They Say They're Buyer's Reps, But They Act Like Subagents

January 1, 1997

Salesperson Curtis Hall of Phoenix stirred up a storm in 1989 when he announced he was becoming a buyer's representative.

One of only a few people in his market who offered the then-new service, Hall faced bitter industry opposition. Thirty-six salespeople in his office signed a petition demanding that he be fired. Many remained hostile even after his broker refused the petition. ''Some said they wouldn't allow me to show their listings,'' says Hall, CRS®, who now works as a salesperson at a different brokerage, RE/MAX–Anasazi Realty, Tempe, Ariz.

Hall today is amazed at how the situation has changed. Buyer representation has become the major practice in the Phoenix area. Subagency is quickly declining. But this flip-flop has created a new difficulty.

Buyer representation swept the market so quickly during the last few years that many new buyer's representatives aren't trained and don't understand what they're doing, Hall claims. ''They're wearing the buyer's representative's hat, but they're acting like subagents.''

From his observations as an expert legal witness in agency cases, Hall contends that consumer complaints and litigation regarding buyer agency are on the rise--though probably not as fast as the growth of buyer agency itself. ''It's a problem,'' he adds.

No Raised Hands

Although the volume of buyer agency practice varies widely from market to market, a 1995 NATIONAL ASSOCIATION OF REALTORS® survey of homebuyers nationwide showed that 41 percent used a buyer's representative. Industry observers today estimate that about 50 percent of sales associates working with buyers in major metropolitan areas are identifying themselves as buyer's representatives.

A number of buyer's representatives, especially those who entered the market before 1993, are well trained and understand their legal duties. In recent years, however, an overwhelming number of salespeople have switched from subagency to buyer agency in response to shifting consumer demand, according to industry observers. Not all of the new buyer's representatives are adequately trained or understand that they have responsibilities and liabilities beyond those of subagents, observers say.

A pattern that troubles agency educators is the large number of buyer's representatives working without contracts. A survey conducted in May 1996 among 30 members of the Real Estate Educators Association produced the estimate that, on average, only about one in five buyer's representatives nationwide is using a contract.

''A contract is as important on the buyer's side as a signed listing agreement is on the seller's side,'' says Julie Garton-Good, GRI,an educator and buyer agency expert based in Lenore, Idaho. Most states don't require contracts for buyer's representatives. Some buyer's representatives assume that an agency disclosure serves as a substitute for a buyer's contract, but it doesn't, says Garton-Good, who annually addresses 25,000 practitioners on agency and other topics.

A written agreement is an important risk management tool, she says. Without an agreement, salespeople who identify themselves as buyer's representatives could be held to the highest level of fiduciary duty to the client if they're taken to court. A written agreement, on the other hand, defines and clarifies the practitioners' duties, limiting their scope. ''Liability goes sky-high without a written agreement,'' Garton-Good says.

Hawaii doesn't require buyer's contracts, and about 99 percent of buyer's representatives don't use them, says attorney John Reilly of Honolulu, an educator and buyer agency expert. He refers to these licensees as ''casual buyer's brokers.''

During one recent two-year period, Reilly taught a buyer representation course to about 3,000 licensees. He asked each class, ''How many people would work with a seller under an open listing?'' His students laughed. Next he asked, ''How many of you work with buyers under a written agreement?'' In a typical class, there were no raised hands.

''Some see the light,'' he says, ''but most say, 'It's working . . . why change?'''

Roster of Sins

Even in states, such as Colorado, that require buyer's contracts, buyer's agents sometimes drop the ball, notes Mike Gorham, director of the Colorado Real Estate Commission. Since Colorado revised its real estate agency law in 1994, the commission has seen an upsurge in buyer representation, as well as an increase in consumer complaints related to buyer representation.

More disturbing than the volume of complaints is their nature, Gorham says. ''They lead me to believe that some salespeople do not fully understand the nature of the fiduciary duties of a buyer's agent.''

Some key things that ill-trained buyer's representatives are not doing:

  • Reviewing the contract with clients so that clients understand they're using the buyer's agent's services exclusively. Even after signing exclusive buyer's agent agreements, some buyers think they can still shop around for other salespeople the way they could under subagency.
  • Adequately representing the buyer. Salespeople are signing contracts with buyers and then telling them to go out on their own to look for a house and call their salesperson when they find something they like. In Gorham's opinion, ''That isn't the way buyer agency works.''
  • Performing due diligence. Buyer's agents aren't double-checking information obtained through the MLS about the house, nor are they recommending that the buyers obtain a home inspection.
  • Giving full loyalty to the buyer. Some buyer's agents still think they have an obligation to the seller, since the fee usually comes from the transaction and not directly from the buyer.

Gorham thinks it might take a couple of years to significantly improve the average training level of buyer's representatives. Colorado recently passed a new real estate licensing law that'll help by increasing the number of mandatory training hours for all new licensees and renewals. The commission is also distributing information to real estate schools and instructors about noteworthy disciplinary cases pertaining to buyer agency that have come before the commission.

Meanwhile, Gorham is waiting for legal cases to work their way through state courts for additional help in clarifying and reinforcing the standard of care that will be required of buyer's agents when representing their clients.

Competitive pressure will soon force poorly trained buyer's representatives to upgrade their education, says Garton-Good. ''If they expect to remain in business past the year 2000, they'll have to. It's a matter of survival.''

On the positive side, a hard core of well-trained buyer's agents is educating the public and setting higher standards for newer buyer's agents to follow, observers say. And Garton-Good adds, ''The saving grace is the number of buyer's agents who are doing things right.''

Walt Albro is a former senior editor for REALTOR® Magazine.

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