The Almanac

BUYER BROKERS PROVING POPULAR IN PROPERTY PURCHASES
Agent for the Buyer Brings a New Edge to the Real Estate Market in Washington  by Francesca Pethel
 
Bethesda residents Ariel and Mati Dinar decided they wanted representation when they began the search for their home at Seven Locks Road and Bradley Boulevard. The couple had been renting in California after moving from Israel.

"We had no experience of buying in this country," said Ariel Dinar, adding that real estate jargon was similarly unfamiliar to him and his wife. "We didn't know the area and we needed someone acting on our behalf."

They chose certified buyer broker Betsy Abruzzo, who works in the Potomac Village office of Long and Foster with business partner Maggie O'Reilly.

"I acted for the purchaser in about 60 percent of my deals this year," said Abruzzo, who believes that buyer brokerage makes for a more honest transaction all around. When acting in this capacity, "I look for structural problems with a property such as a damp basement or a leaky roof," she said. "I look at its setting, whether it's near power lines which could reduce resale valueÒ. Ò,Ò. Ò or whether it's close to a main road. I point out any defect I think could be a problem, things which as a seller's agent I wouldn't dare to mention. But I owe my buyer a much greater obligation because we have a fiduciary agreement."

More people are choosing to use buyer brokers when purchasing a house, according to local Realtors.

The buyer broker represents the best interests of the purchaser rather than the seller in a real estate transaction, and the growth in their numbers has been reflected in the passage of a Maryland law in January 1995 which mandates immediate disclosure by an agent, whether they are representing the buyer or seller.

People looking to buy in Potomac and Bethesda or residents planning a local move now have many choices if they elect to use a buyer broker because the Washington metropolitan area is at the forefront of this explosion.

Anyone looking to purchase a home and wanting representation can either work with an agent employed by a traditional realty company under a written buyer broker agreement or can go with a firm which takes no listings but acts only in this capacity.

Purchasers using a buyer broker can expect more information about price-sensitive factors such as local values, how long a house has been on the market, the seller's bottom line and the condition of the property. When it comes to negotiations, buyer brokers will use their skills in favor of the purchaser.

Carolyn and Terry Deibel, who live in Potomac's Brushwood Terrace, also elected to use Abruzzo as a buyer broker when they bought their house.

"We felt the relationship was more honest," said Caroline Deibel. "She would say things like 'that's a nice house but it's way overpriced', or 'I'm sure we can get this price down.'"

One potential monkey-wrench in the works when using a large realty company for buyer brokerage is that a property a purchaser views may also be listed by that company. In any subsequent transaction, the Realtor can only act as a dual agent which limits the extent of the service the buyer can expect because nothing against the seller's best interest can be disclosed, such as how quickly they need to sell.

This situation does not arise with companies which exclusively represent the purchaser and do not take listings like traditional realty companies. One such organization is the Bethesda-based Buyer's Edge, the oldest exclusive buyer brokerage in the area.

Steve Israel, president of Buyer's Edge, says dual agency can create a conflict of interest. "The fact that virtually every realty company in the area will act as a buyer's agent is a good thing because in the past, an agent could never say anything negative and buyers were on their own," he said. "But when the dual agency [situation] arises there must be a conflict because the lister is automatically trying to get the highest price."

John Crupi, a Buyer's Edge customer who purchased in Bethesda, agreed. He and wife Ellen had found themselves in a dual agency situation when the company employing their buyer broker also had the listing on a property they were interested in.

"It didn't give us the leverage we wanted," said Crupi. "We wanted all the negotiating power we could get, which is difficult when you can't find out the seller's position."

The potential problems of dual agency aside, Israel strikes a chord when he points out that buyer brokerage is an enormous step forward for consumer choice. "Buyers were hammered for years," he said. But one big question which needs to be asked about buyer brokerage is who pays the firm for this service.

In the vast majority of cases, it's the seller. This is the case whether a purchaser is working with an exclusive buyer brokerage or a traditional agent acting on their behalf. Commission is split between listing agent and buyer broker, with the seller's agreement to this clarified in the initial details given on a property. But with buyer brokerage agreements, the purchaser is legally responsible for compensating the agent when a deal goes through. More often than not, the payment required is 3 percent of the purchase price and more often than not, this tallies with the broker/lister commission split so that no money actually changes hands between the broker and client (excepting a token retainer fee). Indeed, a choice of payment arrangements can, according to Buyer's Edge, end up saving the buyer money.

The other fact to be aware of is that any written agreement with a buyer broker is exclusive. It can be dissolved at any time, but for a given period afterward a buyer cannot settle on a house shown by their buyer broker without incurring the commission charge. And there have been cases where purchasers, not understanding the system, have unwittingly entered into buyer broker agreements with more than one agent, making themselves liable for more than one commission charge.

Anyone aware of these potential pitfalls is in a good position to take full advantage of buyer representation, which, according to Abruzzo, is snowballing. "In a couple more years you're hardly going to have any buyers represented by seller's agents," she said.