Exclusive Buyer Agency Agreement ~ Bi-Lateral Accountablity ?

The real estate professional who is representing a buyer (or seller) has great responsibility to his client; a fiduciary duty perhaps, certainly an agency duty; a moral, ethical, legal one; in addition to other professional Codes of Conduct.  Why then are the duties and loyalties in working with a "client" uni-lateral rather than bi-lateral? 

Why should certain duties and obligations only apply to you, and not to them as well ?   If you failed to act in a given circumstance, under-performed, or committed an "Error & Omission" that could get you in deep trouble or jeopardize your license, there would be consequences and ramifications, wouldn't there be ?  Yes, of course there would.  So why then are our "clients" or customers held to no bi-lateral accountability or responsibilities ?  Why do they do the things they do and play the games they play with us. Why you ask ?  Because we allow them to and give them every opportunity to, that's why?

Imagine if when you went to go pump gas for your car, you could just drive off without paying and there would be no consequences or ramifications for that.  Imagine if you could walk into any bar or restaurant and order up like there was no tomorrow; steak, lobster, Dom Pérignon or Moët et Chandon champagne, caviar; all the finest -- then just walk out after you've consumed the meal.

Because of "drive-offs" or "walk-outs" gas stations require you to pay-before-you-pump or if a bartender did not recognize you as a regular patron they'd ask to "swipe your card" and the normal consumer wouldn't think twice about that, raise a fuss or walk away.  I wish I could be the real estate bar tender with a buyer and say, "let me swipe your card please" -- but why do we as an industry allow people to walk-out or "drive-off" on us all the time with no consequences or ramifications? Because we allow them to; that's why !

(update 10/2012: actually thanks to emerging technologies this IS possible now for sole proprietors or independent contractors to take credit card payments directly without the need for establishing a commercial account with MasterCard~Visa~Amex)

Should the buyer be going behind your back and contacting the listing agent or owner directly to be shown a property or writing a contract on it, or engaging in any other activity which undermines your ability as an agent to represent them ?  Should they in the first place disclose to you and furnish to you necessary information to determine or reasonably establish their ability to purchase the type of property contemplated ?  Should the buyer exercise due diligence, and also be working exclusively with the agent; or be running multiple agents around concurrently without disclosing that to the others, and have the attitude that who ever shows me the right house first will get to write the contract ?  (this goes to the heart of that "hire a taxi driver and locksmith for the day" thing I've talked about in a previous rant, uhm i mean blog  8-).

Furthermore, what happens if their life situation materially and significantly changes during the course of your [implied] agency agreement with them?  They loose there job, illness or death in the family, decide not sell the house because they just met that person of their dreams who's moving in, cannot buy the house because they just found out the wife or domestic partner is "expecting" and need to stay put where they are -- all the real life things that can and do happen which are no fault or beyond the control of the agent.

After substantively working with a "client" such as this, should they be allowed to just walk out on us without having to pay SOMETHING for our professional services, time, advice and counsel, and out-of-pocket expenses incurred on their behalf and for their benefit ??  They walk away with something; valuable knowledge and information about the market and about real estate in general; what are we left with ?

What if you were at a restaurant and ordered that big meal I described above and said, "oh... i just got an unexpected phone call and cannot finish the meal or those drinks I just ordered (which were already "served up" to you or which you partially or totally consumed) ... so see ya later... buh-bye, I am out of here [without paying]" ?? 

I am not saying that EVERY buyer or client is like this and would like to think that by and large most would be ethical or do the right thing (like paying the tab or the gas before driving off); but I cannot think of any other business or industry that lets the consumer just walk out without paying like real estate does. The only one that I can think of would be a lawyer taking a case on a contingency basis on a personal injury type of case; but the person is RECEIVING money in this case and not spending it like in real estate so the incentive to stick with the agent or representative who will be getting you money rather than helping you spend it is a completely different dynamic.

I hope to see one day Realtors band together with greater solidarity over this issue and help STOP making it easy or facilitating the consumer of our professional services with just walking out on us and leaving us stuck with the bill.  There's probably not one Realtor out there who hasn't got burned, so you KNOW what I am talking about here....

Until that day happens, I've got my "what-ifs" covered in my own personal Buyer Agency Agreement contract.  As I said in a previous blog post, your broker won't really care because he/she was not the one who got burned, and the NAR forms offer no protection for the agent.

So, instead of Realtors descending upon Capitol Hill this past week to lobby Congress about some other issue, they should have all been descending in droves upon their local or National board to get things changed and have the Association, who we pay good hard earned money to, be even more supportive of us.  They already are extremely supportive of us by the way, and the National Association of Realtors does an outstanding job overall; but this is just one area where I think they could take a much harder and stronger stand on for us...

Subprime Debacle - How Did We Get Into This Mess In The First Place ?

I have read a veritable cornucopia and plethora of news articles, journalistic exposés, video, etc (some of which are posted here on my blog - See "House of Cards" video from 60 Minutes)  but none have summed it up as well as this article below or have gotten to the real "ground zero" cause for the whole sub-prime lending debacle that led this country into the recession that it STILL is in today.

It also behooves me to think that quite a large number of media article headlines are labeled very poorly or incorrectly IMHO and AFAIAC.  The headline should be basically what the article is about or its main point.  Is the article below really about how borrower attitudes changed, and do you really care about that part of the story ?  No !  It really is about; as I captioned this article, "Subprime Debacle - How Did We Get Into This Mess In the First Place"  That would pique someone's interest more.... the answer follows below, and I will step down from my soapbox now.  : )


New Mortgage Guidelines Changed Borrower Attitudes --  (excerpts from article copied below)

The new study, authored by Clifford Rossi for a research arm of the Mortgage Banker's Association, claims banks took on greater and greater risk by adopting new kinds of exotic mortgage loans that were originally developed for sophisticated borrowers, not the general population.

Riskier mortgages such as option ARMs and negative amortization ARMs were originally developed by Golden West Financial for their upper echelon borrowers. Golden West, a onetime mom-and-pop savings and loan in California, marketed these loans to borrowers that it knew were "creditworthy and financially strong," according to Rossi.

Other banks, such as Countrywide, Washington Mutual and IndyMac, then started to make these exotic mortgages available to the general population. All three of those banks are now out of business because of these risky loan choices. Golden West also lost billions on these option ARMs. Wachovia bought Golden West and ended up imploding.

Now these exotic mortgages and sub-prime loans are blowing up in the face of bankers and investors, as millions of borrowers who were steered into these products are in foreclosure or walking away from their commitments. The study quotes former Federal Reserve Chairman Alan Greenspan as saying a few years back, "Where once more marginal applicants would simply have been denied credit, lenders are now able to quite efficiently judge the risk posed by individual applicants and to price that risk appropriately."

It is doubtful that there are many out there who still think Greenspan was right.

Mortgage Brokers - Yield Spread Premiums, Are You Being Ripped Off ?

Congress definitely needs to continue in their efforts to start leveling the playing field against banks and financial institutions and the consumer.  Enough of constantly being squeezed by the (insert appropriate body part here)  !!

BTW, I had to re-write the headline for this one too.  The article below is entitled, "Mortgage Brokers and Borrowers: Congress Weighs Their Rights."   Do we really care whether Congress weighs something or not, or do we just want the damn things fixed ?  I could have also re-titled the article as, "Congress Working on Ways to Prevent You From Being Ripped Off By Mortgage Brokers"  : )    I will once again step down from my soapbox now. LOL


Real Estate News - HousingWatch.com (excerpts from article copied below)


Lenders would like to scratch an amendment to the financial regulation bill that tells mortgage retailers that they can't have their cake and eat it, too. The amendment would give lenders a choice of getting paid directly by the consumer through upfront fees, or by a higher interest rate for the customer -- getting what is essentially an advance from the lender against that extra future income from the loan. They can't get both.

Oregon Sen. Jeff Merkley (D), pictured above, introduced the amendment, which passed the Senate on May 12 by a 63-36 vote. It strikes at the heart of how mortgage brokers and loan officers make a living by targeting the "yield spread premium," a form of compensation to mortgage brokers. Loan officers employed directly by lenders get similar compensation for pushing higher interest rates, called an "overage." Yield spread premiums give mortgage brokers a powerful incentive to push borrowers into loans that are more expensive than they otherwise qualify for. Researchers analyzing subprime and other high-interest and high-risk loans made during the real estate bubble have found a lot of evidence that yield spread premiums led many borrowers to take out loans that would become difficult or impossible to pay, and pushed many who qualified for prime loans into taking out subprime mortgages instead.

The Merkley amendment keeps the one arguable benefit of yield spread premiums – they give consumers the ability to pay the broker's fees over time, instead of upfront – but makes it much more difficult for brokers to collect excessive payments from consumers. It also requires lenders to make sure borrowers have reasonable ability to pay back their loans.

Real Estate Humor - Cartoon

Real Estate Humor - Cartoon

Ok, I've posted alot of blog articles here lately with a sort of negative vibe to them; although they're great real life stories and could prevent these things from happening to someone else and could hopefully influence other real estate professionals to not allow customers or "clients" to get one over on us all the time and be held more accountable.  So... here's something to lighten to mood : )

Buyer Agency Agreement - Another Reason I Require A WRITTEN One

Although it was totally ILLEGAL and unethical of a loan officer or mortgage broker to do, here's what they told the "client" I had been showing properties to for quite some time as a "buyer's agent" during a tough Seller's market period:

"We can get you a better interest rate on your loan, but you'll have to dump your current Realtor and go with mine"

Since the buyer hadn't signed anything and didn't put down a retainer fee or deposit with me, what do you think they ended up doing ?  The right thing ?  Hell no, he heard "cha-ching" only in his head and probably didn't hesitate for a fraction of a second and said, "sure, I'll go with your guy no problem...

The loan officer stole the "client" from me and engaged in a GROSS, nefarious and egregious violation of RESPA; but what recourse did I have after the damage had already been inflicted ?  None !  I discovered all this later and the "client" openly admitted that this was what had occurred when I confronted them about it; and in an almost cavalier manner, said "what did you expect me to do?"  The mortgage broker who stole the "client" was obviously getting a "kick-back" from his Realtor so it was in his best financial interests not to see the client's deal consummated through me.  And to add further insult to injury I was the one who had referred the buyer to this particular mortgage broker.  Good one guys !!  I don't blame you, but only myself for allowing this to happen in the first place.  Where you find money; you'll find dishonesty, immorality and corruption.... 

So, this is yet one more real life anecdote and lesson why the "client" cannot or should not always be trusted in an informal or "implied" agency situation even if you are acquaintances or so called "friends" with them.  Business is business as they say...

Had I had that WRITTEN and EXPRESS Exclusive Buyer Agency Agreement, with my own added Addendum and stipulation of extended "Procuring Cause" if the buyer walks or unilaterally revokes the buyer agency agreement; I might have had some solid grounds to seek legal recourse against my former "client" and the loan officer or mortgage broker.

Brokers - Agents Pay Brokers, Brokers Don't Pay Agents

An agent (listing or buyer agent) invests all his time, funds and energies in procuring new leads-clients, marketing, advertising and and managing their current sales.  Other than providing the "privilege" of doing business or perhaps having a nice office to bring a client too (professional "curb appeal" if you will) there is little to nothing that the broker actually contributes to the agent's business.

Does a broker typically contribute to the agent's business expenses in any way; i,e. help with or subsidize any adverting or marketing expenses, annual MLS and Association of Realtors dues, lockbox service costs, etc, etc ??   I realize that they too of course are running their own larger scale business and have commercial building office lease and operational costs; but they in essence just sit back and collect agents' commissions as a sort of "toll gate or booth" right or privileged of doing business or passing through the "system."

Brokers ~ Agents or Licensees, No Broker Affiliation Required !

If you looked at a State's categories of licensed professionals or trades, you will find that nearly all other licensed professionals or trades can operate independently or individually if they so chose; appraisers, home inspectors, lawyers, CPA's, beauticians, cosmetologists, contractors, etc.  There is no requirement for example for an attorney or lawyer to be affiliated with a managing legal "broker" firm as an "Associate" - they are free to open their own practice regardless of years of experience or years licensed.  


The purpose and goal of real estate boards is to require real estate practitioners to be licensed or become a "licensee" and to protect the public by requiring their licensure and other requirements; no felons, convictions, criminal records, need to take continuing education, etc.  Real Estate licensees (Realtors) are also required to carry "E&O" (Errors & Omissions) professional liability insurance; as do attorneys.

I'd say with the basis of these basic requirements the public at large IS protected and there is no real direct or tangible benefit to a client or end user of real estate services for the person to be affiliated with a broker.  I would like to see legislation introduced to repeal this requirement and allow real estate licensees (Realtors) to work or practice independently, as do other licensed professionals.  

I always get a kick out of a person invariable asking who I work for or what broker I am affiliated with.  This seems to be more important; the brand recognition than the actual experience of the agent for some inexplicable reason.  I tell people I do not work for them; that I pay them and bring my deals to them, and that the broker is not the one who will be out driving you around, showing you properties, writing contracts, listing or marketing your house for sale.  In fact you'll more than likely never even see them or meet them.  My "office" is actually my car, my home office; my laptop, telephone, GPS and other tools of the trade. We'll probably almost always be meeting at either my home office or your home to meet and sign any documents, or somewhere out on the street mutually convenient or sitting down together to discuss things meeting over coffee or a bite to eat.  We will rarely, if ever, really be basing our operations from the broker's office.

This is another compelling argument for allowing agents, licensees or "Realtors" to practice independently without being tethered to a broker, who does little to nothing anyway.  I can hear a broker up in arms now over reading or hearing what I've just said saying how much "oversight" is required and how these levels "checks and balances" are required.  The only checks that most brokers ever do is to take a cut of the agent's commission and deposit that "check" into their bank account.  

The public is still protected by a broker's absence from the equation... 

Brokers - say, "We have XXX number of agents in our office" : )

Ok... that's great; and of that XXX number you have, how many of them are actually producers or just dead weight on your roster and a number for you ???  Broker's jaw drops, and no answer...

Ok, then let me ask you this next question then; of the XXX number who are not producing or who have not have had a sale recently; what are you doing to get involved, monitor the situation and help them or support them to get more sales, which ultimately puts more money in your cost center too???  Broker blinks his/her eyes and stammers for what to say...

Ok... then let me also ask this next question; to what extent are you a "managing & supervising broker" which the real estate board regulations REQUIRE you to be and to be actively involved???  Broker starts to get fidgety and uncomfortable at this point ; )  LOL 

Ok... one final question (broker probably thinks, OH, THANK GOD!) are you merely a "recruiting broker" (who cares more for the number of agents he/she's got on the roster with the "numbers game" mentality that of all those numbers on the roster he/she'll get lucky and a few top producers) or are you an actual and true managing & supervising broker" ?   The broker says, "no, of course not; I am not just a recruiting broker, but I am a managing & supervising broker"

They thought they were off the hook by this point, then the interviewing agent asks,

"Ok, great.... then can you tell me something about your management style?"   Broker is ready to throw the interviewing agent out of his office by this point.  LOL  : )

Agent stands up, concludes interview, shakes hands and walks out saying, "nice to have met you and good luck with your business" ... as he sets his sights on the next broker who he thinks will be worthy of sharing his commissions with!

Buyer Agency Agreement - Fool Me Once.... Fool Me Twice

I actually had a case once where after showing and describing to who I thought was my "client" numerous properties both in person and via e-mail listings (yes, Peter, this one is for you) he ended up putting a contract on a property that I had shown and described to him.  I had just trusted him and handled it informally and had not asked him to sign any buyer agent agreement.

Could I claim "Procuring Cause" and try to lay claim to any part or portion of a commission or even a "finders fee" ?  No !  Without any type of buyer agency agreement in place, I had absolutely no recourse whatsoever.

I got burned on this one and this is why I will not work with a "Buyer" unless I have an Exclusive Buyer Agency Agreement in place that also calls for or has a provision or stipulation in it that even if the Buyer Agency Agreement expires or is revoked or rescinded unilaterally by the Buyer; that if they subsequently put a contract on a property that was "shown or described to them" by me within a certain period after either expiration or unilateral rescission of the Buyer Agency Agreement, my broker and I are legally entitled to claim and assert "Procuring Cause" and lay claim to the buyer agent/broker commission, either through legal action against the Buyer and/or through Association of Realtor arbitration with the buyer broker/agent who received the commission at settlement.

It would be the fault, and legal culpability, of not only the buyer for failing to disclose to broker B the existence of my "extended" Procuring Clause provision but also broker B failing to ask buyer if they were still under any type of enforceable contract with another buyer agent, licensee or broker.  This is also why, when I am working with a Buyer who does sign my Exclusive Buyer Agency Agreement, I also have a stipulation regarding the aforementioned so that neither myself nor my broker find ourselves in a dispute over the commission later.    

I simply will not be the chump that does the dirty work and shows a "client" numerous properties; then when they are ready to put a contract on a property they run to to their friend or buddy who is a licensee to write the contract and collect the commission. (Kristy, this one is for you).

I had another incident exactly like this where a woman (Angela, this one is for you) was using me to show her properties and would call me frequently for other landlord/tenant advice; then one day I happen to run a search of local public records on her (as I suspected I had been or was being "hoodwinked") and much to my shock and surprise I see that she had just bought a property.

And the crowning glory of them all is this one: after showing what I thought was a true "client" numerous properties on weekends over the course of a couple months, certain red flags starting going up and I flat out confronted them and asked whether they were REALLY looking to buy a home or not.  They confessed, and said they were new in town and were told if they just called a Realtor they could get a free sight seeing tour and be driven around and shown numerous areas of the metro area to get a feel for things and where things were if they just pretended to be house hunting !!


Fool me once.... shame on you; fool me twice... SHAME ON ME.  I WONT BE FOOLED AGAIN !! 

Unfortunately the National Association of Realtors (NAR) Buyer Agency Agreement forms absolutely SUCK !!! and provide little to absolutely NO agent protection provisions or clauses; they are overly buyer friendly and allow the buyer to walk under any circumstances even after substantively engaging the services of the agent/broker. They could not give a damn whether you get burned or not.  Your broker who sits in his office won't give a damn either, because there's no loss to him and he wasn't the one out their beating the streets with a deadbeat or sociopath "client".  

So... being a Paralegal and thinking about all the "what ifs" and based on past experiences such as those described here in this post, I developed and drafted my own Agent Retainer/Deposit Agreement & Exclusive Buyer Agency Agreement Addendum that is incorporated by reference and attached thereto or made apart of the Association of Realtors form.  It is perfectly legal, binding and enforceable.