Does the buyer have to have an agent to help them buy a home?
No. But a good agent can take a large part of the work load off your back, locate properties that you wouldn’t know about, and lead you through a home buying process that can be very complex and where mistakes can have costly results. You’ll also avoid the hassle of having to call and talk to dozens of listing agents to look at the homes they have listed. Less work, better results, less hassle…and the seller or listing company routinely pays the agents commission.
Can't I just find listed homes on the internet?
You can, but you’ll quickly find that many of the homes you call on are already under contract or have sold. Much of the information you’ll find on the Internet is either dated or intentionally misleading. You’ll also be missing out on a lot of information that any competent buyer agent has at their fingertips. Agents can quickly pull up the history of pricing changes on any listed property, the history of prior sales and prior contracts, information on what the seller paid for the property, and data on the amount of the mortgage loans the seller has taken out against it.
Can't the listing agent show me the house and help me buy it?
They certainly can, but they generally aren’t neutral brokers between the seller and the buyer. Their listing contract with the seller generally obligates them to represent the interests of the seller, which means it obligates them to undercut your interests at any point where your interests and those of the seller are in conflict. If you were involved in a court case where the stakes were high enough to ruin you financially, would you rely on the advice of your opponents attorney? Why would you do that when you’re buying a house, particularly when the seller is generally offering to pay for an agent to represent you.
How does an agent typically help the buyer?
When working with a buyer, a real estate agent should help them understand the purchase process and then help them through that process. This would include helping locate properties, set up showings to get the buyer into properties, draft an offer, handle inspections, and help the buyer though the closing process.
Who pays the agent who helps the buyer through the purchase process?
With very few exceptions, the seller pays the agent working with the buyer, either directly or indirectly through the listing company they have hired to market their property. When a seller lists a property for sale, they negotiate a contract with the listing company that specifies a commission (typically 4%-6% in our area), a portion of which is designated to be paid to the agent working with the buyer. If the buyer doesn’t have an agent assisting them, the contract generally specifies that the listing company retains the full 4%-6% commission.
Does the buyer's agent have an obligation to protect the buyer's interests?
That depends. Under Colorado law, a buyer can work with an agent under either of two legal relationships. These are called “transaction brokerage” or “buyer agency.” Working as a transaction broker, a real estate agent is required to act with absolute neutrality between the buyer and seller. In fact, an agent working as a transaction broker is expressly prohibited under Colorado law from doing anything that could be construed as advocating “for the interests of any party to such transaction.” Thus, if they know for certain that a property will be difficult to resell or that it is overpriced, they are prohibited from telling the buyer. If they know that there are coal mines under the property or that the property is located near a planned expressway, they are prohibited from telling the buyer. If they know that specific portions of the contract put the buyer at risk, they are prohibited from telling the buyer. The same agent working with the buyer with an agency relationship would be required by law to tell the buyer these things, and would be legally liable for failure to do so.
What's the difference between a buyer agent and transaction broker?
You’ll find a lot of information in our section called Agency Law in Real Estate, or just by searching these terms on the Internet, but one of the most concise and pertinent summaries is found in the standard Colorado buyer agency agreement, which specifies that a buyer agent must (and a transaction broker must not): (1) promote the interests of the buyer, (2) seek a price and terms that are acceptable to the buyer, and (3) council the buyer regarding any material benefits or risks of a transaction actually known to the agent.
Does a buyer have to sign a contract to work with an agent?
No, but most should…with care. Under Colorado law, if you don’t sign an buyer agency agreement with the real estate agent who is helping you find a home, that agent is acting legally as a “transaction broker” rather than a buyer agent. This means that they are prohibited from working to protect your interests in the transaction. Under Colorado law, the only way to overcome this presumption in the law is to sign a buyer agency agreement, which makes it clear that your agent is accepting the legal responsibility to represent your interests in helping you locate and purchase a home. You can, in fact, sign an agreement to work with an agent under a transaction broker relationship, but you gain nothing by signing such an agreement and you may assume some serious obligations by doing so.
Are there risks in signing a buyer agency agreement?
Yes. Under the standard Colorado buyer agency agreement, you may be locking yourself into an agreement which obligates you to work with a specific agent over an extended period of time and which may also obligate you to pay all or part of the agent’s commission. At Agents for Home Buyers, we modify the standard agreement so to allow our clients to terminate the agreement at any time. We also add clauses that strictly limit the circumstances under which the buyer would have any financial obligation to us and make those limited circumstances crystal clear. No gray areas. No surprises.
What is an Exclusive Buyer's Agent?
Any real estate agent in Colorado can work with a buyer under either a transaction broker or buyer agency relationship. Since Exclusive Buyer’s Agents (EBAs) are truly committed to representing the interests of buyers, we always work as buyer agents, never as transaction brokers. And to avoid the conflicts of interest inherent in offices where agents represent both buyers and sellers, Exclusive Buyer’s Agents (EBAs) work in offices where all the agents are committed to representing buyers only. No agent in an EBA office will list properties for sale for home sellers.