Should You Hire
a Buyer’s Agent?
What Is Agency?
To understand the different relationships available to the consumer in New Hampshire, and the advantages or disadvantages of hiring a Buyer's Agent, one must first understand the concept of Agency. According to common law usage, an Agent is an individual who is authorized and consents to represent the interests of another person. An agency relationship imposes fiduciary duties upon the agent—he or she owes their principal (the person they represent) the duties of reasonable care, competence, obedience, accounting, loyalty, and disclosure.
You don't need to have a Buyer Agency relationship to get what you want in real estate, but let's see how that works: If you see a For Sale sign in a yard and call the listing office asking to set up a showing, you will probably speak with the listing agent; let's call her Helen.
In this case, Helen represents the Seller. In other words, she has a fiduciary duty—a legal obligation—to the Seller to represent his or her best interests. Helen must exercise care in helping the Seller decide on a price for the house, show competence in marketing and showing the house, she must obey the wishes of the Seller, account for any monies that change hands relative to the sale of the house, consider the interests of the Seller above her own, and disclose any information that might benefit her Seller client.
This last point is important. If, while looking at the house, you happen to mention to Helen that you just won the lottery, she is bound by her fiduciary duty to pass that information along to her client, since that could impact the negotiating position of her Seller. If Helen discovers any other information about you that would help her Seller—whether you need to find a house quickly, how much you've been preapproved for, etc.—she must tell her client. Helen represents her client, not you.
Non-Agency (or Facilitator)
Let's say the house Helen showed you is not your dream home. You ask if she can show you other properties, so she pulls up some listings on the Multiple Listing Service and sets up more showings for you. If those houses are listed by Helen, she is still a Seller’s Agent; if they are listed by Helen's real estate office, she might still be a Seller's agent (more on that in a minute). But if they are listed by a different real estate office, she'll be assisting you as a Non-agent (also known as a Facilitator).
Helen will not be representing the Sellers of these other homes, and although she will be assisting you, she will not represent you, either—she does not owe you any of the fiduciary duties of an agent, although she must treat you fairly and honestly. If she knows you won the lottery, she doesn't have to keep that a secret; if she knows the seller is being relocated and must sell quickly, she doesn't have to tell you that. And should you decide to submit an offer on one of the houses she has shown you she can help you fill out the paperwork, but she may not advise you on what terms to offer or negotiate on your behalf.
At any time you may decide to hire Helen—or any other agent—as a Buyer's Agent. This is accomplished by signing a legally binding contract called the Exclusive Buyer's Agency Agreement. If you hire a Buyer's Agent, you now have someone who owes you those fiduciary duties I mentioned, and now you are on the same footing with every Seller you come in contact with.
A Buyer's Agent can and must disclose to you anything he or she knows about the Seller that might benefit you. So as your Buyer's Agent, Helen must tell you whether the sellers are going through a divorce and must sell quickly (if she knows that information), or whether they have reduced the price of the house at any time; she must disclose anything she knows about the property that could benefit you; she can advise you on what terms to include in your offer and what price might be acceptable to the seller; and she can negotiate on your behalf as well.
Should You Hire a Buyer's Agent?
Despite the greater level of service that a Buyer's Agent provides, some people are wary of hiring one. Some think that hiring an agent might cost them extra money, and others feel uncomfortable committing themselves to a single agent.
Will a Buyer's Agent cost you extra money? Possibly. But the extra service a Buyer's Agent provides might also save you money. To understand how it might cost more, it's important to understand that if you are working with a Non-agent, you are not responsible for paying them, and their fee comes from the Seller's Agent, who will share a portion of their commission with the Non-agent (this is called a "co-broke fee"). But if you hire a Buyer's Agent, you are responsible for paying them, although the co-broke fee is a credit against anything you owe. How much you owe your Buyer's Agent is negotiable and is agreed upon when you hire them.
To give an example, let's say an Agent lists someone's house for sale and charges the seller 20 apples as a listing commission. If that Selling Agent is paying a co-broke fee of 10 apples, and you purchase the house without hiring a Buyer' Agent, your Non-agent will be paid 10 apples at closing. If the co-broke fee is 8 apples, your Non-agent will earn 8 apples.
Now let's say you hire a Buyer's Agent for a fee of 10 apples, and for the house you buy the Seller's Agent is paying a co-broke fee of 10 apples. In that case the co-broke fee of 10 apples is credited against the 10 apples you owe your Buyer Agent, and so you get all the benefits of being represented but you pay nothing extra.
But let's say that co-broke fee is only 8 apples, and you've agreed to pay your Buyer Agent 10 apples. In that case, you would owe your Agent 2 extra apples at closing. Since the co-broke fee is listed in the MLS for each property, your Buyer Agent will tell you before you even see a house whether you might be obligated for the additional amount.
Again, the key word is "might," because this extra amount can be handled several ways. Sometimes it can be requested from the Seller as a closing cost credit in the Purchase and Sale Agreement—it becomes a cost charged to the Seller. If the Seller refuses, or if you choose not to make that request, then you would indeed be responsible for the extra apples, which would be charged to you at closing. How it is handled should be discussed when you're hiring a Buyer's Agent, and should be included in the Exclusive Buyer’s Agreement.
An important point to keep in mind is that unless you actually buy a house (or unless other arrangements are made) you won't owe anyone anything. In some (rare) cases a Buyer Agent may request a non-refundable retainer fee when hired, but that retainer is credited against the Buyer Agency fee and therefore is not an additional cost (unless you don't buy a house, in which case you forfeit the retainer).
So hiring a Buyer's Agent could cost you a little extra. But by the same token, your Buyer's Agent may be able to provide you information about the seller or the house that lets you negotiate a better price with the seller; they might be able to negotiate a more favorable repair after a home inspection; or they might advise you about external factors (like a mall being built nearby) that could affect your later resale value. So a Buyer's Agent might be able to actually save you money.
Also, although hiring a Buyer's Agent could cost you those extra two apples, you should ask yourself this question: in which other profession can you hire someone and get the full benefit of their services for free (which is the case if the co-broke fee covers the Buyer's Agency fee) or for a fraction of their stated fee (which is the case if it doesn't)? There are a few, like travel agents, but not many. Has the plumber who fixed your broken pipes ever been paid by someone else? Have you ever hired a lawyer for $200 per hour and actually paid her $40 per hour?
The second objection to a Buyer Agency agreement—that you might not want to be locked into a contract with one agent if they turn out to be less than helpful—is easily addressed: Don't hire a Buyer's Agent immediately. Find a REALTOR® to help you out, look at a few houses with them, and then decide if you feel comfortable with that person and can trust them. You can hire a REALTOR® as a Buyer's Agent at any point prior to making an offer during the house-hunting process. And if you do hire a Buyer's Agent, make sure they offer a Service Guarantee that will release you from the agreement if you're not satisfied.
As you're considering these options, keep in mind that REALTORS® like to work with people who want to work with them. Real Estate is one of the few businesses where months of work can go unrewarded. If a REALTOR® commits to working with you to find a home, he or she hopes that you will commit to him/her and maintain a degree of loyalty. A Buyer's Agency Agreement is the legal manifestation of that loyalty, and it helps ensure that if you buy a house, the agent will be fully compensated for his or her labor.
Dual Agency and Designated Agency
In New Hampshire, the Agency Relationship established with a Seller by the Listing Agreement, and the Agency Relationship established with a Buyer with the Exclusive Buyer Agency Agreement, CAN apply not just to the individual agent you're dealing with but to every agent in that person's office. In this case, if you hire Helen as your Buyer's Agent, you in effect have hired every agent in her office. They are all bound by their fiduciary duties to represent your interests. But what happens if you want to purchase a house that is also listed for sale by one of the REALTORS® in their office? That Agent (and all of her colleagues) represent the Seller's interests, but they all must represent your interests, as well.
The New Hampshire Real Estate Commission has given much attention to this situation, which is fraught with difficulty. How can an office represent both parties fairly? Well, it can't. In this situation, which is referred to as Dual Agency, the law says that those agents can still provide brokerage services to each party, but they may not disclose any information that might benefit or compromise either party; nor can they discuss the price either party would accept, the terms they would accept, or their motivations in entering into a Purchase and Sale Agreement. The agents must in essence play a neutral role and guide the parties to a successful closing.
If this situation arises, the first step the agents must take is to inform both Seller and Buyer of the situation and get their written consent to such representation. Dual Agency without informed, written consent is illegal in New Hampshire. If either party is uncomfortable with the transaction, then typically the Buyer is encouraged to find an agent in another office to assist them, or to work with their agent in Another Relationship (or as a non-agent). In my experience this seldom happens—in most cases both buyer and seller have been sufficiently coached and advised about the process and feel comfortable working through the transaction.
Some offices, however—including Keller Williams Realty Metropolitan—have adopted Designated Agency. In the situation outlined above, in a Designated Agency office, Helen would only represent you as the Buyer, and the listing agent—let’s call him Tom--would only represent the Seller. No one else in the office would have any relationship to the buyer or seller. In these firms there are “firewalls” within the office to prevent Helen from discovering any information about Tom’s client and Tom from finding out anything about you.
Dual Agency can still arise in a Designated Agency office like mine. It would only take place, however, if the same agents represents both parties--for example, if I listed a house (representing the Seller) and then you (whom I represent as a Buyer) expressed an interest in it. I would be a Dual Agent—but again, not without the written consent of both parties.
If all of this seems highly confusing, you're not alone. Real estate licensees, as part of their continuing education requirements, can take a 3-hour course on the subject of Agency and Non-agency, and many of them come out of the course confused as well. It's just not a simple subject.
If you have questions about Agency and Agency relationships, feel free to contact the New Hampshire Real Estate Commission:
64 South Street
Concord, NH 03301-3670
TDD Access: Relay NH 1-800-735-2964