A recent consumer brochure developed by the American Association of Retired Persons (AARP) and the Consumer Federation of America (CFA) recommends that home buyers use a buyer’s broker. According to the brochure, ” Home buyers must select their agents with just as much care as sellers do. The first decision they should make is whether to work with a buyer’s broker. Buyer brokers will better represent the interests of buyers than will sub – agents. They are more likely, for example, to negotiate a lower sale price on a home.” To get a copy of AARP/CFA brochure, send a stamped, self-addressed envelope to:

AARP, Box Home, 601 E. St. N.W., Washington, D. C. 2004

A “Buyer’s Broker or “Buyer’s Agent” is an agent who works exclusively on behalf of a buyer in a given transaction.  ” Who really represents me in the home purchase?” Who is a buyer’s agent? Just as home sellers hire listing agents to market their homes to the largest number of potential buyers, such as through the local multiple listing service and on the Internet, home buyers also need somebody looking out for their best interests. That person is known as a “buyer’s agent,” sometimes called a “buyer’s broker.” A true buyer’s agent represents only the home buyer in the purchase transaction. The job of a buyer’s agent is to look out for the buyers best interests, putting emphasis not only on the benefits but also the drawbacks of a prospective home purchase. any licensed real estate agent can be you buyer’s agent. However, some buyer’s agents work for realty brokerages that represent just home buyers. These firms never accept listings of homes for sale. But most buyer’s agents work for firms which represent both buyers and sellers, so the situation often becomes very confusing for home buyers. Types of agents over time, confusion about who represents whom in a home sale became so complicated and misunderstood that a few years ago Tennessee enacted agency disclosure laws.

There are three basic agency possibilities, listing agents  represent the home seller only. Buyers agents represent the home buyer only. dual agents represent both buyers and sellers. (If dual agency is disclosed to both buyer and seller, the arrangement is legal.) The obvious advantage for home buyers of having their own realty agent, instead of working directly with the listing agent, is that a buyer’s agent is free to point out the defects of a  home, whereas the listing agent must primarily look out for the seller’s best interests. When a home buyer works directly with the listing agent who acts as a dual agent, that dual agent is not supposed to disclose confidential information to the other party, such as the lowest price the seller will accept or the highest price the buyer will pay. But it is difficult for some dual agents representing both parties not to reveal confidences, such as steering the parties to a higher or lower price to put the sale together. However, when the buyer is representeed by a buyer’s agent, that agent cannot reveal confidential information and is likely to negotiate a better price and terms for the buyer.  Conclusion, Just as home sellers have their listing agents, home buyers need their buyer’s agents to look out for their   best interests.

If you wander into a weekend open house, it’s obvious the agent you meet represents the home seller. But that agent can also represent you, as a dual agent. If that seems like a conflict of interest, it is, remember, however, such representation is perfectly legal if disclosed to both buyer and seller. Be sure to disclose to any listing agent you meet that you are already represented by your own buyer’s agent.   Note: See Procuring Cause

Discount brokers offer buyers and sellers full-service real estate brokerage services at a price lower than the prevailing commission fees. For example, a discount broker may offer all of the services provided by a traditional broker for a 3 or 4 percent commission in an area where 6 to 7 percent is the prevailing rate. In addition, in states that do not prohibit them, brokers may offer rebates (i.e. cash payments) and inducements, such as gift certificates, coupon, vouchers, and discounted or free services relating to buying and selling a home, to buyers and sellers. These are incentives that typically are offered by cooperating brokers to home buyers to encourage them to use the brokers’ services. 1% Realty offers buyers a rebate of approximately 1 percent of the purchase price in states that have not prohibited rebates. Brokers sometimes also pay rebates to home sellers. For example, home sellers who are referred by one broker to another broker sometimes receive rebates. Additionally, some listing brokers pay their clients secret rebates rather than offering a lower listing commission in order to disguise discounting.

Rebates are an important form of price competition under the traditional structure of real estate transactions because the seller and sellers broker, determine the amount of the buyer’s broker’s commission via the listing agreement. Without rebates, if the buyer’s broker were simply to reduce his or her commission, the savings would go to the seller’s broker, not to the home buyer. As one panelist explained: the mechanics of the typical real estate transaction make it difficult for a buyer’ broker to reduce the price of his or her services because the “custom of the industry” is for the listing broker to split his or her commission with the buyer’s broker. Rebates, therefore, can be powerful tools for price competition between brokers. And by returning money to home buyers, rebates can also benefit home sellers, because buyers will have more to spend on the home as opposed to commission payments.

Tennessee is one of the very few states that forbids rebates. The politicians do not want the people of Tennessee to enjoy the  savings that 40 other states enjoy.

Fee-for-service brokers – sometimes also referred to as “flat-fee” brokers or” limited-service” brokers-represent a departure from traditional full-service brokers who typically charge a  commission based on the sales price in return for a bundle of services. Fee-for-service brokers offer home sellers the option to purchase less than the full bundle of services traditional brokers provide. Different fee for-service brokers  may offer different arrays of services, and home sellers can pick and choose the services they wish to procure from the provider or providers of their choice. Most fee-for-serviced brokers offer sellers two or more service packages, and many offer an additional  itemized list of optional services. This business model is likely to benefit consumers who do not want to forgo broker  assistance completely but feel comfortable handling many aspects of the transaction with out much assistance.

Fee for service brokers often offer an ML-only package, which allows consumers, who are not permitted by MLS rules to list their homes in the MLS on their own, to list their homes in the MLS by contracting with a broker who is a member of the local MLS . For a flat fee (e.g., $500), the broker would list the home in the local MLS and make an offer of compensation in the MLS to other brokers who may cooperate in the sale of the home. The broker typically would retain the flat fee whether or not the home ultimately sells. If a cooperating broker ultimately secures a buyer for the home, he or she would receive the cooperating commission. A seller who finds a buyer without the help of a cooperative broker, however, would not pay this compensation.

MLS-only packages offered by fee-for-service brokers typically include other services  provided via the MLS. These include advertising the seller’s listing on Internet websites that home buyers search directly (e.g., Realtor.com) and on other MLS members’ web sites. Additionally, fee-for-service brokers typically provide the client additional selling aids, such as yard signs, online advertisements, and a lock-box to allow buyers’ agents to show the home when  the seller is not present.

In addition to the MLS-only package, many fee-for-service brokers offer other services. The Agencies’ review of fee-for-service broker websites indicates that most offer at least two tiers of service and the complete array of traditional services at a reduced commission.   Thus, consumers who purchase the MLS-only package, but later feel they need more assistance with their  transaction, typically can obtain it from their broker for an additional fee. For example, one Workshop participant who operates a flat-fee brokerage stated that about 30 percent of his clients who sign up for a flat-fee listing eventually purchase  additional brokerage services. This panelist’s website offers the flat- fee listing at $595, but also offers two other packages: “flat-fee plus,” which costs an additional $1,500 and includes negotiation and post-contractual assistance, and full-service brokerage for a discounted percentage fee. Further, many fee-for-service brokers allow their clients to cancel their listing agreement at any time, leaving consumers free to pursue other brokerage or non-brokerage options if they become dissatisfied with the broker’s service.

Although many brokers who specialize in the fee-for-service option are not affiliated with major national brokerage chains, some brokers who are affiliated with such chains offer fee-for-service or flat fee brokerage options. Although brokers using these models have existed since the 1970s, industry participants told GAO that the Internet has allowed such brokerages to grow in numbers and size in recent years, in part because they can market their services to a larger population of buyers and sellers.