This is one of the most common questions we get in the NAEBA office.  Unfortunately, the answer isn’t as simple as it seems.

The simple answer:

Exclusive Buyer Agents (EBAs) get paid the same way traditional buyers agents do.  The real difference in an EBA and a traditional agent is since an EBA doesn’t take listings, they have no vested interest in which house you buy, avoiding a potential conflict of interest.  The fee structure, though, may be identical or similar.

The detailed answer:

In a typical transaction, the commission is split between the listing (seller’s) agent and the buyer’s agent.  For example, if a house is sold for $200,000 and the commission paid on the sale of the house is 6%, then the listing agent would get $6,000, the buyer’s agent would get $6,000, and the seller would get the remainder.  The buyer pays nothing out-of-pocket directly to the buyer’s agent.

In today’s market, however, many different types of fee structures are being offered so not all transactions are “typical.”  For example, a buyer’s agent may offer a flat fee or sliding scale fee.  In this case, the buyer would be responsible for any amount not covered in the commission paid or would get a refund of any overage.  Using the same example from above, if the buyer’s agent contract specified that the buyer would pay a flat fee of $5,000, then the listing agent would still get $6,000, the buyer’s agent would get $5,000, the buyer would get $1,000, and the seller would get the remainder.  The opposite, though, could also be true.  If the buyer’s agent fee was $7,000 and the commission only covered $6,000, then the buyer could be responsible for the additional $1,000.

Another deviation is when the house is being sold directly by the owner with no listing agent involved (For Sale by Owner or FSBO).  A savvy seller will have already calculated the buyer’s agent commission into the sales price of the home and offer that as part of the package.  Often, though, the buyer’s agent will have to negotiate their commission as part of the sales price of the house and in some cases, the buyer may have to pay part of the commission out-of-pocket.

The best answer:

Since all brokerages set their own fee structure, you’ll have to ask.

1. Interview several agents.  Ask them about their prices, but also ask about what you get for the price.  Make sure they will represent you throughout the transaction.  If you hire an EBA, you know that they don’t have listings and will represent you throughout.  If the agent isn’t an EBA, find out what happens if you become interested in one of their brokerage’s listings (i.e. ask you to consent to less or no representation or refer you to another buyer’s agent).

2. Work with the one that is the best fit for you.  Be sure that you understand their pricing and how the agent gets paid.  If signing a representation agreement, be sure it has an expiration date and that you understand the terms as spelled out in the agreement.  If you’re unsure about something, ask.

-Kimberly Kahl, CAE
NAEBA Executive Director

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June is National Homeownership Month, but the National Association of Exclusive Buyer Agents (NAEBA), an organization of real estate professionals who advocate for home buyers, cautions that, for some, this may not be a good time to become a homeowner.

According to 2011 NAEBA President Michael Crowley, “A potential home buyer needs to seriously consider at least five reasons that home buying may not be the best choice right now.”  Crowley mentioned mixed economic indicators and the potential for the market to turn soft again to a point where first time home buyers could potentially lose their down-payment and time invested in buying a home. “As the association that works to protect buyers and not just promote real estate sales, we sometimes need to stand up and point out these concerns,” he added.

Exclusive Buyer Agency is the practice of representing only buyers and never sellers in a transaction. The company never lists a seller’s property and thus never has a seller as a client.

Other NAEBA members voiced additional concerns:

Benjamin Clark, NAEBA Past President, suggested that buyers should feel they have a significant degree of job stability. “If there is any possibility you could be downsized or let go, or if finding similar employment in your area could be difficult, it might not be a good idea to jump into home ownership at this time.”

David Kennedy, a NAEBA broker from San Antonio, TX stated, “In this market home buyers should plan to stay in the home for at least five years.”

“If you anticipate a significant change in your family situation, it is often better to wait for it to be resolved before you buy a home,” commented Michael Byrd, a NAEBA broker from Grover Beach, CA. “Pending marriages or having children leave the nest can both mean major changes to your space needs and your commuting requirements.”

“Prices are down, but many buyers do not have a handle on repair costs. Many foreclosed and short sale homes have big-ticket deferred maintenance. Buyers, beware that bargain properties may not be a bargain,” says Rona Fischman, a NAEBA broker near Boston, MA.

In addition, buyers often get qualified by lenders based on only some of their expenses.  “It is still possible for a buyer to unwittingly over borrow, even in this market. Sometimes the amount that a lender will let you borrow should scare the heck out of you,” says Ed Bartlett, a NAEBA member in Spokane, WA.

NAEBA Executive Director Kimberly Kahl summarizes the concerns by saying, “Potential home buyers should be certain to look before they leap into this market, and that they have someone on their side who will protect their interests during the home buying process.”

Personally, I would never buy a home without an inspection.  In fact, I may even go a little overboard.  When I purchased my home, which was new construction, I not only had it inspected throughout the construction process, but I also had it inspected about a month before the full warranty was up so I could have repairs done.  Of course, that’s just me.  Since then, I’ve watched (somewhat in horror) as someone close to me purchased a home without an inspection and seen how it can go terribly, terribly wrong.  This is a true story…

Pam and Bill (names changed) were looking for their first home in the rural Midwest.  Like most first-time homebuyers, they were very excited, nervous, and also wanted to stretch their home buying dollars as far as they could go.  They got preapproved for a mortgage, hired a buyer’s agent (not an EBA), and went house hunting.  Within a few weeks, they found a house in their desired location at a price they could afford.  They went to look at it and made an offer.  The house was in foreclosure but after a little negotiation with the bank, they settled on a price of $65,000 – right in the price range Pam and Bill had set for themselves and while not a steal, a fair price for that neighborhood.

Knowing Pam very well, I was informed throughout the process even though I live nearly 2,000 miles away.  When we discussed an inspection, she stated that the inspection was going to cost $350 and that with all the money they had to spend on the down payment and closing costs, she didn’t really feel the extra $350 was warranted or feasible.  I’m sure red flags are going up in the heads of any real estate professionals!  They’re buying a foreclosed home “as-is” without an inspection.

Fast forward to the first thunderstorm after closing.  Pam and Bill are getting drenched…in their bedroom…in their bed.  The roof has a serious leak.  Bill and his dad put some tarps over the roof to temporarily keep out the rain and call a roofing contractor to assess the damage and give them an estimate on the repairs.

The roofing contractor comes.  The roof needs replaced, but that’s not the bad news.  The bad news is that there is an active hornets’ nest in the roof and he can’t replace the roof until the nest is removed.

Now, the exterminator comes.  This is a big, very active nest and it is mid-summer, when hornets are most active.  There is no way for him to remove it all until they go dormant in the winter.  Great.  At least four months with a very leaky roof and huge, active hornets’ nest.  Not exactly their dream home.

Fortunately, winter came a little early.  About three months later, the exterminator returned and got rid of the nest.  Then, the roofer came and they got a new roof.  At what cost?  $14,000.  Over 20% of what they paid for the entire house!  If they thought $350 was expensive, I can’t imagine what they thought about $14,000.

Lesson learned.  With an inspection, it is highly probable that they would have known about the leaky roof and the hornets’ nest.  I’m not sure what options they would have had at that point but I can think of at least two:  they could have bought a different home or if they were really set on that house, they could have negotiated a lower price to help them cover the huge repair bills.

-Kimberly Kahl, CAE
NAEBA Executive Director

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In my post last week, I mentioned that while “loans like FHA and VA wouldn’t have the same restrictions, I heard talk in DC about raising the down payment.”  Yesterday, I learned just how serious that talk was.

According to an article in the Washington Post on May 23rd, “A Republican-led proposal circulated Monday would boost the down payment requirement for mortgages backed by the Federal Housing Administration, a move some industry experts said would shut potential home buyers out of the market.”   This new proposal would raise the down payment requirement to 5%, an increase from 3.5%.  The FHA down payment requirement was only 3% in recent years, but was raised to its current level on January 1, 2009.  The same article also states, “FHA has raised the fees it charges borrowers by 60 percent since 2008 and dramatically improved the credit quality of its borrowers in recent years.”

What does this mean for potential FHA borrowers?  Right now, fortunately, not much.  While the issue is being raised today in the House Financial Services Committee, it has not been formally introduced as legislation.  I do believe, though, that this may be a sign of things to come.

-Kimberly Kahl, CAE
NAEBA Executive Director

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National Association of Exclusive Buyer Agents Educates Buyers on Short Sale Real Estate Transactions
New Survey from home buyer advocates advises awareness and good representation are keys to short sale transactions

AVONDALE, AZ December 20, 2010- Bargain hunting home buyers may turn to short sales, a real estate transaction where the property is sold for less than the balance owed, to buy their dream home. However, according to a new survey by the National Association of Exclusive Buyer Agents (NAEBA) buyers should be aware that short sales are rarely short or easy and in many cases can cost consumers time and money. The survey sent to members of NAEBA examined known issues that could complicate or kill a transaction and ranked those most critical for consumers to know before entering a short sale deal.

The survey revealed that the majority of exclusive buyer agents (75%) believe that it is important that buyers know that there are many risks in a short sale transaction including rule and bank policy changes during the process that can kill the transaction or restart the timeline.

“Exclusive buyer agents are watching the bottom line for consumers who are trying to buy short sales. Many consumers who are seeking a home buying bargain enter the short sale process without enough information about what can go wrong, and what that will cost them in both time and money,” says Mike Crowley, 2011 President of NAEBA.

Known issues that were ranked as important to know included:
• Short sales can take 4 to 6 months or longer and 80% of buyer agents warn that even after the seller has accepted your offer, the lender can reject your offer in favor of a higher offer. Buyers may spend money on home inspectors and attorneys only to end up without a house.
• 83% of respondents believe it is important for consumers to know home inspections conducted prior to third party approval may be a waste of money.
• The majority of exclusive buyer agents (80%) warn that sellers may agree to any offer even if there is little chance that the bank will approve it, and 68% warn that during negotiations for approval the lender and seller may come to terms on a loan modification killing your transaction.

The survey results challenge many of the myths that surround the short sale process.
NAEBA members work exclusively with home buyers and want to ensure that buyers are fully informed before every home buying transaction and that includes understanding that short sale negotiation companies cannot guarantee success. Knowledge and the right representation are critical in short sales but even then it is important to fully understand the risks before you leap.

About the Survey
NAEBA conducted this survey from November 11 to November 17, 2010. The online survey was open to all NAEBA members. Additional highlights of the survey can be found at http://naeba.org/ShortSaleSurveyHighlights.pdf.

Visit the NAEBA website at http://naeba.org for more information on home buying or to find a buyers agent in your area.

About NAEBA
The National Association of Exclusive Buyer Agents (NAEBA) (http://naeba.org) is an organization of companies dedicated to representing only buyers of real estate. NAEBA member brokerages do not list homes for sale and never represent sellers. This restriction to one side of the real estate transaction avoids conflicts and ensures that the interest of the home buyer is protected at all times from house-hunting and negotiation, to inspection, financing and closing.

NAEBA is pioneering a nationwide effort to give today’s home-buying consumers the level of service they deserve and are increasingly demanding. NAEBA members firmly believe that home buyers have the same full and equal representation rights as sellers in any real estate transaction. NAEBA, in existence since 1995, is comprised of Exclusive Buyer Agencies in most areas of the United States, and in some international markets.

Media Contact:
Kimberly Kahl, CAE, Executive Director
National Association of Exclusive Buyer Agents
Phone: 800-786-1570
Email: kkahl@naeba.info