Industry Decoded with Russ Cofano
Illustration by Lanette Behiry/Real Estate News

Industry Decoded: It’s time for mandatory buyer agreements 

The best way to protect consumers and raise the bar for the entire industry? Require buyer agency agreements across the board.

January 24, 2024
8 minutes

Thinking big about residential real estate success requires a big-picture perspective. Industry Decoded features industry experts who can enrich your understanding of issues affecting the industry as a whole.

A lot of experts (and wannabe experts) have been sharing their opinions about what the future holds for the industry.

Most of these predictions are based on possibilities that are completely out of their control. Nobody in real estate has any control over or can alter the course of federal or state judiciaries, the DOJ, the FTC or other external forces that are bearing down on our industry. As a result, it feels as if much of the industry is suffering from a severe case of anxiety.

Yes, real estate has found its way through other difficult periods — the Great Recession and Covid are recent examples — but the current wave of anxiety seems more deep-rooted to the foundation of the industry, and I think it's fair to say this uncertainty is not going away anytime soon.

Psychologists tell us that, when feeling anxiety, we should focus on what we can control. So, what is something the industry can do to assert control under our current circumstances?

Institute mandatory buyer agency agreements.

Some of you might be saying that your state already requires a buyer agency agreement. True, there are a handful of states that do require some form of agreement but, except for Washington State, they put those laws in place before the current anti-trust and regulatory mess was at our front door. And most states have no such requirement.

Buyers deserve the same level of protection and status as sellers

It's time that our industry takes the important steps to advocate for the passage of new laws that require buyer agency agreements for all buyer broker relationships, across all states.

Why now?

It's pro-consumer. And if there was ever a time for the industry to be proactive in its support of consumers, it is now.

When seller sub-agency was the norm and there were no state agency laws, sellers were "clients" and were required to sign a months-long written listing agreement that came with strict fiduciary duties. On the other hand, buyers were referred to as "customers," treated by the industry as someone to sell a house to. The relationship was more casual, with no agency, no fiduciary duties and no agreement.

Why? Follow the money: Compensation was determined by, and flowed from, the seller to the listing broker and then to the selling office. Buyers, who had nothing to do with compensation, were viewed differently and were arguably less deserving of the status ascribed to sellers.

Then, seller sub-agency went away and was replaced with laws implementing buyer agency, but nothing changed from a compensation standpoint — which is a big factor in the current slew of anti-trust challenges. Moreover, despite the new laws that imposed real agency duties on brokers who worked with buyers, the actual relationships agents formed with buyers were still far more casual than those formed with sellers.

Before the internet and national portals, agents would routinely start chauffeuring buyers to multiple homes without any discussion about compensation or the nature of the relationship, with some declaring that they provided services for free. And, in today's world of internet lead gen, agents interact with buyers like they are, um, customers.

Buyers today deserve the same level of formality and protection when forming agency relationships with brokerage firms as sellers do. In every sense of the word, buyers today are clients, about to embark on the most significant financial transaction of their lives. And, that relationship deserves a written agreement, just as it does on the seller side.

Washington State provides a blueprint

On January 1, 2024, Washington's new agency law went into effect. I believe it's the first state law that created mandatory buyer agency agreements, called brokerage service agreements, since the anti-trust litigation commenced. It provides a flexible framework that can accommodate potential court-mandated or government-mandated outcomes.

With this new law, every Washington real estate licensee who works with a buyer and is not the listing agent will be required to obtain a written agreement that includes at a minimum:

  • The length of the relationship (with a default minimum term of 60 days)

  • Whether the agency relationship is exclusive or non-exclusive

  • Compensation (the amount the firm will be compensated and who will pay the compensation, which can be the buyer, seller or listing firm)

  • Whether the agent is required to show properties where there is no offered compensation

  • Any other agreements between the parties

This agreement must be signed "as soon as reasonably practicable" after the agent begins delivering brokerage services to the buyer. At the moment, Washington's DOL is working on rules that more clearly define the deadline for buyer signature but it certainly won't be at the same time an offer is drafted. The goal is to provide transparency about, and to document, the relationship when it first begins.

Mandatory buyer agency agreements are good for the industry

When I was general counsel for a large brokerage firm, we routinely tried to get our agents to use buyer agency agreements. While many of our highly professional agents agreed that a buyer agency agreement was good for all involved, we got pushback because agents didn't want to risk losing a potential buyer if that buyer was unwilling to sign. Since these agreements were not required and not the norm, especially for less professional agents, it was easier for most agents to take the easy road and follow the crowd.

By requiring a buyer agency agreement in every buyer relationship, Washington has leveled the playing field, and those same highly professional agents will not have to worry about losing a client because they required an agreement.

Mandatory buyer agency agreements will also please the "raise the bar" crowd.

There are those who believe the industry has too many real estate licensees, most doing few if any transactions, and most of those on the buy side. Those same people argue that this negatively impacts how consumers perceive and value the services agents provide.

Having to explain their value to a buyer and convince that buyer to sign a 60+ day agreement that includes compensation provisions, all before providing substantial services, is going to take a skill level that many agents do not possess today. I believe this will cause a natural "raising of the bar" and increase the level of professionalism in those agents who are able to adapt to this new way of business.

Finally, this type of industry-wide endeavor will reaffirm one of the core values of the Realtor association. By the way, I don't mean NAR. They have a few other things to deal with presently and have little influence on state legislation. I'm talking about state Realtor associations.

Real estate is local, and when the first wave of agency legislation was put in place back in the 1990s, most every state Realtor association was at the heart of those efforts. They championed the drafting and successful lobbying that led to the passage of these important new laws, and continued to deliver value to members by educating them on how to comply.

Today? Every state Realtor association can again choose to lead and take this important action to make buyer agency agreements mandatory.

And importantly, they can do it in a way that accommodates any future changes to compensation, regardless of whether offers of compensation continue to be made through the MLS, paid by the seller, or whatever changes might come down the road. And in doing so, both consumers and the industry will benefit, and the Realtor on the street will again be shown why having a strong association is critical.

Some industry experts say buyer agency is at risk of going away. We cannot allow that to happen, and one way to ensure that it doesn't is to make buyer agency agreements mandatory, truly elevating buyer status to that of sellers.

It is an opportunity not to be missed.

Russ Cofano is the CEO of Collabra Technology, which operates the digital marketing platform SphereBuilder™. He has more than 30 years of senior leadership experience in brokerage, technology, MLS, associations and affiliated businesses. Previous roles include president and general counsel of eXp World Holdings and SVP of industry relations at Move, Inc. The views expressed in this column are solely those of the author.

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