Brokers and Agents for the Buyer

What are the differences between a broker, an agent, a Realtor™, and a salesperson? These titles get bandied about interchangeably and are often confusing.

Simply defined, real estate agents are people who help you buy or sell your house and who hold licenses issued by a state. Agents can only sell real estate under the supervision of a broker and must collect the commission from the sponsoring broker. The broker is legally responsible for the actions of the agent.

Brokers are licensed by the state to collect fees and oversee negotiations for a purchase. The broker has earned a higher-level license and may or may not have more experience than an agent. Brokers can manage a real estate office, work on their own, or work in an office under another broker.

Realtors™ are brokers and agents who belong to the National Association of Realtors, usually via a local board. NAR has trademarked the word, which is why it's capitalized. Members abide by a Code of Ethics over and above the requirements of state law.

None of these licenses and designations by themselves ensure that a particular real estate professional is the right person to do the job for you. Many other factors weigh in, things like personal chemistry, location, and experience. (See Choosing a Good Agent.)

Who's on Your Side?

If you think your real estate agent is working for you, think again. After all, when you go to buy a computer, do you think the computer geek ringing up the sale represents you?

There is a law called "Law of Agency" that says that the agent or broker’s fiduciary responsibility is to the client. In legal terms, the client is the person who pays the commission. That means the agent you think is working for you, the buyer, really has a primary responsibility to the seller! Basically, the agent must put the interests of the seller above yours, and even above the agent’s own self-interest. This can restrict the flow of vital information, like how desperate a seller is to sell, from reaching you. One way to avoid this is to hire a buyer’s broker.

In the real world, however, it doesn’t quite work that way. Despite the legal obligation of the real estate agent to the seller, most buyer's agents will tell you everything they know to make the sale at the best price to you. (However, some say that an agent will try to make the quickest deal because the marginal fee is so small vs. any extra effort. It doesn't hurt to have your own opinion about what is the best price.)

Around 85 percent of buyers and sellers use agents, and referrals are where most agents get their leads. In other words, they want to make sure their clients are happy with price and house so recommend them and build their reputation in a community. And remember that the agent only makes a commission when the deal closes, so there is incentive to get the two parties to agree.

Dual Agency

Dual agency exists when one agent represents both the buyer and the seller. It can also exist when the listing and buyer agents work in the same office. This is tricky since the buyer's agent's allegiance is torn between the buyer and the brokerage.

In the case of one agent representing both parties, the agent can provide information about the property to the buyer, disclose all defects in the property, disclose the financial qualifications of the buyer to the seller, explain costs and procedures, compare financing alternatives, and provide comps to both parties.

What the agent cannot disclose to clients under dual agency is more complicated. The agent cannot disclose confidential information about the clients without permission. Nor can the agent recommend to the buyer the price the seller will take other than the listing price. Conversely, the agent cannot recommend to the seller a price to accept or counter.

Some states prohibit dual agency. Many states require a written disclosure in the case of dual agency. The only upside to this setup is that because the agent is earning on "both sides” of the deal it's possible they will take a lower total commission, which could benefit the buyer in terms of the overall price paid. But don't ignore the issue: Pay attention to whose side the agent is representing. It may not be yours.

The Buyer's Agent

There are agents that specialize in representing buyers and are not primarily obligated to the seller. A buyer’s agent's fiduciary responsibility is to you, not the seller. Unlike traditional ways of doing business, you may or may not sign an exclusive contract, and the agreement may state you are liable to pay a commission to the agent even if you find a home through other channels. Read contracts carefully to see if you have to pay the agent a commission if you find a FSBO or other house by yourself. A buyer's agent can be paid by either the buyer or the seller.

Buyer agents also benefit a brokerage. Normally, buyers come and go with little loyalty, changing agents at will. An agreement gives the broker more control over clients and increases the probability of earning a commission.

Saving on Commissions

Enter the Internet, and consumers are trying out new ways of transacting real estate. Instead of touring with an agent, buyers do the legwork themselves — online. For the agents, this means a more focused client; for the buyer, it can mean avoiding a commission altogether, or paying a flat fee or at least a lower commission.

Most traditional real estate firms still charge the standard 5- to 7-percent commission but new discount real estate firms are bucking the system and setting up cheaper alternatives. These brokers say they offer sellers some of the same services as a full service agent, but at greatly reduced commissions; traditional brokers say you get what you pay for. Discounters are readily available by searching the Internet and can save the seller up to 3 percent in commission costs; some discounters rebate a portion of the commission to the buyer.

Real estate firms that charge a minimum monthly fee and a few hundred dollars per transaction to the agents open the door to reduced commissions. Agents working with this system sometimes pay more out-of-pocket expenses, but are not paying a big chunk of their earnings to the sponsoring broker. As a buyer, you can negotiate a fee, but you want to make sure you are paying the agent enough to make it profitable for them to spend time showing you houses.

You can also save on commissions by shopping for a home on FSBO Web sites. Up to 20 percent of sellers are offering homes themselves online. Contact them directly and save on the buyer's agent commission. (But do know what an agent does, because those jobs will fall to you.)

Fee-for-service brokers have a smorgasbord of services to pick and choose from. Just pay for the services you want to use. (This can get confusing at times because services seem to overlap when you aren't familiar with how real estate transactions work.)

House auctions are popular in some areas. Properties are posted on auction sites, and agents can bid, then negotiate commissions or fees in the event the bid is accepted.
All of these services save you money, if you live in the right state. In some states, these kinds of services are curtailed or banned entirely.

A QUICK GUIDE TO AGENTS AND BROKERS

Real estate broker: Brokers are licensed by each state to act as agents for principals in real estate transactions. A broker can be an individual or a large company or franchise.

Associate broker: Individual who has a broker’s license but works under another broker.

Real estate agent: Licensed by the state to act as agents for buyers or sellers but must work under broker supervision

Exclusive agent: Single agency. Represents either the buyer or the seller.

Dual agent: Represents both the buyer and the seller. Dual agency must be disclosed upfront to both parties in order to be legal. It is not allowed in some states.

Buyer’s agent or broker: Represents only the buyer in the transaction.

Listing agent or broker: Represents only the seller in the transaction.

Subagent: An agent who writes an offer for the buyer, but who is not the buyer's agent. The subagent owes allegiance to the seller.

Transaction broker: A mediator who has no allegiance to either party who is hired to help the buyer and seller reach an agreement.

Realtor®: A member of the National Association of Realtors (NAR), the national trade association of Realtors that sets standards and ethics. A real estate agent does not have to be a Realtor.

Realtor–Associate: Some boards of Realtors® use this term for salespersons or agents affiliated with member brokers.

GRI, CRS, CRB: Advanced designations earned by agents who have met certain continuing education and performance requirements. The acronyms stand for Graduate REALTOR Institute, Council of Residential Specialists, and Council of Real Estate Brokerage. There are many, many designations agents can earn; these are just a few. 

Related links: What a Buyer's Real Estate Agent Does; How Buyer's Agents are Paid; Where to Find the Right Buyer's Agent