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If your goal is to fill a housing development, don’t call yourself a buyer’s agent

Posted by Rona Fischman  June 4, 2008 05:19 PM

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Real estate agents are required to show consumers the agency disclosure before discussing a specific property with a prospective client. Have you seen it?

.... the real estate agent represents the buyer. The agent owes the buyer undivided loyalty, reasonable care, disclosure, obedience to lawful instruction, confidentiality and accountability, provided, however, that the agent must disclose known material defects in the real estate. The agent must put the buyer's interests first and negotiate for the best price and terms for their client, the buyer.

Read about what happens when so-called “buyer’s agents” are in the pocket of builders. It led to “buyer’s agents” making it seem easy for a renter to turn homeowner. “Buyer’s agents” offered one-stop shopping for a loan; so easy. This led to buyers with a 17% default rate.

How are bonuses in the buyer’s interests? They are not! When an agent is benefiting from selling one specific property over another, there is a conflict of interest. When the agent does not disclose his/her relationship to the seller, it is that much worse. When that person calls themselves a buyer’s agent, he/she is just wrong.

The former President of NAEBA, Jon Boyd, put it this way:
"[Buyer agency is] supposed to be like your mother helping you out on a real estate transaction," said Jon Boyd, president of the National Association of Exclusive Buyer Agents. "The idea that your mother would take a kickback in your transaction, well, that's not appropriate."

It sullies what I do when someone calls themselves a “buyer’s agent,” but acts in their own interests, or those of a seller. They are not like buyer’s agents who belong to MABA in Massachusetts. We specifically promise to avoid conflicts of interest that can arise from one-stop shopping and from bonuses. Did your “buyer agent” make that promise to you? Please choose your agent carefully, or buy on your own. Bad advice is worse than no advice.

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15 comments so far...
  1. New construction? That exists around here? People can afford to buy it? Not I :)
    It's not even a phrase in my vocabulary. Kudos to the people who can, though!

    Posted by LL June 5, 08 12:09 PM
  1. new construction, is often, though not always, of cheaper quality. People tend to assume its automatically better, with very little reason.

    Rona, kudos for your approach. Actions like you describe do make many of us cynical about buyer agency. Frankly, at the end of the day I trust incentives more than agency...

    Posted by charles June 5, 08 12:39 PM
  1. Charles, have been curious about the new vs. old conundrum -
    When did the "cheap" new construction you're talking about begin to be common: 20 years ago, 10 years ago?

    Also, do you know of any good resources/material online or in print to become better educated about this, or does it just come down to what the property inspector tell you after looking at each house?

    It would be nice to weed out ahead of time some ages, or types/characteristics of houses available around here.

    Posted by jchristian June 5, 08 01:37 PM
  1. with regards to new vs. old contruction: what is the deal with new contruction of townhouses in fancy towns, such as newton and wellesley? they are selling for over a MILLION BUCKS!
    these are large properties with nice touches... but they have tiny yards and are multifamily structures. what is going on here? i'm tempted to buy one, but i'm not sure. any thoughts?

    Posted by dan June 5, 08 02:00 PM
  1. Dan:

    There was an interesting article about a month ago that might explain this. I think the focus was on Southboro. It seems that builders are focusing on empty nesters and gen y. Low maintenance, nice areas with easy commutes, and semi urban feel - know they neighbor. Not to say that gen y can buy a million dollar home yet, but think of baby boomers with cash from their home sales in these towns that are done with the mansion and want nice but no maintenance.

    Our first condo was new and high quality - sorry charles - and it attracted more empty nesters then gen x like ourselves. Might be anecdotal, but I think builders are chasing the money.

    Posted by Mish June 5, 08 02:40 PM
  1. jchristian, short answer: Around the 1980s, home developers started to use planned obsolescence in a big way. Each model is now designed with a given lifespan--last I read, 15 years was a common average--after which various components and systems would intentionally start to fail. This was a big contrast to homes built in, say, the early twentieth century, which had no "sell-by" date in their design at all. I'd be particularly suspicious of homes built during booms like the last one, because developers were looking to maximize production, and buyers couldn't see past the granite countertops.

    Beyond the planned failures, there are other reasons why modern homes often don't last. Materials and craftsmanship aren't what they used to be. For example, lumber today is young, soft wood, and can't really withstand harsh conditions. Look at any Victorian on your street. They were all "balloon framed." Every exterior stud is a single piece of timber that starts at the sill on the foundation and goes all the way up to the attic roofline. You can't even buy lumber that long today, because they can't harvest trees that big. Now, balloon framing isn't ideal--it presents an added fire hazard--but still, those old tall timbers could last for centuries.

    Posted by Marcus June 5, 08 04:14 PM
  1. To add to what Marcus was saying about the quality of lumber being used - as he says, the older properties around the region were contructed for the most part of old, solid wood that had been allowed to grow undisturbed for hundreds of years. It was sturdy, strong, more weather-resistant, and just flat out better quality. Much of today's lumber is grown on commerical farms. The trees are harvested after a decade or two, and consequently, the wood is soft, weak, and susceptible to splitting and severe weather damage.

    Since wood makes up a large part of most residential construction, it's only natural that today's structures can't handle the elements like the solid old residences of yesteryear.

    Add to that fact that the emphasis of a lot of today's construction is more on speed and looks, not on quality. Of course, the flip side of that is that some modern building techniques are able to take advantage of modern conveniences that simply didn't exist back in the day - like quality insulation - which can save you a ton of money on energy costs.

    These are just broad generalizations, but you're best served getting yourself an excellent inspector if you plan on buying anything - new or old.

    Posted by J.P. June 5, 08 05:15 PM
  1. I wouldn't argue about specific case but it does seem to be a very broad phenomenon. New stuff is worse than old stuff because of 1. cheap material, 2. lazy worker, 3. set up to fail....

    my grandfather laughs at my father's stuff, my father laughs at my stuff....is there anything better than before? isn't it against the law: evolution?

    Posted by le June 5, 08 06:27 PM
  1. Most home inspectors aren't really all that good, sad to say. Not always true, but most merely know more than the homeowners they represent, which is not saying all that much.

    As for how new construction can be worse than old, that would take a book. Or several. Its not really easily explained in a how to nutshell, any more than surgery is.

    But you can follow the incentive structures - a new house put up by a family for itself is likely to be good. An architect involved is likely to be good. Massachusetts has a really good supply of reputable builders who build excellent custom houses - these will be better than old houses usually.

    A new house that is part of a subdivision is not - the builder will be trying to maximize profits. Not true of all, but true of many. Vinyl siding is a bad sign. OSB is certainly not a sign of quality.

    Trust your instincts for sturdiness - if it seems sturdy, it probably is. If you jump and the house shakes, it probably isn't.

    Every new house should have a Heat Recovery Ventilator, or it will probably have a mold problem down the road. Certain ways we build new houses now are going to be very problematic vis a vis mold. We build to retain heat, which is good, but we fail to disperse moisture, which is not good.

    And last but not least, some may say code will protect you. I could build a truly dreadful house to code easily. Code is generally very much a minimum standard.

    Posted by charles June 6, 08 12:18 AM
  1. Thanks for all the info, gentlemen, ladies. Lots to think about as I (and other first-time buyers) survey the scene.

    Posted by jchristian June 6, 08 10:54 AM
  1. Rona, Good post on the conflict of interest that exists when a "buyer agent" gets an incentive from a builder. But I don't think most of those who commented here really got that, just as I don't think much of the buying public understands that a true buyer agent is working for the buyer, and must disclose - in writing - any relationship with the seller.
    I present and explain the Agency Disclosure at my first meeting with everyone, and I am amazed at the number of people who have never seen it before, and don't realize that agents can have different loyalties. (That disclosure is mandatory in Massachusetts, by the way)
    It's disheartening to the ethical Realtors (and that's not an oxymoron) to watch this stuff happen and the bad guys get away with it. I encourage people to complain but very few actually do that, which allows the practice to continue.


    Posted by madriver June 8, 08 01:38 PM
  1. Madriver, "disclosing-in writing-any relationship with the seller" will not make the conflict of interest disappear. Buyers all know that a buyers agent is going to benefit from the sale, therefore, take money from the seller. whether or not under the table.

    I believe a TRUE buyer agent should be hired directly by the buyer at a flat rate. Hypothetically, assisted showings and paperwork. Just like I get paid for the amount of work I do.

    What is the basis for the commision proportioned to sale price? Does expensive house mean more work for the buyer agent?

    Before these questions answered, every buyer agent should admit there is conflict of interest and don't play word games or oath. They might also admit that they are effectively and dynamically hired by the seller agent.

    Posted by le June 9, 08 12:36 PM
  1. Le,

    I have offered fee-for-service brokerage since the early 90s. Consumers don't want it. They want the "free" service they get in the current system, so they can pay nothing if they don't buy.

    Closing attorneys get paid by the buyer, but the represent the lender. The lender provides ongoing business. The same is true of buyer's agents. My buyers provide my referral network, the seller pays me and goes away.

    The only conflict of interest in regard to pay is that I make more if someone buys fast and I make more if someone pays more. My behavior makes it pretty clear that I work for my buyer's interests, as I regularly slow my buyers down and tell them to walk away before paying too much. I work as hard for my low-end buyers as I do for my high-end ones. You are right; I get paid half as much for that work.


    Rona

    Posted by Rona June 9, 08 04:04 PM
  1. Rona,

    The problem is not that consumers don't want fee-for-service. If the buyer agent's 2.5% commission is out of the equation, I don't see why a buyer doesn't want pay a flat service fee.

    As you nicely put, you get paid half as much for same work towards low end buyers. However, this other side is also true that you get paid twice as much for high ends. With the skyrocketing house price in MA, and therefore, high profit for agents, the conflict of interest is significant enough.

    Maybe you are a good agent. But what's inconsistant is the system.

    Posted by Le June 9, 08 05:27 PM
  1. I too was the victim of a sham buyers agent in 2005 in Silver Spring, MD. Read about my lawsuit against the Weichert Real Estate Company by going to Google and typing in my name "Joel Stern", then "Weichert"; you'll find quite a few websites and blogs on this subject, which reflects the experience of countless unwary home buyers and sellers nationwide.
    You may contact me at 301-588-7426 (eve.) for more information.

    Posted by Joel Stern July 8, 08 11:34 AM
 
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Scott Van Voorhis is a freelance writer who specializes in real estate and business issues.

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