Is Your Agent Working For or Against You?

A Buyer's real estate agent gets paid by the seller, but that's only the start of the conflicts.You're ready to buy a new home: thrilled, right? But somehow, you can't shake that nagging feeling that maybe you're paying more than you needed to. Did your agent act solely in your interest? Or did he/she have other incentives to weigh?

The fact is, you may never know for sure. There is no one national governing body that dictates agents' behavior or disclosures. The National Association of Realtors has a Code of Ethics and Standards, but laws vary by state. Some states don't allow agents to represent both buyer and seller without full disclosure, while others give carte blanche to any and all incentive fees to sell a property.

The agent disclosure issue has become a flash point in some states.

In North Carolina, for example, real estate agents are protesting a 2008 law that required that they disclose in writing any compensation "of more than nominal value" they expect to receive from their client, whether the buyer, the seller, both, or any other parties to a transaction. The rule was adopted after reports that a Charlotte Realty firm took millions of dollars in payments from builders to steer hundreds of potential buyers to their properties, without disclosing the bonuses.

With the legal question far from settled, do agents have a moral obligation to disclose all of their compensation to buyers? Of course they do. And just how how likely is an agent to be swayed to push one property over another because of a certain incentive? Let's take a look.

It's a slippery slope to be sure: financial incentives of any sort to tend to sway behavior towards self interest. In the real estate arena, such incentives include trips, gift cards, even cars -- all provided based on one or more closed transactions. It's not uncommon for developers or well-to-do owners to sponsor wine tastings or catered lunches in the hopes of increasing their visibility as quickly as possible.

In the banking world, regulators ban gifts of over $100, precisely because of this reflex and its potential influence on decision-making. Not so in real estate.

The primary incentive comes in the form of commissions from the seller -- specifically, the "split" on the typical six percent fee, half of which usually goes to the buyer's broker. The higher the split, the greater the incentive to push that property (or, at the very least, to make sure it gets shown).

The way it works now, the buyer's agent is almost always paid by the seller, which makes for some interesting questions: Who does the agent actually work for? Yes, a buyer's broker represents the buyer, but it would be much cleaner if each buyer and seller were to pay for their own representation.

So, do incentives help keep a property top of mind? Absolutely. Similarly, no seller will take a chance and offer a buyer's broker just a tiny incentive--what wants to risk having no brokers support that property? In Manhattan, at least, more than 85 percent of all transactions include buyers' brokers. But I believe an agent can only push so far at the detriment of the relationship and the very transaction (s)he wants to close.

Many agents will tell you that they would lose most of their clients were they to show them anything other than the most suitable properties based on their needs. In most cases, the client guides the process of narrowing down the properties; their input is critical to making a decision where to place offers. At the very minimum, it's a partnership. The properties seen are those clients choose based on preliminary data provided to them (pictures, price, time on market, square footage, etc.). The properties that move to the next round are chosen based on the clients' best reactions based on their tastes and needs.

Finally: the moral obligation piece. Yes, agents should disclose fees to their clients, and educate them about how fees work. But without laws requiring disclosure, a buyer can only ask and hope that an agent is straight with them. While there are some agents who may not do the right thing, there will always be many others will. Like all careers that depend on commissions, real estate can attract those looking to make money any which way... But, as in all careers, there are always those for whom integrity and service come first.

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