Why Now is the Perfect Time for Homebuyers to Shop for a Real Estate Agent First
Hey there, future homeowners! Today, we’re diving into something super important – why you should shop for a real estate agent before you even start looking at properties. There have been some big changes in the real estate world recently, due to a major settlement with the National Association of Realtors® (NAR). These changes are all about making the home-buying process more transparent and fair for everyone involved. Let’s break down what this means for you and why getting the right agent on your side from the start is more crucial than ever.
The NAR Settlement: What’s the Big Deal?
So, what’s all this talk about the NAR settlement? In a nutshell, the NAR was sued (by a group of home sellers) for some of their practices, and they settled for a whopping $458 million. NAR did not admit to any wrongdoing, but also agreed to make some big changes in how real estate transactions work.
One of the key changes is that buyers are not permitted to be shown properties without having a written representation agreement with a real estate agent. This means that before a buyer can view a property, they need to sign a formal agreement with a real estate agent. This change ensures that buyers are fully aware of their rights and obligations during the process, as well as the obligations the real estate agent has to them. Also, the agent’s compensation is discussed upfront, and the signed agreement ensures that buyer’s interests are represented from the start.
Did you know that all real estate agents are technically representing all the sellers until they enter in a representation with a buyer? See “Information About Broker Services”
Second, the compensation for the buyer’s agent is no longer published in the Realtor’s Association MLS (Multiple Listing Service). As I mentioned, the compensation to the buyers agent has to be discussed in the beginning between the buyer and the agent. This might sound like a small detail, but it has big implications for how we do business.
A Little History and What’s Changed
Back in the early 90s, the idea of buyer representation was introduced to protect buyers in real estate transactions. Before this, buyers often went unrepresented and were at a disadvantage. To help (first-time) buyers afford representation, the seller’s agent would share their commission with the buyer’s agent. This rate (if any) was mandatory to be published in the MLS, so buyer’s agents knew they would be compensated, and they didn’t have to bring up the “awkward” topic of fees with their clients.
Now, with the new rules, that information is prohibited to be publicized in the MLS, the rule taking full effect on August 17th, 2024. That is another reason why the conversation about compensation has to happen upfront, right when you’re starting to work with an agent. This isn’t a radical change, but rather a mandatory sequence of events that needs to take place. Previously, many agents preferred to start by having a representation agreement signed first to ensure their clients were protected throughout the process from beginning to end. However, some agents opted not to open the conversation about the representation agreement initially and would only have the documents signed when an offer was placed. Previously it was voluntary, while now, it’s mandatory to have the agreement in place right from the start, before any showings can take place, in person or even virtually. Two exceptions to this rule are allowed: Open Houses and having seller’s agent perform the showing.
Understanding the Buyer Representation Agreement (BRA)
Here’s where it gets a bit technical, but stick with me – it’s important. The Buyer Representation Agreement (BRA) is a formal contract that outlines the relationship between you as Buyer and your Agent’s Broker, where the agent of your choice will represent you and not the sellers. It’s not just about signing on the dotted line; it’s about ensuring you have someone in your corner who owes you fiduciary duties and represents your best interests.
The BRA establishes a professional relationship and gives assurances on both sides. For the buyer, it guarantees that you have an expert dedicated to finding your ideal home with the least hassle possible. For the agent, it ensures they will be compensated for their knowledge, expertise, and hard work in making your goal happen. This mutual commitment fosters a collaborative effort to achieve a common goal: you finding the perfect home and the agent getting rewarded for their valuable service. Your agent will aim to have the seller’s side cover his/her compensation and can only be paid up to the maximum negotiated int he agreement.
Additionally, the Texas Realtors®, in light of the NAR settlement, have introduced a “short form” of the BRA. This allows you to hire an agent for showing services only if you’re not ready to commit to a full agreement. This option provides flexibility for those who prefer to test the waters before fully engaging in the home-buying process, while still ensuring you have professional representation during property showings.
By signing the BRA, you’re not just getting access to listings; you’re securing a professional advocate of your choice who will guide you through the complexities of the home-buying process, negotiate on your behalf, and ensure your interests are protected every step of the way.
Why You Should Shop for an Agent First
If you’re not working with an agent, any agent showing you a property is representing the seller’s interests, not yours. Imagine going through a divorce and trusting your spouse’s lawyer to handle everything – that’s what it’s like to buy a home without your own agent.
When you have your own buyer's agent, they work exclusively for you and prioritize your interests. They provide essential services such as:
- Negotiation Power: Your agent negotiates on your behalf to get the best possible deal. They know the local market, comparable sales, and can advise you on a fair offer.
- Access to Information: Your agent has access to comprehensive databases and MLS listings that may not be available to the public. They can provide detailed information about properties, neighborhoods, and market trends.
- Expert Guidance: Real estate transactions involve complex contracts and legal paperwork. Your agent will guide you through each step, ensuring all documents are correctly completed and submitted on time.
- Problem-Solving: Your agent can anticipate potential issues and address them proactively. Whether it’s a home inspection problem, title issue, or financing challenge, they have the experience to handle it.
- Confidentiality and Fiduciary Duty: Your agent is bound by a fiduciary duty to act in your best interests. They must keep your information confidential and work to achieve your goals.
- Comprehensive Support: From the initial search to the final closing, your agent provides support and answers your questions. They help you understand the process, so you can make informed decisions with confidence.
Without your own agent as a buyer, you’re relying on the seller’s agent, who is legally obligated to protect the seller’s interests. This may lead to conflicts of interest and a lack of advocacy for your needs. By securing your own representation, you ensure that you have a dedicated professional looking out for your best interests, making the home-buying process smoother, safer, and more successful. Here I talk in more detail on “How to choose the right real estate agent.”
Why Involving Seller’s Agent Isn’t in Your Best Interest
When you’re excited about a property and want to see it immediately, contacting the listing agent might seem like the fastest route. However, this approach can come with several significant disadvantages for you as a buyer.
Let’s talk about what happens when you go through the listing agent. The listing agent’s primary duty is to the seller. Imagine you’re going through a divorce and you decide to rely on your spouse’s lawyer to handle everything for you. It’s clear that the lawyer is looking out for your spouse’s best interests, not yours. The same concept applies here: the listing agent is working to get the best deal for the seller.
1. The Illusion of a Better Deal
Many buyers think that by working directly with the listing agent, they might get a better deal or a discount since there's no need to pay compensation to a buyer’s agent. But this is a common misconception. In reality, you’re losing significant negotiating power. Here’s why:
- – False Sense of Relationship: When you involve the listing agent, you might feel that you’ve established a connection or relationship with them. But remember, the agent is legally bound to represent the seller’s interests. Any information you share could be used to the seller's advantage.
- – Negotiating Power: Once you've shown interest in a property through the listing agent, your negotiating position weakens. The seller knows you’re interested, and your bargaining power diminishes. This is crucial because having your own agent means you have someone to strategically negotiate on your behalf without showing all your cards.
- – Money: Without an agent, you risk miscommunications, which can lead to delays or even a failed transaction. More importantly, you might end up paying more for the property and facing unexpected costs after the purchase. A buyer’s agent helps identify potential issues and ensures all transaction details are properly handled, potentially saving you from costly mistakes and negotiation oversights. In short, having your dedicated agent can help you secure a better deal and avoid unexpected expenses.
2. Options for Representation
If, after seeing the property, you decide you want your own representation, things get tricky. One option is for the listing brokerage to assign another agent to you. However, this isn’t ideal. Here’s why:
- – Limited Choice: You won’t have the freedom to choose an agent you trust and feel comfortable with. Instead, you’re given someone who is still part of the same brokerage representing the seller. In Texas, the “Seller’s Broker” is now referred to as “intermediary” and will handle the whole transition. While no conflicts of interest are expected you have put your trust in the same broker as the seller.
- – Compensation Issues: Now that you’ve already seen the property and expressed interest, any new agent you hire will need to work hard to regain some of your lost negotiating capital. Additionally, figuring out who pays for the agent’s services becomes contentious. You might end up having to cover the compensation yourself, which wouldn’t necessarily lead to any discounts from the seller's side.
While it might be tempting to quickly see a property by calling the listing agent, doing so can put you at a significant disadvantage. In today's market, it’s more imperative than ever to start your home buying journey by shopping for a trusted agent first. Having your own dedicated buyer’s agent from the beginning ensures you’re making the best decisions and negotiating effectively. They will work tirelessly to protect your interests and help you find the perfect home with the least hassle possible. And remember, in Texas, you even have the flexibility to hire an agent just for showings if you’re not ready to commit to a full representation agreement. So, before you step into any property, make sure you have the professional of your choice by your side to guide you through the process and ensure your interests are always the top priority. Check out my article eon how to find the best agent for you when you buy real estate.
Conclusion: Start Your Home Search the Right Way
Before you start visiting homes and potentially compromising your negotiating position, take the time to find the right agent. This step will ensure you’re represented fairly and have someone who’s truly on your side. Remember, it’s not just about finding a house – it’s about finding the right home with the right support. Your future self will thank you.