NY State: A 'Buyer Beware' State
A: I decided to write this post after reading an article in January's Real Deal magazine. The article was titled, "Designated buyers' agents remain rare" (scroll down), and discussed the disconnect between buyers and agents at their first substantial meeting as to the relationship/role that the agent will ultimately play as buyer broker. While much debate has arisen as to who the buyer broker really works for, in my eyes its clear, THE BUYER!
I wrote about how I view the role of the buyer broker a while ago in the post titled, "Using A Buyer Broker". I discussed why I think every buyer of New York City real estate, especially first time buyers, should use a buyer broker as their guide. Mainly, the broker should act as a devils advocate at showings and ensure that the buyer puts their money towards the permament property features, evaluate the property compared to the target market, devise a bidding strategy, and work to get the property for the lowest price possible. Here is a clip from that post:
My Definition of a NYC Buyer Broker: A broker who represents the buyer and has a fiduciary responsibility to the buyer in finding a property that meets their needs on all levels (price, location, size, condition, style, and living quality). A buyer broker should look to find the best value for their client and negotiate on their behalf during the bidding process to get the lowest possible purchase price from the seller.In the world of New York City real estate, there is NO buyer agency agreement; Ardell of Rain City Guide has an excellent and emotional filled post about just this, "Empowering the Buyer Consumer - Redfin". That means that there is no such thing as buyer loyalty and that the buyer is generally never asked to sign any agreement to work with a specific agent; and rightfully so. Buyers should be able to choose & fire their agent based solely on the quality of service that is provided. After all, this is a service industry and those agents who assist their clients needs above and beyond just sending listings, will be in more demand by savvy buyers.
The article in The Real Deal discusses this and brings up a very good point about New York State and buying real estate here. That is:
NEW YORK STATE IS A BUYER BEWARE STATEAll the more reason you should be working with a buyer broker who has both the experience and knowledge to guide you throughout every aspect of the buy-side transaction in Manhattan real estate. Here is the article:
Of particular note is how the agent representing the seller under-reported the real estate taxes on a property by 50%, leading the buyer to legal action!
"He sued the real estate company and the agent and lost, under the rationale that this is a buyer beware state,"...All I can say is wow, and that a post on urbandigs.com was about to be written to bring this fact out to you guys.
UrbanDigs Says: The seller broker was hired by the seller to market the property and get the highest and best price possible! You should understand this and act accordingly. There is nothing illegal about the seller broker representing both clients in the transaction, and in fact, is something that is hoped for by the seller agent as their commission is larger. As a buyer, I just feel you should have unbiased representation by an expert in the field of NYC real estate who knows the product, the process, and how to evaluate a property. There are no fees to use a buyer broker and therefore, no reason not to use one unless you have that independant urge to do everything yourself and learn from your own mistakes! I admire that philosophy greatly, as I would describe myself in that way, but when it comes to plunking down hundreds of thousands of dollars in a housing market that is much different than years ago, you should work with a broker you feel comfortable with to make sure your money is going to a solid, best of breed product! A good buyer broker will make sure that happens!
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Comments (22)
"There are no fees to use a buyer broker and therefore, no reason not to use one unless you have that independant urge to do everything yourself and learn from your own mistakes!"
Becareful here Noah - Because if the LISTING AGENT does not make allocations for commission to be represented through the sale then the Buyers agent - might not get paid at all. Some agents here in my neck of the woods of Queens will put 0% in the BBA. So, unless I don't have an agreement with my buyer client - I am pro-bono!
Posted by Christine | January 15, 2007 1:28 PM
I have had a few occasions where the seller broker failed to present my offer to the seller after learning that I have a buyer broker. They will be difficult, inquiring about my finances, giving as many excuses as possible to discourage me from proceeding.
It's a double-edge sword!
Posted by KC | January 15, 2007 3:08 PM
KC - REPORT THAT SELLER BROKER TO REBNY - If you can prove this! By Law, they MUST submit ALL offers to the seller.
The seller broker was hired to sell the property at the highest price possible, NOT to take the offer that benefits them financially!!!
ARGHHH! Im so sick of this shady crap that brokers do, and Im a broker! I submit ALL bids to my client, even if I have a direct accepted offer and a broker's client comes in later with a higher bid. I still submit the bid!
Posted by Noah | January 15, 2007 3:11 PM
Christine - REALLY? I never heard of that before.
"Some agents here in my neck of the woods of Queens will put 0% in the BBA"
What do you mean? That the seller broker is only marketing to direct clients and not the entire brokerage community? Can you please clarify this Christine, as Im missing something here that is probably very simple.
Thx
Posted by Noah | January 15, 2007 3:12 PM
Well on our commission structure on the MLS Sub Agency Comp: 2%
Buyer Agency Comp: 0%
So, by having a Buyer broker agreement does not mean that you will get paid by the sale of the home from the Listing agent.
Posted by Christine | January 15, 2007 3:50 PM
That is nuts! So buyers basically do everything themselves and just hope that the seller broker cares about their needs in what is probably the biggest investment of their lives?
What situation would arise where a buyer broker will get rewarded for their services and bringing a deal to the table? if any?
Posted by Noah | January 15, 2007 4:25 PM
The example that i showed you was an actual listing that was entered to the MLS. Now - don't get me wrong - there are SOME agents - few - but some that do offer compensation to the Buyer agent. But that is rare.
So, to be a buyer broker here - if the listing agent is not making allocations to the Buyers agent - then the buyers agent, I suspect would look to the buyer. That is why it is not commonly used by me or any other agent in my direct area. Queens, NY needs to fix a few things..
Posted by Christine | January 15, 2007 4:35 PM
Wow. Thanks for clarifying this Christine. I cant believe that such a difference in structure exists so close to NYC.
I feel like I've been doing business here too long, and lost track with what is going outside this world! Then again, New York City can do that to you.
Posted by Noah | January 15, 2007 4:37 PM
Even I have concrete evidence, my lawyer adviced me not to file a complaint as the time and fee incurred would not make my time worth it. Sad but true...
Posted by KC | January 15, 2007 8:33 PM
KC - unbelievable! Absolutely unreal. This is why blogs like this should be growing in popularity to bring out stuff like this in an open forum.
Did you contact REBNY directly? What was there response? Can you simply report a complaint via phone and see what happens?
Posted by Noah | January 15, 2007 8:45 PM
My lawyer adviced me not to waste my time. The seller broker brought in many businesses for her company, so the end result might just be a 'warning'.
Posted by KC | January 15, 2007 8:51 PM
Noah, KC's experience is not unusual. As you know, unfortunately some agents play games and if they find out that you - as a buyer - are using an agent and they happen to have competing bids from buyers without agents they are reluctant to deal with you. It's difficult to obtain hard evidence.
KC, it sounds as if your attorney is acting in her own interests.
All that said, as a novice buyer I've been using an agent and have found him very helpful for navigating the waters of NYC real estate.
Posted by newbie | January 16, 2007 2:04 PM
Noah, I must confess I only glanced at this posting, but why do you say that "In the world of New York City real estate, there is NO buyer agency agreement". Wouldn't an agent use the disclouse form that is required by the New York DOS. This form has and always has had a buyers agency option. The form can be viewed at: http://www.dos.state.ny.us/lcns/legamd.htm#agency
Posted by Jon | January 17, 2007 12:41 AM
Jan - I will clarify this. In NYC, brokerage firms do not provide buyer agency forms for agents to give to buyers. If you ever went out with a buyer broker, you probably were never given this form to sign.
The purpose of all this stuff is to clearly define the role of the buyer broker, and the seller broker. I keep hearing people/brokers say that a buyer broker works for the seller, well that may be technically correct as the seller broker ends up paying their commission at closing, but in my eyes, and with my clients, as buyer broker I work very hard for the BUYER!
I also clearly state this to every new buyer I work with, and define the role I will play before I even get started. This doc is meant to do just that. I belive brokerage firms are now talking this over with REBNY and in the very near future, will integrate this new policy.
Posted by Noah | January 17, 2007 8:28 AM
Noah, as you said a Buyers broker clearly works for the Buyer, regardless of who pays the commission. I have always thought written agency disclosure was required under state law, is there some kind of exemption for NYC.
Posted by Jon | January 17, 2007 11:04 AM
How am I supposed to trust a buyer broker when their compensation is tied to the seller broker's commission? While the buyer broker may swear up and down that they're acting in my best interest, there's little motivation for them to truly do so if their compensation is based on the sale price. This is even more unlikely imho when the brokers come from the same office. What guarantees the buyer that the buyer broker won't disclose information to the seller broker behind closed doors to maximize both their commissions? No disrespect intended, Noah...I'm just not sure the general broker population is as honorable as you.
We had a buyer broker who unofficially required that we work "exclusively" with him, which we did for many months. We eventually learned that this also meant including him on any deal for a property we found on our own. We were amazed...why should he be compensated tens of thousands of dollars for doing none of the legwork? He confronted us on this, and we expressed we felt it was a ridiculous presumption, and parted ways.
Posted by some dude | January 17, 2007 7:59 PM
Some Dude - Your 100% right. But put yourself in my shoes. I know what I do for clients and what some colleagues do as well to service their clients, but cannot speak for every broker out there in what is definately a shady industry in terms of reputation. But what else can I do?
Did you know that in this day and age many seller brokers email spam the entire brokerage community with eblasts (paid spam) so that their exclusives get more marketing in the brokerage industry? Most deals are co-brokes and good brokers know this. Why wouldn't they treat your deal with your buyer broker as any other deal, if they are spamming the brokerage community to stimulate activity?
One of my issues. Anyway, you have valid points and your not alone, but I can only do so much to solve the problem. After all, how can the industry be changed for the better? What commission structure would have to exist? What arrangement between buyer broker and seller broker would have to exist?
In the end, I think its the buyer that needs to do their own diligence on who they work with to guide them through the process. Hopefully the internet will make this process more transparent, leading to better decisions.
Posted by Noah | January 17, 2007 8:18 PM
I hear ya, Noah. Obviously you can't speak for every broker out there!
I liked your statement that the internet will make the process more transparent. That's a pretty sophisticated view for someone on the inside. ;-) I love that you embrace the technology! I think the internet will eventually force the system to change...just as it has for retail. (i.e. "The Long Tail")
I strongly recommend reading this (if you haven't already):
http://www.aei-brookings.org/publications/abstract.php?pid=1119
It is a paper ciritically assessing the current residential real estate industry's broker commission rate structure.
Posted by some dude | January 18, 2007 2:29 PM
Noah,
In your experience in Manhattan, what percentage of sales use a buyer broker v.s using the seller broker directly?
Posted by anoon | January 25, 2007 8:49 AM
Anoon - I would say 75% are using a buyer broker and 25% go it alone. Just an estimate of course, but its safe to assume that most deals are co-broke deals; 3/4 being a co-broker deal doesn't sound too far off.
Posted by Noah | January 25, 2007 9:43 AM
Some further issues about using a buyer's broker
Are there any ethical/legal issues in the doing the following:
- a buyer researches and finds their own property, shown the unit by seller broker and then
a- brings in their own buyer agent
b- uses seller's agent to make offer, offer gets rejected. Comes back few weeks later with a buyer's broker to help with negotiating.
The only reason I can think of not using a buyer broker is if you 'feel' the seller broker will 'sway' in your direction.. does this make sense?
Posted by newyorka | January 25, 2007 5:06 PM
Noah: Assuming a deal is made between a seller with a broker and a buyer without a broker, does the seller's broker get all 6% commission?
Posted by newbuyer | December 30, 2007 12:51 PM