Importance of a Real Estate Buyer's Agent: Recent Lawsuits Sheds Light
In the ever-evolving world of real estate, it's crucial for homebuyers to have a trusted advocate by their side throughout the home buying process. The recent $1.78 billion verdict in the Sitzer/Burnett v. The National Association of Realtors (NAR) class-action lawsuit focuses on unfair "cooperative compensation" practices in real estate, but it also brings light to the significance of the duties performed by agents involved in the real estate transaction.
This lawsuit begs the question, why does a homebuyer even need a buyer's agent? Here are some reasons why a real estate agent representing a homebuyer plays a critical role in ensuring that the buyer's best interests are protected:
The Listing Agent Represents the Seller, Not the Buyer: One of the most fundamental reasons for enlisting the services of a buyer's agent is the inherent conflict of interest in real estate transactions. Listing agents, affiliated with the seller, are primarily focused on securing the highest possible price for the property they represent. This means that when a prospective buyer approaches a property, attends an open house, or expresses interest in a listing, the listing agent's primary duty is to the seller. They're not looking out for the buyer's best interests whatsoever.
The potential consequences of relying solely on listing agents is a huge concern in the real estate industry right now, as there are many lawsuits now being filed which challenge the status quo of how the real estate industry has operated for over 100 years. While lacking real solutions to some long-term problems, these cases highlight the industry's need for transparency and unbiased representation.
Buyers Need Their Own Advocate to Navigate the Home Buying Process: The home buying process can be a complex, daunting, and sometimes an extremely overwhelming journey. From property selection and negotiation to inspections and closing, numerous steps require careful consideration. A buyer's agent serves as an advocate, offering expert guidance every step of the way. They bring experience, market knowledge, and negotiation skills to ensure buyers make informed decisions.
These lawsuits have the potential to rewrite the entire structure of the real estate industry in the United States, by lowering the cost of moving homes by reducing commissions, but at the same time underscores the importance of homebuyers having an advocate in the real estate transaction. This case serves as a reminder of the need for unbiased representation, especially when significant financial investments are at stake.
Contractual Commitments Effect Service Levels: Once a consumer signs a commitment (Buyer's Agency Commitment) to work with a real estate agent, it's essential to understand the legal binding nature of the agreement. Committing via a signed representation agreement with a real estate agent truly can be perceived as a "double-edged" sword. While many agents are committed to serving the interests of their clients as best they can throughout the home buying and selling process, there are instances where expedited service levels taper off once a contractual commitment is signed. This happens because the agent may perceive they no longer have to go "above and beyond" to earn their clients business, simply because the commitment has already been executed. In such cases, it's essential for all parties to remember that the buyer has the power to make what choices are in their best interest. Buyer's Agency Commitments in most cases can be voided by request of the buyer, but often only happens in extreme cases of malpractice.
The Financial Commitment to Hire a Real Estate Agent is Substantial: Typically, the home seller pays their listing agent via their listing agreement, then the listing agent splits the commission with the buyer’s agent. Traditionally, that works out to a 5%-7% commission split roughly evenly between the buyer’s and seller’s agents. While the primary focus of the pending lawsuits is on the commission and costs associated with buying a selling a home, it's essential that buyers and sellers alike know, they have the ability to ensure their interests are well-represented. Additionally, as the lawsuits claim, the commissions paid to real estate agents are negotiable, despite what may perceived as industry standard practices.
These Lawsuits Serve as a Reminder of the Critical Role Buyer's Agents Play in the Real Estate Transaction: The listing agent primarily represents the seller's interests, and a buyer's agent is essential to ensure the buyer's best interests are protected throughout the process. While contractual commitments exist, it's important to remember that both the buyers and sellers have the power to make decisions that align with their goals.
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