Are you a future homebuyer in Massachusetts?
The cards are stacked against you!
The traditional real estate industry in Massachusetts uses deception to sell you a home pretending to be your actual agent. In order to reverse that and gain the upper hand you need to buy your home through the “right agent” and you need to start working with the “right agent” as early as possible in the process.
The “right agent” is one who really is a True Loyal Agent™ and who has the legal obligation to be your protector, to be loyal to you alone and to look out for your best interest at all times and in every situation. I’ve coined the phrase, “True Loyal Agent™”, to distinguish a real estate licensee/true agent who is with a company that represents real estate consumers as a true agent and never practices dual or designated agency from the traditional real estate licensee/salesperson who is with a company that practices dual or designated agency purely for the purposes of greed and double-dipping of commissions.
True Loyal Agents™ provide full fiduciary duties at all times and in every situation. This is the mark of a true agent. You are the client, also known as the principal. They are your agent. The fiduciary duties owed to you by such an agent are known by the acronym “old car”: Obedience to Lawful Instruction; Undivided Loyalty; Full Disclosure of Material Information; Confidentiality; Accounting; Reasonable Skill and Care.
A True Loyal Agent™ will protect you from making mistakes in the homebuying process as their legal duty is to protect you from harm and to look out for your best interest at all times and in every situation.
True Loyal Agents™ who represent homebuyers only are known as “exclusive buyer agents”.
True Loyal Agents™ who may represent buyers and sellers, but never in the same transaction are known as “true single party agents”.
Home buyers in Massachusetts can choose to work with real estate licensees who represent the seller, real estate licensees who represent the buyer, real estate licensees who try to represent both the seller and the buyer (known in Massachusetts as dual or designated agents) or real estate licensees who represent neither the seller nor the buyer (known in Massachusetts as facilitators).
Real estate licensees who represent the seller, by law, must be loyal to the seller and must look out for the seller’s best interest and work to get the highest price and best terms for the seller.
Real estate licensees who represent the buyer, by law, must be loyal to the buyer and must look out for the buyer’s best interest and work to get the lowest price and best terms for the buyer.
Real estate licensees who attempt to work for both (dual or designated agents) must remain neutral and really can’t provide the “OLD” part of our acronym “OLD CAR” noted above: Obedience to Lawful Instruction; Undivided Loyalty or Full Disclosure to either party.
However, in Massachusetts the Mandatory Real Estate Licensee-Consumer Relationship Disclosure form implies that “designated agents” can provide undivided loyalty. This is something that is questionable at best and considered misleading and perhaps fraudulent by some, including this author.
Common sense tells you something isn’t quite right with a so-called designated agent being able to provide undivided loyalty to you when one or more other agents in the same real estate company are saying the same thing to the seller of the home you want to buy.
Agents who work both sides have ongoing relationships with one another. Can you trust that their loyalty to you and your home purchase is greater than their loyalty to their office and coworkers?
You want the lowest price and best terms and the seller wants the highest price and best terms. And, the real estate company wants to make a deal and double-end a commission from both the sell and buy side of the transaction.
Traditional real estate licensees/salespeople share information all the time about their buyers’ and their sellers’ needs and qualifications in an effort to make an in-house deal. They do this in passing or at sales meetings or over lunch or coffee. Do you believe that having a licensee/salesperson telling others in their company that they have a buyer who is qualified to pay $x for a home or has cash for a sizable down payment or that their lease is up in two months and they have to find a home like yesterday is to your advantage?
Do you really think that information won’t be used against you?
Does it make sense that they can somehow properly represent you on an in-house sale while doing the same thing to the seller?
I can get into great detail as to why designated agency is not proper and has no true legal basis to operate as purported and in fact have an internet blog that gets into great detail about the issue.
However, I will simply leave it up to your good sense and judgement and say that agreeing to designated agency could cost you thousands of dollars.
This post is about finding a True Loyal Agent™ that takes all the uncertainty out of knowing whether or not the real estate agent you use really is a true loyal agent or really a salesperson in disguise pretending to be your agent.
Be very, very cautious of designated agency. If you doubt my reasoning just ask an attorney to explain it to you. They will also shake their head and probably agree that designated agency as purported to operate as per the disclosure is simply a fantasy.
Attorneys can’t operate that way so why should real estate licensees be able to.
Relationships you have with an attorney or a CPA are based on trust law. They are required by law to be loyal to you and to look out for your best interest at all times. They are your fiduciary, your agent, and you are their client. They owe the full range of “OLD CAR” fiduciary duties to you that I mentioned above when describing what a True Loyal Agent™ is. This is different than the situation of you being a customer. Think in terms of buying a car. You are a customer buying a car from a salesperson.
I’d like to impress on you the importance of true undivided loyalty and what it means – Undivided loyalty prohibits the agent (real estate licensee) from advancing any interests that are adverse to your own. This loyalty is “undivided”. They cannot advance the interests of the seller or themselves or their real estate company above yours. This is an impossible fiduciary duty for agents to provide if they or their company practices dual or designated agency and you are buying a home that is listed by the same agent or another agent in the same company.
A real estate licensee can function as a true fiduciary just like your attorney or CPA or they can function as merely a salesperson or worse a pretend buyer agent. This is probably the most confusing aspect of dealing with a real estate licensee in Massachusetts.
Are you dealing with someone who is a fiduciary or someone who is a salesperson?
Also adding to that confusion, real estate licensees are called agents, when in most instances they really aren’t your agent but rather an agent for the seller or simply not an agent at all but rather a salesperson. I like to refer to them as either a salesperson or licensee rather than agent to try to reduce the confusion.
Thirty years ago real estate agents were in fact agents and believed in true client representation. However, with real estate companies growing larger and depending on in-house sales for increased revenue the concept of true representation has vanished for the traditional real estate company in favor of greed. They simply can’t provide true representation for in-house transactions as noted above.
I’m assuming you don’t want to be sold a home but rather buy a home with someone who is truly on your side and who has a legal obligation to be loyal to you and to look out for your best interest. You should therefore seek out the services of a real estate licensee who really is your agent and who will guarantee to be loyal to you, who will protect you and who will look out for your best interest no matter which property you are interested in. In other words, a True Loyal Agent™. Don’t be Sold, Be Served™ is more than an interesting phase. It should become your goal.
If you decide to buy a home using an agent who represents the seller or is operating as a dual or designated agent, you are buying your home using a salesperson just like buying a used car.
Who is the better advocate for your best deal?
An agent who represents the seller? Agents who try to represent both you and the seller?
Or, an agent who will represent only you in a transaction?
A word of caution: Nearly all traditional listing agents now call themselves buyer agents because they know that is what you want to hear. In other words, you could work with a “so-called” buyer’s agent who also takes listings, represents sellers, and is with a company that takes listings and represents sellers. This isn’t necessarily a problem unless you are interested in a so-called “in-house” listing. That is when the so-called buyer agent that you are working with, and to whom you have given confidential information, will want to switch to being a dual or designated agent. This is a form of bait and switch so watch out for this maneuver.
As mentioned above the “right” agent that works best for home buyers in Massachusetts, and elsewhere for that matter, is an “exclusive buyer’s agent” or a “true single party agent”.
As mentioned in the post about using the “right” agent that works best for home buyers in Massachusetts, and elsewhere for that matter, these True Loyal Agents™ are known as an “exclusive buyer’s agent” or a “true single party agent”.
A true exclusive buyer’s agent never takes listings, never represents sellers, and doesn’t work for a company that does. They never operate as a dual or designated agent or facilitator. They represent and protect buyers only as a True Loyal Agent™ at all times and in every situation.
A true single party agent works for buyers AND sellers, but never both in the same transaction and never operates as a dual or designated agent or facilitator. True single party agents and single party agency offices have procedures in place to make sure that their buyer and seller clients will never be represented by the firm at the same time. They will always refer the seller or the buyer to another competent agent outside of their firm rather than try to represent both a buyer and a seller in the same transaction as traditional real estate companies do as their routine business model. For example, before they will take you on as a buyer client they will first make sure that none of their current listings are of interest to you. If one or more is of interest to you they will not be able to take you on as a client. They will refer you to someone else to represent you if that is what you would like or you could continue to purchase that listing of theirs as a customer, not a client, without representation. I don’t recommend that you go it alone or even with the help of an attorney alone. Get true representation and then continue. If you have no interest in any of the current listings the firm has, then they can take you on as a true client with them as your True Loyal Agent™.
If you are already a buyer client of a single party real estate agency and a seller approaches the firm with a home they want listed, the firm will check to see if it is a home you might be interested in buying. If so, they won’t take on the seller as a client but rather encourage them to find someone else to list with or sell as a “for sale by owner” seller perhaps at least using an attorney for help. That way if you wish to continue with a purchase of that home your True Loyal Agent™ continues fully representing you.
A true single party agent operates as a True Loyal Agent™ at all times and in every situation and operates similar to a law firm. A law firm represents sellers AND buyers of real estate but never in the same transaction. If a law firm had a previous relationship with a seller they would not be able to now represent a buyer against that seller.
I had referred a buyer client to an attorney who handles real estate transactions for my buyer clients. I had to find a different attorney with a different law firm as someone else in his law firm had ten years previously represented the child of the seller whom my buyer client was buying a home from. Note that the attorney I referred my buyer client to was not involved in that matter directly but because someone else in his law firm had been, he had to recuse himself. If law firms have such tight “conflict of interest” controls why can’t real estate companies as well? Answer: They don’t want to as they want the double-dip commission. But that is another discussion entirely.
In the opinion of many in the real estate business, real estate companies should not be allowed to operate as dual or designated agencies and where there is a conflict either the buyer or the seller should be referred out to someone in another company so that the real estate consumer is still able to get true representation. That is the idea behind true single party agency and it is exactly how law firms operate.
So how do you know if you are talking to a True Loyal Agent™?
Ask the agent if they or anyone else in their company takes listings. If they do they are not an exclusive buyer agent or with an exclusive buyer agency, but they may still be a True Loyal Agent™. You need to ask the next question to see if they are a true single party agent. Ask if they will refer you out to someone else with another real estate company if you are interested in a home that is listed by them or someone else in their company. If they say that they won’t refer you out and that they can continue to represent you while also representing the seller they are not a true single party agency company nor a True Loyal Agent™. If you continue with using such an agent you will end up with the potential of being pushed into buying an in-house listing and ending up in a dual or designated agency situation, which could harm you. By the way, if you happen to be a seller reading this book, your best option is to work with a true single party agency. It is the best way for you to be fully represented throughout the home selling process. Contact MABA, the Massachusetts Association of Buyer Agents at maba.org or 800-935-6222 and tell them you are a seller and would like to talk to a single party agent to sell your home. They will be able to direct you to a true single party agent who can help you with that. Only True Loyal Agents™ belong to MABA and thus you will assured to receive true fiduciary loyal agent services.
Always interview a true exclusive buyer’s agent or a single party agent before deciding to start working with an agent. It costs you nothing extra to hear about what these agents do and how they guarantee to be your loyal agent regardless of which property you end up buying.
It is possible that you received a copy of this book from a True Loyal Agent™ in Massachusetts so you already have a True Loyal Agent™ to work with. If not, to find aTrue Loyal Agent™ in Massachusetts contact me.
Some Additional Tips with Regard to Working with Agents:
Always ask any real estate licensee you come in contact with to provide you with a copy of the Massachusetts Mandatory Real Estate Licensee-Consumer Relationship Disclosure filled in before you provide any information to them or see any homes with them. Do this at your first contact with them. You need to know if they are going to operate as a True Loyal Agent™ or a dual or designated agent. You are not required to sign the disclosure and even if you do it is not a contract. A copy of the disclosure can be found here “expert-homebuying-help.com/disclosure”.
As the disclosure states, it is not a contract and even if the licensee/salesperson checks off the box, designated agent, you are not agreeing to it. That takes place when they provide you with what is generally referred to as “Exclusive Buyer Agency Agreement”. Please don’t confuse this with true exclusive buyer agency. As noted above true exclusive buyer agency is the practice of representing home buyers only and never taking listings or representing sellers. The traditional real estate industry uses the term to apparently confuse home buyers into thinking they are being exclusively represented when they aren’t. A listing contract with a seller is called an “exclusive right of sale agreement” not an “exclusive seller agency agreement”.
Anyway, we need to discuss what is in this agreement and what you need to watch out for. The main issue to look for is the clause that states that if you are interested in a listing that the licensee/salesperson has or another licensee/salesperson in the company has, you agree to dual or designated agency. That is a contract. Do not ever agree to designated or dual agency under any circumstances. You are giving up your right to true agent loyalty and having someone watching your back. You are no longer being protected and are now pretty much on your own. In other words, caveat emptor – Buyer Beware.
You should not trust your licensee/salesperson because if they really had your best interest at heart they would not ask you to accept designated or dual agency in the first place and instead they should agree to, just as a true single party agency does, refer you to a True Loyal Agent™ with another company so that you can get true representation. If you decide to go ahead anyway, at least cross out that section or truly understand the consequences of you ending up using a designated or dual agent.
There are other issues with traditional real estate industry home buyer agreements which are beyond the scope of this book. These agreements are legally enforceable contracts. Please discuss them with an attorney before signing them. They are generally used by traditional real estate companies to bind home buyers to the company even though a home buyer might realize their mistake later and want out of the agreement, it will cost them. It can be a financial trap so be very careful.
Don’t see homes with multiple agents!
Before we leave the subject of real estate salespeople, we need to warn you of a hidden danger of making contact with multiple real estate agents. Attending open houses, touring one or more homes with one or more salesperson, calling real estate salespeople for information about listings or providing your name, email and other contact information online can lead to your inability to find a true agent to represent you or lead to you being liable for paying the compensation of two or more real estate agents.
If you make contact with a real estate salesperson or broker who supplies you with information about a property or who shows you a property, they can make a claim to be paid a commission even though you purchase that property through another agent or even directly through the seller regardless of whether or not you actually met with or even talked with the real estate salesperson or signed any documents with them.
You are free to use anyone you choose or no one at all to help you buy a home. But, if the home you buy was listed in a Realtor operated Multiple Listing System and if you were working with an agent when you learned about that home or if an agent gave you information about the home or showed you the home, that agent can make a claim to be paid a commission as they “introduced” you to the property. They do this through REALTOR® arbitration but it could create a situation that results in you being sued for their commission plus legal costs.
What Should You Do? Decide if you are going to use the services of a professional buyer’s agent, A True Loyal Agent™ to help you purchase a home. As mentioned above, a true exclusive buyer agent or a true single party agent is your best option. If you are going to use such an agent, you absolutely should start doing so as early in the process as possible, first of all to help you avoid the mistakes mentioned in this book and second to prevent problems for a true buyer’s agent in working for you. Let the agent know if you have seen homes for sale or have been in contact with other agents, especially if you got information about a home you might be interested in. There are steps the agent can take to avoid issues for them and for you, but they need to know that such a situation exists.
How are professional true buyer agents paid?
First of all, beware of advertisements where the so-called buyer agent says their services are free or at no cost. Of course they don’t work for free. What it means is that they share in the commissions that are offered by the seller and the listing agent. Multiple listed property generally has a “co-op fee” offered to a buyer agent. This is usually a percentage of the purchase price paid. If the so-called buyer’s agent says that they work for free or at no cost it simply means that they are willing to accept this fee as their total compensation.
A buyer’s agent will generally ask a buyer to sign a written exclusive right to represent agreement as discussed above whereby the compensation for the buyer agent is specified. This agreement will indicate the amount of the buyer agent’s compensation which is usually whatever the co-op fee is that is offered for the particular property. However, there is a problem with this approach. With the advent of discount listing companies and listing agents who want to discourage other agents from showing their listings in order to increase their chances of selling the property themselves and collecting a double-dip commission some listings offer a much lower co-op fee to buyer agents. I’ve witnessed traditional agents tearing up listings that didn’t have a co-op fee that they wanted, when in fact those homes might have been perfect for the buyer they were working with.
A better way is to fix the amount to be paid as a percentage of purchase price or other method of calculation as well as how any difference between what is offered through the multiple listing service (the co-op fee) and the compensation agreed to between the buyer and the buyer’s agent is handled. The agreement I use calls for an agreed percentage of purchase price paid and any shortages between the offered co-op fee and the agreed to compensation to be made up by the buyer. This agreement also calls for any overages to be refunded to the buyer after closing.
It is not my intention to put a buyer client into a position to having to pay some of my professional compensation at closing out of their pocket. We know before putting in an offer what the offered co-op fee is and thus we figure out before writing the offer how to include any shortages in the offer and include it in the negotiation strategy.
It is very important that a buyer find out upfront how an agent’s compensation is going to be handled and whether or not any bonuses are to be refunded to the buyer and put that in writing in an agreement. It is also important that a buyer fix the amount of compensation that is to be paid prior to viewing homes so that the agent has no incentive to show the buyer properties where they are offered more or to skip letting the buyer know about properties where the co-op fee is lower than is typical for the area.
Real estate agents are generally paid on a contingency basis as a percentage of purchase price. However, there is a perceived conflict of interest in that the higher the price you pay the higher the commission to the buyer agent. But is it really a disincentive? Not really. Take a price difference of ten thousand dollars at three percent = three hundred dollars. Would I encourage a buyer client to pay ten thousand dollars more for a property so that I could make three hundred dollars more or would I benefit more by saving my buyer client ten thousand dollars so that they would be very happy with my service and refer me to others or use my services again in the future?
Don’t be afraid to ask prospective agents if they discount or rebate part of their fee back to you or use an alternative compensation model, such as a retainer and hourly fee, rather than a percent of purchase price. Keep in mind that the agents I’m recommending using are true fiduciary agents and thus should receive a higher compensation than that of a salesperson who isn’t your true fiduciary agent. If they are merely trying to sell you a home and in particular, trying to sell you a home that someone else in their company has listed, you should ask for a rebate. After all they are double-dipping the commission. I have rebated some of my compensation in particular circumstances and as I mentioned above, I rebate any bonuses or overages beyond whatever compensation my buyer client and I agree to.
A word about alternative compensation models. The contingency fee compensation model puts all the risk on the real estate licensee. If a sale doesn’t take place they don’t get compensated. The retainer with an hourly fee based compensation model puts the risk on the home buyer. You, the home buyer, pay a retainer fee upfront along with an hourly fee which is paid out of the retainer and then at closing any co-op fee offered is typically refunded back to you. The advantage for the agent is that they get paid for all the time they put in regardless of whether or not you actually buy a home. The advantage to the home buyer is that as long as you buy a home and don’t spend a lot of the agent’s time in looking for the right home or in putting together a transaction that closes, you will probably come out ahead.
The contingency fee model works best for home buyers who are short of cash and who only have enough for the down payment, closing costs and a contingency/reserve fund. The retainer/hourly fee model works best for home buyers who have the cash to pay a retainer and hourly fee along with a down payment, closing costs and a contingency/reserve fund and who have a good idea of what they want such that their agent doesn’t spend a long time in putting a transaction together.
You should be able to find a true exclusive buyer agent or true single party agent in Massachusetts (see above contact information for MABA and NAEBA) but if you can’t and you end up buying a home through a licensee with a traditional real estate company that takes listings you have some options. First, try to find a smaller, perhaps single office traditional real estate company that doesn’t have a lot of licensees as they may not have a lot of listings and hopefully none that you would be interested in. As long as they agree to be your buyer agent and not a designated or dual agent, you should get decent true representation. Second, if you are interested in one of their listings make sure that any buyer agency agreement you sign with them lets you out of the agreement without further liability to you or to the agent you decide to use to buy that particular home and have them refer you to a buyer agent with another company so that you continue to be truly represented. As noted above, this is what a true single party agent does. There is no reason why a traditional real estate company can’t do the same. But you will have to be the one to insist on it.