By Don DeBat

4-Dec-23 – Exclusive buyer brokers, an honorable real estate profession, often have performed an excellent service protecting purchaser rights and interests, while sometimes struggling to collect their well-earned commissions.

Much of their battle is against greedy “double agents” who are eager to collect two-fold commissions from “representing” both buyers and sellers in a deal, essentially cutting out the buyer’s broker.

To protect buyers and their brokers, in the near future, an upfront, written agreement likely will be required in Chicago residential real estate transactions. The document specifically states that when commissions are disbursed at closing, the buyer’s agent will be compensated by the buyer.

“We all need to make sure there’s more transparency on where an agent’s commission comes from,” Laura Ellis (left), president of residential sales at Baird & Warner, told Crain’s in November. “It comes from the buyer.”

Typically, out of the proceeds of a home sale, sellers give their agent an amount for commissions – often, but not always, it is 5-6 percent of the sale price.

Traditionally, or conventionally, the seller’s agent generally pockets half of the commission and shares the other half with the agent representing the buyer, although the splitting of commissions varies greatly depending on company policies.

However, it is the buyer, through their purchase money, who actually funds the commissions for both agents. But buyers don’t always understand the process.

It has been argued in the courts for decades, most recently in a $1.78 billion federal antitrust verdict in Kansas City, and another case filed in October in Illinois, on the key issue of the conventional split of real estate commissions.

Finally, after decades of misunderstanding, it is clear that buyer brokers do more than just getting keys to the properties that a buyer wants to see.

The buyer agent also counsels the buyer on the overall home buying process, including determining whether the asking price is fair, giving helpful advice on the search for financing, and often recommending professional trades and an attorney for the closing.

FTC study concluded home buyers were misled

Historically, nearly all residential real estate agents were bound by law and statute to represent the best interests of the sellers.

However, a 1983 study conducted by the Federal Trade Commission reported that seven out of ten purchasers thought they were being exclusively represented in their real estate transactions, when in fact, they were not.

“This study blew the lid off something known as sub-agency, wherein both real estate agents in a transaction represented the seller, and the buyer had no representation at all,” noted Sara Benson (right), president of Benson Stanley Realty. Benson was the first Chicago Realtor to exclusively represent purchasers.

Consequently, the real estate industry was completely revolutionized nationwide in the 1990s as laws were changed – state by state – in favor of consumer representation.

“A new breed of broker, known as the buyer’s broker, evolved,” noted Benson. “The development was a huge step forward for consumers.”

Ralph Nader and the Consumer Federation of America, who had delivered blistering attacks on the real estate industry, championed the cause – as did major corporations, including a major telephone carrier.

A 1993 survey conducted by Sprint (now T-Mobile), suggested that buyer brokers consistently delivered lower home prices for their clients.

In 500 corporate relocations over the period of one year, buyer brokers secured homes at 91 percent of the asking price, compared with the 96.5 percent secured by the traditional brokers. That’s a full 5.5 percent spread, or a savings of $13,750 on a $250,000 home.

However, representing both buyers and sellers in the same brokerage firm presented a direct conflict of interest. Dubbed “dual agency,” the two services couldn’t be offered in the same company without extreme liability to the brokerage firm.

“In most lawsuits brought against real estate agents and their firms, the agents and brokers are accused of having violated their fiduciary duties,” Benson said. “These are the duties of uncompromising care, confidentiality, accountability, loyalty, obedience, and full disclosure.”

In a valiant attempt to preserve their commissions, big brokerages lobbied for new forms of practicing their craft. Unfortunately for the consumer, what emerged in many states were new laws that served to dilute a real estate broker’s accountability and reduce the level of services provided to consumers.

“Use extreme caution when any agent mentions the words assigned agent, facilitator, contract broker, transactional agent, mediator, designated agent, or limited agent, warned Benson in Escaping Condo Jail, a 600-page real estate textbook she co-authored with this writer. “These are generally terms used to confuse the public and circumvent the full disclosure of dual agency. Buyers waive their rights when they consent to dual agency.”

What is dual agency?

Dual agency can carry a different meaning in different states. It can refer to the practice of a single agent representing both buyer and seller in the same transaction, and it can also refer to the practice of two agents from the same office who separately represent a buyer and seller in the same real estate transaction.

That form of representation is referred to as “designated agency” in states that have implemented rules governing the practice, Benson noted.

Consumer groups frown on dual agency, calling it, at best, “nonsensical,” and at worst, “legalized fraud.” Dual agency, and its many forms of “watered down” services, is primarily supported by large, multi-office firms that depend on “in-house” sales for their survival.

“The brokerage firm earns double commissions at no additional cost or expense,” Benson explained.

“Dual agency benefits the real estate agent and the brokerage firm at a high cost to the consumer because dual agency, by law, reduces the amount of services that a real estate agent may fully provide to either the buyer or seller,” she said.

Even though dual agents attempt to treat opposing sides of a transaction fairly and honestly, they cannot serve equally two masters. By operating as a dual agent, real estate brokers owe fiduciary duties to neither buyer nor seller.

Advice for home buyers

When choosing a buyer’s broker, make certain the broker agrees to represent the buyer exclusively – and will never ask permission to become a double agent.

“There is a high probability that no two buyer broker agreements are alike,” Benson said, “Many real estate agents are poorly trained in exclusively representing buyers.”

Buyers need to read the fine print. It’s also a good idea to interview at least three experienced buyer brokers before making a commitment, Benson advised.

“Many tenured residential exclusive-buyer brokers have been using buyer broker agreements for the past three or four decades,” she said.

Who really represents you in the home buying deal?

More definition from Sara Benson.

What is a buyer’s broker?

A broker with whom a buyer contracts to represent him or her in a real estate purchase.

What is a seller’s broker?

A broker with whom the seller contracts to represent him or her in the sale of their real estate.

What is a dual agent?

A broker that “represents” both the buyer and the seller in the same transaction but cannot fully represent either party. It is illegal not to disclose the dual-agency relationship. There is an inherent conflict of interest because the seller wants the highest price and the buyer wants the lowest price. Dual agency benefits the real estate agent at a high cost to the consumer.

What is a fiduciary relationship?

A relationship of trust and fidelity. Real estate brokers owe a duty of undivided loyalty to their clients. The real estate broker must exercise utmost good faith, care, confidentiality, and full and fair disclosure at all times. Dual agents cannot act as full fiduciaries.