Ray Wilson

Ray Wilson, author of Bought, Not Sold, brings academic discipline and field experience to expose consumers to the reality of the realty industry.



Reality in
Realty (1999)

1. "When An 'Agent' is not an Agent"
2. "Is You Is, Or Is You ain't, My Agent?"
3. "The Dating Game"
4. "States of Confusion"

Reality in
Realty 2001
1. Career Advice
1.1 "Don't Quit Your Day Job"

2. Seller Advice
2.1 "Appraiser, Yes! CMA, No!"
2.2 "Listing Purpose & Pitfalls #1, 2, & 3"
2.3 "Listing Pitfalls #4 & 5"

3. Buyer Advice
3.1 "EBA, EBA, EBA"
3.2 "Promises, Promises, Promises..."
3.3 "You! You! You!"

4. NAR
3.1 "The 'Big Grab' versus the Big Dope"
3.2 "If not revolution, then evolution""

Reality in
Realty 2006
1. "Making Magic in Chicago"
2. "No Sign of Reform in NAR Leaders"
3. "The Wrong in the Percentage Commission"

Reality In Realty 2001

Buyer Advice 3: You! You! You!

© 2001, Ray Wilson

The first three Reality In Realty 2001 articles gave advice to sellers .("CMA, No!" and "Listing Pitfalls 1-3 and 4-5"). This is the third in a series of buyer advice articles:

The first two articles in this buyer advice series listed eight critical realities for real estate buyers:

Reality #1 When you buy, you pay for agency whether you get it or not.

Reality #2: Paying a person to be an agent does not make him/her an agent.

Reality #3: A real estate firm is an organization and, by definition, a network of interdependent interests which come into direct conflict when its members assume agency obligations to both buyers and sellers.

Reality #4: An "EBA" not in an EBO is not an EBA; and only an EBA is a true buyers' agent!
(Rare exception: very small office true single agent)

Reality #5: Only a contracted agent -- buyer's or seller's -- is free to be a breaker as well as a broker for the client

Reality #6: No owner lists without trusting in a promise of seller agency

Reality #7: The promise of agency to the seller is made collectively by all listing firms who pool their listings in a "multiple listing service" (MLS).

Reality #8: A property purchase and sale can be brought about through two distinct categories of action: (a) the efforts of a seller and/or seller's agents to procure a buyer, and (b) the efforts of a buyer and/or buyer's agents to procure a property.

Typically, a listing firm's presentation to the seller omits the property procurement part of Reality #8, leading the seller to sign the listing agreement as if buyer procurement via listing agents was the whole story. Consequently, the seller commits him/herself to paying a commission based for two separate performance items, one of which may never be needed.

If you use buyer agency to procure a property, then no seller's agent has procured a buyer. By definition, there has been no procuring cause whatsoever within the listing contract, and no buyerside brokerage performed by listing agents or subagents. . Clearly, the seller should simply not have to pay for the work that wasn't done. If common sense rules -- i.e., if the listing agents allow it to rule -- here is the model, from listing to transaction, for how a buyer-agent fee should be handled (using a $100,000 home and 6% total listing commission as example):

  1. Listing contract spells out for the seller what portion of the commission is for buyerside brokerage by seller's agents (2% to 3% might be reasonable in a 6% contract ).
    Note: Both of my preceding articles giving seller advice detailed reasons why sellers should reject agencies grabbing more than half the commission for merely listing.(See Listing Pitfalls 1-3 and 4-5)
  2. Buyer's offer specifies that offered price includes the amount of $3,000 to be paid to the buyer's agent at the closing (not from the seller's agent, but from the same disbursement source that writes checks to the seller and the seller's agent).
    Note: The buyer's fee is a dollar amount -- not a percentage of price.
  3. Listing agent reminds seller that his/her commission in this deal would be only 3% of purchase price, and that the net to seller would be exactly as it would have been if seller agents had procured a buyer (i.e., $94,000).
  4. By tradition, both sellerside and buyerside brokerage fees, being part of the purchase price, may be fully financed via the mortgage.

However, the model's shortcoming in real world terms is that listing contracts seldom (if ever) tell the seller the whole story. They usually omit the possibility of property procurement displacing buyer procurement and consequent buyerside brokerage by the listing agent or subagents. Seldom is the seller told of the specific commission amount for each component brokerage task. So, in the example used in the model:

if the buyer's fee happened to be only $2,000, most seller agents would reduce their $6,000 fee by that amount, keeping $4,000 for themselves. As long as the seller is kept thinking in terms of a single 6% or $6,000 commission, he/she is not likely to notice that the agent picked up an extra grand without doing any extra work. Nice....

if the seller's agent planned to pay a subagent only $2,000 and keep (i.e., hog) $4,000, he/she might now be in an awkward position by trying to keep that $4,000 and causing the seller to see $7,000 in brokerage fees when only $6,000 was expected. Of course, telling the seller the whole truth from the beginning about buyerside brokerage and specifying the component fee (per step #1 in the sequence) would have avoided the problem.

Reality #9: Presentations by listing firms to owners typically omit property procurement. The agreement to list for one single non-itemized sales commission is thus obtained from an uninformed seller. He/she has simply accepted the false implication that a major performance item (buyer procurement) is indispensable within the scope and obligations of the contract.

The listing lords clearly believe that their listing contract defines the reality, that the printed word governs (provided it is their printed word). Again, time for a realty check. Their "reality" is a stage production. The listing contract is one page in a script with the actors so fully into their parts that they are oblivious to the world beyond the footlights. The writing, the props, the special effects are impressive and the direction is powerful, but the rest of the world simply isn't in the theater. The seats are all taken by the players themselves and their cronies, and their applause is deafening. They don't hear the protesters outside the theater walls, or the sounds of a public starting to take notice.

It is not the play, but the model offered above which reflects the social reality of the work agreements and the compensation obligations -- i.e., the true structure of two separate principals (buyer and seller) each paying their own agents via two clearly separate and distinct "payrolls." Moreover, there really are specific realities of law which actually do govern, and which you as a buyer should know about:

Reality #10: The fees, responsibilities, and procedures agreed to in your buyer agency contract have nothing to do with those in the listing contract, nor do the agreements in the listing contract impose any obligations whatsoever upon you or your agent;

Reality #11: The law prohibits third parties, including the seller and all sellers agents, from interfering in the contractual agreement between you and your agent, and in all such agreements in which they are not participants;

Reality #12: The law prohibits agencies from collusion to fix prices, meaning any communication whatsoever between agencies not in an agent/subagent (employer/employee) relationship regarding fee levels. It especially prohibits the enforcement of prices/fees by one agency upon another.

Incredibly, evidence abounds of flagrant fee enforcement by listing agencies upon buyer agencies, sometimes even put in writing by listing brokers who physically change the buyer agent fee right on the buyer's offer. In this folly, they are blatantly supported by arbitration boards and their local, state, and national trade associations (dominated by listing agents) who, by sheer institutional weight, impose the buyer-procuring cause standards of the listing agreements upon buyers' agents who are not party to the agreements and where there is no buyer-procurement.

When disputes arise over subagent commission shares -- i.e., between agents working for the seller to procure a buyer -- it makes sense that the deciding factor would be procuring cause. Buyer procurement is all about performance as a sales agent, determining who brought the buyer in through the system of influences working for the advantage of the seller's interests. Who performed the act specified and authorized in the contract, and within the contract -- and, did anyone perform it at all?

That last question should matter to the seller possibly called upon to pay for something never delivered -- but it should not have to matter at all to you the buyer! Sellers' agents can squabble over the seller's commission with or without cause, but they have no claim to the buyer's money put on the table for the buyer's agent. Then procuring cause becomes a cover for theft (a "social" term rather than a legal charge).

The reasons for this abuse of buyers and buyers' agents go long and deep, involving both money and power, and plain old fear of change. But there is one very fundamental reason for the intransigence of the traditional industry establishment here. Respecting the integrity and sanctity of the buyer's agency contract would expose the clear difference between buying and selling, between buyers' needs and sellers' needs, and between the jobs of buyer agent and seller agent. Not only would the cash flow and life styles of local traditional agents be shaken, but questions would have to be resolved about whether buyer agents and seller agents are even in the same trade, belong in the same trade associations, or should even carry the same trade licenses!

From your standpoint as a buyer, it is up to you to discuss with your agent what method of payment is best for you. By and large, buyers' agents will not risk the client's purchase for the satisfaction of standing up to the bullies or even the principle of opposing corruption. Your agent, your real agent, will put you first! When they are caught in the middle between their own client's desire for a particular property and the listing agent's willingness to block acceptance of the offer over the fee issue, they inevitably relent, sometimes at financial cost. Here's a real case from Southeastern Massachusetts last summer:

A buyer's agent contracted to find a $110,000 - $120,000 home for a buyer for a fee of $3,000. The agent played a very active role in negotiating the price of a property listed at $110,000 down to $97,000 and the offer spelled out the agent's $3,000 fee. Seller's agent wrote the purchase and sale agreement with the buyers fee at $2,910, saying "I split my commissions 50/50 -- period!" (Translation: "You get 3% of my 6% commission.").
The buyer's agent was punished for negotiating the purchase price down for his client, and the seller's agent openly said he would have paid the buyer's agent more for a higher price! Realize that in industry or government, when purchasing agents accept incentives from vendors for higher prices, they get fired, the vendors get fined, and both can go to jail! And this incentive system is standard practice in real estate.

Reality #13: (See Realty #4)

EBAs in individual areas have worked out their own fee-payment methods for dealing with this situation, given local mindsets (or mindLESS sets). The bottom line for you is that it almost always puts the fee in the purchase price which can be borrowed, and a true buyer's agent will do what is needed to see that you get your home. Thus, your short-run interests will be served, but possibly at the expense of your long-term interests as a consumer in a just system. Understanding the "pure model" described above will help you put your EBA's method in perspective and make decisions you can feel right about when you make your own offer.

Be careful out there.