Agents want a little loyalty

Some agents say the free rides are over. They're embracing the idea of a buyer's pledge of allegiance.
By: Ann Brenoff: Los Angeles Times
VETERAN home sellers usually don't flinch when a realty agent pushes a sheath of papers in front of them to sign when they list their houses. The agent, after all, will be bearing the upfront expense of advertising, printing up mailers, holding open houses and arranging showings - and who would do all that without a signed listing contract guaranteeing a commission if they sell the house?

But what about buyers? They get a free ride.

Buyers can drop in unannounced to virtually any realty office, and an agent working that day will drive them around, showing them what's for sale. There's nothing to stop those buyers from turning around and making an offer on one of those houses through, say, their sister-in-law who just got her real estate license. The agent who spent half a day with them likely won't get so much as a thank-you note.

That, gradually, is changing.

Twenty-one years ago, John Rygiol, owner of Seal Beach-based John J. Rygiol & Associates, turned the tables: He stopped representing sellers altogether and began asking would-be buyers to sign loyalty agreements, documents stating that in exchange for his time and services in finding them a home, they will make all offers through him or pay him a commission anyway. Today, 10% of California Assn. of Realtors members use buyer loyalty contracts.

The effect on buyers is twofold: They are represented by an agent who won't try to steer them toward his or her listings, and they've signed a contract wedding them to one agent for a fixed period of time.

Agents with listings have a financial incentive to push those listings, Rygiol says. If the client buys a home the agent has listed, the agent would pocket the full commission.

"I have no listings. I'll show you everything that is out there and I will only be working with you," Rygiol said. His business now has six offices and eight agents in Southern California. Statewide, there are 17 exclusive buyer brokerages and 54 exclusive buyer's agents.

California has a strong dual-agency disclosure policy, which requires agents to tell their buyer clients if they or another agent in the same firm represent the seller. The problem is, it is often disclosed only at the point when a buyer is making a written offer.

Rygiol client Ed Novitsky, a first-time home buyer, likes knowing that "John just works for me." Novitsky, his wife and daughter, 2, are renting in Torrance while looking for a home to buy in the South Bay. He is shopping in the mid-$600,000s range.

Novitsky, who calls himself a skeptic, may seem an unlikely type to sign a loyalty agreement. He said he is someone who needed to understand the home-buying and financing process himself and was unwilling to blindly trust someone else to protect his interests in what he called "the biggest purchase" of his life.

He personally called about 15 mortgage lenders directly and got pre-qualified. He then interviewed about a dozen realty agents and, frankly, he recalled, wasn't always impressed.

But when he came upon Rygiol, the idea of having an exclusive buyer's agent "just made sense." "When I called John, right away I liked what he said to me: 'Let's meet and see if we think we can work together.' "

He wasn't bothered by Rygiol's request that he sign an exclusive six-month contract. "It's fair," Novitsky said. "If he puts in the time and does his job, why wouldn't he be entitled to compensation?"

Novitsky is part of a small but growing minority in this regard. For many California buyers, the idea of being asked to sign a loyalty agreement before an agent opens his car door is a novel concept.

Buyer loyalty contracts are commonplace in other states - and are most prevalent along the East Coast and in the Midwest - but Colleen Badagliacco, president of the California Assn. of Realtors, acknowledges they haven't caught on as widely in the Golden State. CAR offers its members sample contracts, and Badagliacco encourages their use. The contract that Rygiol uses states that if the buyer winds up making an offer within six months on a house that he showed them (not just drove by but toured the interior), he is entitled to the commission.

Most contracts are for a fixed period of time - a weekend if an out-of-state buyer is coming in to look or two weeks if it's someone local. But the obligation to pay the agent a commission extends for six months if the home being bought is one seen during the initial showing period.

In other states, exclusive buyer agents may take it one step further: Before they agree to spend their weekends driving buyers around, they not only want it in writing that the buyers will make their offer through them, but they also charge a retainer of $250 to $500. In almost all cases, the retainer is deducted from an eventual commission when and if a deal is finalized, but even if it isn't, the agent keeps the fee.

Buyer's agents in California don't charge a retainer (or advance fee, as the state Department of Real Estate calls it) because of the stringent and cumbersome rules governing how this money must be handled. CAR guidelines also discourage it. Many agents mistakenly believe the practice is illegal; although it isn't, failure to comply with the state regulations can carry criminal penalties.

To some extent, said Paul L. Campbell of Dream Drafters Real Estate in Everett, Wash., the retainer is proof of sincerity and a measure of a buyer's seriousness. He charges a $250 retainer, refundable at closing.

And there appears to be wiggle room. In some cases, repeat clients aren't charged a retainer nor are the buyers whom those clients recommend. If a buyer is unhappy, some agents say they just cut him or her loose.

But, for Rygiol anyway, "it's never come to that."