WHAT IS A BUYER BROKER
AND WHY SHOULD YOU CARE?
The real estate brokerage industry is steeped in a tradition that is not well understood by industry outsiders. Based upon a long ago established custom, owners hire brokers to perform specific tasks, for a negotiated fee, which was then to be shared with other licensees in order to increase the odds of a successful result. The irony of these relationships is that owners who engage listing companies, who then cooperate with other agents, unintentionally compensate Buyer Brokers tasked with the duty of negotiating against the very person who pays them. Common sense would say this to be a completely archaic and backwards kind of arrangement with serious flaws, providing fertile ground for mistrust, suspicion and disrespect to develop between the parties. If the industry were created today, each principal would be responsible for their advocate’s compensation based upon the laws of agency and fiduciary obligations1. Commission fee practices should be updated but as in most non-crisis situations, tradition trumps logic resulting in a confused, misaligned, and conflicted personal service industry.
Next to car salesmen, real estate agents are oftentimes at the bottom of the respect totem pole and not well thought of by the general public. This is due to low barriers of entry where a ski instructor, waiter, hotel clerk or part-timer can moonlight as a professional, with no real credentials other than a license and business card. Although this prejudiced opinion has gradually improved, make no mistake about it; “advice, counsel, negotiating and process management skills are still only as good as the person giving it” so be wary of who you rely upon. A recent Ivy League collegiate study found that for consumers, one of their most difficult decisions involves selecting qualified service providers. How can an outsider possibly understand the skills and expertise of a lawyer, doctor or accountant when they have limited knowledge of the field? So what do most people do? They ask friends or acquaintances for a referral. Of course this makes intuitive sense but if you think about it, what does the referring party know about specialists with complex and hard to understand skills which are outside their area of expertise? At least a referral is better than nothing, but is it really? Whatever the truth, this is how the world goes around producing
random outcomes when people don’t know what they don’t know, even if they are ostensibly happy with the end result.
With regard to compensation Buyer Brokers are typically paid from an already agreed upon commission in a co-operation with a Seller Agent; adding no incremental expense to the overall outcome. There are no cost savings by dealing directly with a listing broker who is probably the last person a buyer should rely upon given the inherent conflicts of interest. By law these licensees work for sellers, are inclined to sell their own listings, and are not there to educate the public, nor do they care about your personal goals and objectives. They are there to sell whatever the buyer is willing to buy.
So how should you start? Newspapers, magazines, the internet, and referrals are usually the first steps but keep in mind this is an awkward and inadvertent way to go about getting educated. These informational and paid advertising sources still leave interested parties on their own to figure out how the market works, what should they buy, how much is it worth, what are the problems, and a host of other difficult and oftentimes obscure issues. Buyers are well advised to find a broker who has the skills, experience and a proven track record of success because there are a lot of amateurs in the business. Looking for an agent when all you want to do is to find the right property may seem counter intuitive; but trust in the fact that it’s the person you hire and not the property search that makes the difference; because a misguided strategy, perfectly executed, still produces a misguided result!
True Buyer Brokers are rare and hard to find because every agent will tell you “they are one”. It’s when you understand the definitions and laws of agency, know what questions to ask, and can impartially assess who is good and who isn’t based upon merit, that the ideal relationship is achieved. Remember it’s not the brand, it’s not market share or international reach, it’s not the number of agents or offices; it’s the person that makes the difference. So go out there and talk to as many professionals as you can; because it’s not just a lifestyle decision … it’s an investment.
Footnote 1: COLORADO AGENCY DEFINITION (Download PDF )