Homes