Virginia is unique among the 50 states in the way that its cities are by default independent legal entities that are not part of any county. As the Washington Post discusses, under Virginia law such a move from a county to a city would give Fairfax more control over its roads, and (probably more importantly) also more ability to tax residents without state approval.

Among the many potential roadblocks for this plan, though, are the fact that for the last 48 years, there has already been a City of Fairfax in Virginia, and as expected, Fairfax City isn’t thrilled by the thought of Fairfax County trying to take that name. It’s also unclear what would happen the the incorporated towns of Clifton, Herndon, and Vienna, all of which are in Fairfax County–under Virginia law, incorporated towns are subdivisions of counties, not cities, so those three towns would probably have to either dissolve, splinter off from Fairfax County and incorporate as cities on their own, or join some other county despite being embedded in the middle of Fairfax County.

(Further confusing the issue: Fairfax City is an enclave completely contained within Fairfax County–but when Fairfax City incorporated, the land they claimed would have included the Fairfax County courthouse and jail, so the land containing those buildings was excluded from the incorporation; as a result, Fairfax City is like a donut, with Fairfax County both surrounding it completely and also existing in a hole in the middle of it. Oh yes, and Fairfax City is also technically the county seat of Fairfax County.)

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If not, you may want to play this video for them at your next sales meeting; in it, VAR Special Counsel Lem Marshall and Associate Counsel Blake Hegeman explain the relevant changes and what they mean for agents. (The entire video is about half an hour, so if your sales meetings are already pressed for time, you may want to preview the video and only show them a few portions–the first ten minutes are mostly directed at commercial agents and property managers, for example.)

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Virginia HB 1856 adds some new language to the property disclosure form effective 7/1/09; VAR says the language “imposes no additional obligations on sellers, and simply advises purchasers to exercise whatever due diligence they deem necessary to determine if there are stormwater detention facilities located on the seller’s property”.

Whether or not you need to use the new form depends on when you give the form to a prospective buyer, not on when your seller signed the form. If you took the listing on 6/1/09 and had the seller sign the old form, and then a buyer walks in the door on 7/1/09, you’ll need to have a signed copy of the new disclosure ready to give that buyer; if a buyer puts in an offer and you give them the disclaimer on 6/30/09, on the other hand, you have to use the old form, but you don’t have to re-disclose to that same buyer with the new form on 7/1/09.

Right now, the new form is only available on the VREB website; presumably it will be posted to the VAR Forms library and to companies like ZipForm relatively soon.

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The following form has been updated in the Northern Virginia Association of Realtors Forms Library in ZipForm:

• K1272 – Megan’s Law Disclosure

Additionally, the following new form was added to that same library:

• DSSOP – Disclosure Regarding Validity of Septic System Operating Permit

Users of zipForm 6 and ZipForm Online should already have the new/updated forms available in their libraries.

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They were coming to the U.S. for nine months of training at the State Department before their next post abroad, and were hoping to purchase a home that would be convenient for them while they were in training but that they could rent out once they went to their next post. Finding a mortgage was going to be difficult, though: Lorena was a Colombian citizen with no credit history in the U.S., Greg had been abroad for so long that he had almost no recent credit history, and both of their incomes would be dropping while they were in training and going back up again once they got to their next post, so the other lenders that Greg & Lorena had spoken with didn’t think that they would be able to make a purchase. Ethical Homes worked with Greg & Lorena before they even got to the U.S. to help them understand their options and the homes that would best fit their needs, and to find a terrific mortgage that gave them a great rate despite their unusual situation. And once they got into town, one of our expert buyer agents was able to find them a home just a block from the State Department facility where they would be in training–after just one day of searching!

Greg & Lorena say:

A friend at the Embassy referred us to Ethical Homes, and we began working with Sweth when we were still several months away from moving back to the United States. With a couple of interviews, he had arranged for an internet search of properties that might interest us, as well as providing a number of very creative financing options for us. This advance planning allowed us to make the best use of our time after we returned. In fact, it only took us one day to find the property we now live in! During the period when we were purchasing the home, Ethical Homes continued to work with us to make sure we understood all of our options, dealing with both the seller and the financing aspects of the purchase. Because of our extended time outside the country, and our plans to leave again this summer, I know that our questions about financing required a lot of creativity. Ethical Homes found a great solution that works extremely well for us, and Sweth stayed on top of our lender to make sure that closing went seamlessly. The most outstanding parts of our experience with Ethical Homes were without a doubt the responsiveness and flexibility we got at every step of the way. From taking quite a lot of time with us at the beginning of the process, when we were not even in the country, to running numbers time and time again to make sure we understood what different changes would mean to us both immediately and down the line, Ethical Homes made us comfortable with our decisions both on the property we picked and on how we financed it. I’d recommend their services strongly.

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Despite the fact that there were half a dozen other comparable units on the market in her condominium complex when she needed to sell, and that the average time on the market for those units was close to two months, our careful analysis of her micro-market, combined with an extremely thorough marketing campaign, got Carolyn’s property under contract in less than two weeks, for a higher price than any condo of the same model had received in the previous six months. Perhaps best of all, Carolyn loved how the proven systems used by Ethical Homes turned what could have been a very stressful experience into a relatively care-free one, letting her focus on getting ready for her move. Carolyn says:

Sweth made the process very easy for me. By pricing it correctly, marketing it well, and with my interests well represented to the buyer, I am confident that I got the best deal in the minimum amount of time. My knowledge of the local market, which Sweth kept me informed of via his web site, both helped me in choosing a price, and made me aware of how much better I was doing than my fellow sellers during a time of a cooling market. I’m sure some of my success was luck, but luck occurs to those who are the best prepared!

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A. C. was a buyer who wasn’t as thrilled as she could have been with her buying experience:

I felt that I was doing more of the legwork myself. Sweth only found one property that I had not found on my own–and that one was way outside the neighborhoods I was interested in… He did help in the contract phase, but I just felt I did more work to find my place than he did.

A. C. was right–she did do a lot more work to find her new home than I did; in retrospect, however, the real problem was that I didn’t do a good enough job of explaining to her that for most buyers, modern real estate agents usually don’t find the homes that their clients ended up in, and making it clearer to her just what it was that I was doing to help her get into a new home.

In years past, real estate agents earned their commission by controlling information–they were the only ones with the access to the MLS, so they were the gateway to the lists of available homes, and thus just the act of providing that information to consumers and then showing the properties to prospective buyers was enough to warrant their getting paid. The Internet has changed all of that, however; now, information on which homes have recently come on the market is available to any consumer who wants it.

A good agent in the Internet era thus provides access to all of the relevant listings to their clients, and lets those clients choose the ones that are most interesting (which also removes one of the traditional complaints that consumers have had about real estate agents–that they only show clients their “preferred” listings, such as the agent’s own listings or properties whose owners are offering higher commissions). It’s only occasionally, when the agent feels that the buyer has overlooked a property or as a test to see if the buyer might be well-served by expanding their search to cast a wider net, that they will suggest other, specific, properties.

For some buyers, of course, an agent does need to be more proactive about suggesting properties; in A. C.’s case, though, the exact opposite appeared to be the case–where our automated searches were emailing her information on the latest listings once a day, she admitted that she was checking the listing databases online multiple times an hour throughout the day, and emailing us about new properties that she was interested in sometimes within minutes of those properties going on the market. As such a diligent searcher, of course, A. C. quickly noticed every listing that appeared in the areas that she knew that she was most interested in, so there was only one property that I suggested to her, and almost by definition it was outside her area of core interest, since I suggested it to see if she might want to expand her search to other areas.

As A. C. noted, then, the real value that I was providing came after she had identified homes that she was interested in. A. C. was buying during the height of the 2005 sellers’ market in DC, and many other buyers during that period were putting in dozens of offers before getting one accepted; more often than not, the offers from buyers that were getting accepted were dangerously weighted to favor the sellers, with no inspections, no protection for the buyer if the home under-appraised or their loan fell through, and escalations in price tens of thousands of dollars above the asking price. With my guidance on how to draft her offers and my assistance in negotiating the terms, on the other hand, A. C. managed to get her third offer accepted, complete with home inspection, appraisal contingency, and lender contingency, and all at only $1 over list price.

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3. An Overview of Buyer Agency In The Metro DC Area

An overview of the real estate tax rates for the jurisdictions in the metro DC area where most of our clients are purchasing real estate is given below, along with links to the appropriate websites for the jurisdictions in question. Unless otherwise noted, taxes are cumulative between overlapping jurisdictions. For example, the taxes levied by the Town of Herndon (in Fairfax County, VA) are in addition to the taxes levied by Fairfax County; similarly, the taxes levied by Montgomery County, MD, are in addition to the taxes levied by the State of Maryland.

Some jurisdictions also create special tax districts that impose additional taxes on properties within those districts, to fund specific local projects such as maintenance or improvement of a specific transportation corridor; we note those jurisdictions below. If a special tax district covers all (or nearly all) of the jurisdiction in question, we include those additional taxes in the rate shown for the jurisdiction, and note that fact.

The information provided here is compiled from official sources published by the jurisdictions in question or (where necessary) reputable news sources, and is believed to be correct as of the date indicated. This information is not guaranteed, however, and buyers who are concerned about their potential tax burden when purchasing a home should always contact the appropriate taxing authorities to confirm all applicable tax information about the property in question.

• District of Columbia: 0.8500% (last verified 7/1/2009)

  DC Office of Tax & Revenue

  DC Property Tax Rates

• Maryland: 0.1120% (last verified 7/1/2009)

  (Note: 2009 values not officially published as of 7/1/2009, but they appear to have remained at 0.112% as they were for the previous 3 years.)

  MD Department of Assessments and Taxation

  MD State Property Tax Rates

  MD County/Locality Property Tax Rates

  • Howard County: 1.0140% (as of 7/1/2009)

    Howard County Department of Finance

  • Montgomery County: 0.8630%-2.7230% (as of 7/1/2009)

    Montgomery County Department of Finance–County Taxes

    Note: Montgomery County calculates real estate taxes based on a property’s classification into one of 46 tax classes spanning 39 special tax districts that can levy up to twelve “special service area” taxes. Specific rates for a given property can vary from as low as 0.8630% to as high as 2.723% (not including the additional tax levied by the State of Maryland); a rough summary of those rates can be found online at the MD County/Locality property tax site linked to above, and a more detailed table is available on the Montgomery County Dept. of Finance website, but it is imperative that a prospective buyer of a property in Montgomery County check with the county and the public record to verify the specific tax rate in effect for that specific property.

  • Prince George’s County: 0.9600% (as of 7/31/2009)

    PG County Department of Finance–Real Property

    Note: Prince George’s County calculates real estate taxes based on a system almost as arcane as that of Montgomery County, and further complicates issues by not publishing their tax tables on their website. The rate listed above is the base rate as claimed by the state, but specific rates for a given property can vary from that value significantly depending on the locality of a particular property; a rough summary of those rates can be found online at the MD County/Locality property tax site linked to above, and a more detailed table is available on the Montgomery County Dept. of Finance website, but it is imperative that a prospective buyer of a property in Prince George’s County check with the county and the public record to verify the specific tax rate in effect for that specific property.

• Virginia: No state-wide tax

  • Arlington County: 0.8750% (as of 8/1/2009)

    Arlington Department of Real Estate–Tax Assessment Rates

    Note: The Arlington County base tax rate is 0.8650%; however, a county-wide Sanitary District tax was created in 2009 that adds an additional 0.0100% to the tax rate, resulting in the rate listed above. This additional levy is not currently (as of 8/1/09) reflected on the Arlington DRE website, but the assessor’s office confirms that levy, and local settlement companies are including it in their calculations.

  • Alexandria (City of): 0.9030% (as of 5/1/2009)

    Alexandria Department of Finance–Real Estate Tax

  • Fairfax County: 1.0510% (as of 8/1/2009); special tax district rates may also apply.

    Fairfax County Department of Tax Administration–Tax Rates

    Fairfax County DTA–Other Tax Districts

    Note: The Fairfax County base tax rate is 1.0400%; however, a county-wide Stormwater District tax was created in 2009 that adds an additional 0.0100% to the tax rate, as well as an existing county-wide Pest Prevention tax district of 0.0010%, resulting in the rate listed above. Note that additional tax districts are common in Fairfax County; please verify the specific tax amount for any property that you are considering purchasing.

    • Herndon (Town of): 0.2400% (as of 7/1/2009)

      Town of Herndon–Taxes/Licenses

    • Vienna (Town of): 0.2281% (as of 7/1/2009)

      Town of Vienna–Real Estate Taxes

  • Fairfax (City of): 0.8800% (as of 8/1/2009)

    City of Fairfax–Real Estate Tax

    Note: The City of Fairfax does not list their current tax rate on their website; the value given above is the value shown in an example on that website, and was confirmed to us when we called the City Treasurer’s office, but since the City of Fairfax does not officially publish this rate anywhere, extra caution should be used when estimating taxes using this number.

  • Falls Church (City of): 1.0700%

  • Loudoun County: 1.2450% (as of 7/1/2009); special tax districts may also apply.

    Loudoun County–Taxes and Decals

    To check the special tax district status of a given property, look up the property on the Loudoun County tax assessor website and click on “Tax History” to see what tax districts the property is in.

  • Manassas (City of): 1.3500% (as of 5/1/2009); special tax districts may also apply.

    City of Manassas–Tax Rate Schedule

  • Manassas Park (City of): 1.6500% (as of 5/30/2009)

    City of Manassas Park–Treasurer

    Note: The City of Manassas Park does not list their current tax rate on their website; the value given above is the value reported in news sources and public documents, but to confirm an exact value, the City Treasurer’s office should be contacted directly.

  • Prince William County: 1.12891% (as of 7/1/2009); special tax districts may also apply.

    Prince William County–Tax Rates

    Note: The Prince William County base tax rate is 1.212%; however, a county-wide special tax district to fund Gypsy Moth control and another nearly-county-wide (excluding the Town of Quantico) district to fund Fire & Rescue services have been created that add an additional 0.0025% and 0.0746% respectively to the tax rate, resulting in the rate listed above. Additional special tax districts may also apply.

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The default situation: Seller Agency

By default, in both Virginia and DC, all real estate agents by law work for all sellers (even if the agents and sellers have never met before), and have a legal obligation to protect the interests of those sellers; they are considered “seller agents”, and the relationship that they have with the buyer is termed “seller agency”.

Seller agents can provide information about particular properties to buyers, but their primary loyalty is to the sellers of the properties; a seller agent, however, cannot do anything that would be in the interests of the buyer rather than the seller.

Take, for example, a situation where an agent is showing a buyer a house with an asking price of $400k. Suppose the buyer loves the house, and tells the agent to put in an offer on their behalf, but mentions in passing that they like the house enough that they'd pay $420k for it if needed. That agent will submit the offer at $400k for the buyer–but by law, the agent also has to tell the seller that the buyer would go as high as $420k, and advise the seller to counter-offer at that price.

Similarly, if the buyer wants to see whether $400k was a reasonable price for the property, the agent could prepare a Competitive Market Analysis of similar properties that were available or had sold recently–but the agent could not include in that CMA any properties that would imply that $400k was too much to pay for the property–if two similar properties had sold recently for only $375k, the agent would have to omit those properties from the CMA that they prepared for the buyer, and only include higher-priced properties that supported the higher price.

Again, an agent who is in the default “seller agency” relationship with a buyer can:

• talk to the buyer about real estate in general, but only to provide evidence of general market conditions that will encourage the buyer to purchase listed properties;
• show listed properties to the buyer;
• provide the buyer with the “official” information about listed properties;
• provide advice to the buyer so long as that advice does not harm the interests of the seller in any way.

The better alternative: Buyer Agency

Obviously, this isn't a good scenario for buyers, so Virginia and DC (after a lot of lobbying from consumer rights advocates) have done two things to protect buyers.

The first is a requirement (which, sadly, many agents ignore) that before an agent can engage in any “substantive discussion” about a property, they must explain the fact that they are currently representing the seller of that property by default, and acting solely in the interests of that seller. There's also a form that local jurisdictions require that buyers sign, in order to confirm that this “agency disclosure” was made; that form is normally supposed to be signed before any discussions happen, but states have now conceded that it can be signed the first time that an agent and a buyer actually meet in person if the disclosure itself happens on the phone or online.

The other way that Virginia and DC acted to protect buyers is by creating a “buyer agency” relationship, where a real estate agent represents a particular buyer's interests instead of that of sellers. In buyer agency, a real estate agent working with a buyer can:

• talk to buyers about real estate in general, including providing information about potential market downturns and risks;
• provide honest opinions and analyses about the relative values of properties;
• expose the buyer to properties other than those listed by other real estate agents (including showing properties For Sale By Owner);
• show properties to buyers;
• negotiate offers on behalf of the buyer; and
• in general, represent the interests of the buyer to the exclusion of the interests of the seller.

There is no such thing as a free lunch, of course, and so entering into a buyer agency relationship with a real estate agent has some caveats as well. There are three major such twists:

There needs to be a contract

The first unique feature of buyer agency is that it requires a contractual relationship between the real estate agent and the buyer, to sever the traditional seller agency relationship and explicitly specify the duties and obligations of the agent to the buyer. This relationship is established via a contract called a “buyer-agent agreement” (also known as a “buyer agency agreement” or “buyer-broker agreement”).

Entering into a contract like this isn't inherently a bad thing; it's always good to spell out the responsibilities of someone who is working with you. But entering into any contract isn't something that should be done lightly; buyers need to make sure that they understand every paragraph of the agency agreement that they sign, including any obligations that it might place them under. (A good buyer agent will always explain the entire buyer agency agreement to a client beforehand, and in fact this is one of the better ways to find a good agent–if an agent can't explain the nuances of a 3-4 page contract such as the buyer agency agreement to their client, then their ability to explain the 10-20 pages worth of contracts that need to be signed just to make an offer on a property should be called into question.)

The buyer's agent is (ostensibly) directly paid by the buyer

The second twist that buyer agency introduces is in the compensation of agents. Traditionally, a seller of a property hires an agent (a “listing agent”) to sell their house, and offers them a commission based on the final sales price of the house–perhaps 8% of the sales price. The listing agent then offers some fraction of that commission–often 50%, or in this example, 4% of the final sales price of the house–to whichever agent brings the buyer who eventually purchases the property (the “subagent”). This is actually why agency law in VA and DC is biased towards the seller in the way that it is–sellers argued, with some good reason, that if they were paying the commission of the subagent, then they wanted that agent to be acting to protect their interests, rather than those of the buyer, and the courts agreed with them.

A Buyer-Broker Agreement, then, also specifies that the buyer will pay the commission of their agent directly. Many buyers see this as a negative, since they feel that they will have to pay more for a property–the sales price, plus the buyer agent's commission–but the truth is that they actually end up paying essentially the same amount for the property. Since listing agents and their subagents are all paid out of the profits from the sale of a house, and those profits come from the payment that the buyer makes for the house, in reality the buyer is indirectly paying all of the commissions for any agents involved.

Recognizing this fact, listing agents offer to buyer agents an analogue of the commission that they offer to subagents (usually at least as much as they offer to subagents, in fact). Most Buyer-Broker Agreements specify that that “co-op commission” is credited towards the amount that a buyer owes to their agent, so the co-op commission from the listing agent usually subsidizes the amount that the buyer would owe their own agent. (The amount that Ethical Homes agents specify in their Buyer-Broker Agreement, for example, is 3% of the final sales price of the purchased property, and the median co-op commission that we have seen in the metro DC area is 3%, meaning most of our buyers do not have to pay any commission directly to their agent.)

There is still the possibility that the co-op commission is less than the commission agreed to in the Buyer-Broker Agreement, of course. In such a case, the buyer would have to pay to their agent the difference–if a buyer signed an agreement to pay their agent 4%, for example, and then purchased a property offering a co-op commission of 3%, then the buyer would have to make up the missing 1% of the commission.

While that difference technically needs to be paid as a single lump sum at the time of closing, it is not uncommon to be able to increase the purchase price of the house by that extra amount, and have the seller provide a “seller subsidy” back to the buyer, so that the buyer can effectively roll their commission payment into their mortgage and finance it along with the rest of their purchase. At that point, then, the fact that the buyer is on the hook for a fixed commission amount just becomes a matter of always factoring in the co-op commission for a particular property, and adjusting the “effective” price of the property accordingly.

(Our policy at Ethical Homes is to ALWAYS disclose the co-op commission for each property that we show, BEFORE we actual show the property; that way, our clients always know up front what the effective price of the property really is, rather than only discovering that effective price after they’ve already seen (and potentially fallen for) the property.)

Exclusive Agency

The third big change that Buyer Agency introduces into the picture is the concept of Exclusive Agency–almost all Buyer Broker Agreements require that buyers only work with one agent, and specify that a buyer is responsible for the agent receiving their commission after the purchase of any property during the term that the agreement is in effect, even if another agent works with the buyer. Although this at first seems like an overly restrictive requirement, it is much less burdensome than it appears, and actually ensures a better level of service for buyers than the apparent flexibility of being able to work with multiple agents.

The first reason that Exclusive Agency is a good thing for buyers is that real estate agents, like everyone else, are human, and as a result they spend far more time on “guaranteed money” than “possible money”. Buyers often think that by refusing to enter into Exclusive Agency relationships via a Buyer-Broker Agreement–by remaining “customers”, as the local real estate statutes term them, rather than becoming “clients”–they can retain multiple agents to work for them. After all, the reasoning goes, if one agent can find a house for a buyer in a month, the reasoning goes, can’t five agents find a house in a week?

The problem is that agents know that this is what most buyers who aren’t in Exclusive Agency relationships are doing, and so of course if given a choice between spending their time with exclusive clients with whom they are working as partners, or spending their time with a buyer who might turn around and buy from another agent, they will almost always (whether they realize it consciously or not) devote the lion's share of their time to their exclusive clients, and then follow up with their other buyers as an afterthought.

And remember, the law requires that an agent protect the interests of any clients that they have through Buyer Agency relationships ahead of the interests of anyone else–including ahead of customers who have not signed Buyer-Broker Agreements; that means that any new properties that an agent finds have to first be offerred to their Buyer Agency clients, and only offerred to customers if all of an agent's clients express no interest. So rather than getting the services of, say, five agents, the buyer who refuses to sign exclusively with any of them usually ends up with less information and attention than a buyer who is working exclusively with one good agent.

The second reason that Exclusive Agency isn't very restrictive is that, as the name implies, Buyer Broker Agreements are actually contracts between buyers and real estate brokerage companies, rather than between buyers and individual agents. As a result, buyers do, in fact, have multiple agents working for them–they have all of the agents of the brokerage company in question working for them, although only one of those agents (or sometimes a small team of agents) is the “designated agent” who is primarily responsible for helping them.

Finally, some buyers are concerned by the exclusive nature of Buyer-Broker Agreements combined with their long durations, and fear that if they are truly dissatisfied with their agent, they will still be forced to work with them for months. One side effect of the fact that the contracts are between buyers and real estate brokerage companies is that a buyer who is unhappy with the service they are receiving from their agent simply has to inform the managing broker at the brokerage company, and they can be reassigned to another designated agent, with no hassle. Buyer-Broker Agreements are designed, moreover, to be easily terminated, and the courts have held that brokers cannot force a buyer to continue to work with them under a Buyer-Broker Agreement if the buyer does not wish to continue doing so (nor would any brokerage company want the bad press that would inevitably accompany any attempt to do something of that sort); as a result, on the off chance that a buyer is dissatisfied with multiple agents from the same brokerage company, all they need to do is ask the managing broker to release them from the Buyer-Broker Agreement, and they will be free to find a different company with which to work. What the long durations of Buyer-Broker Agreements effectively do, then, isn’t tie the buyer in to a long-term obligation to their agent; instead, those long durations are actually there to ensure that the agent can effectively represent the interests of the buyer during the entire course of the buying process, while the buyer still retains the option to terminate the relationship at any time.

(At Ethical Homes, we also add an addendum to our Buyer-Broker Agreements that makes it extremely easy for buyers to be released from them if they are unsatisfied with their experience. Happily, we have yet to have a buyer actually want to use that escape clause, but we still insist on having it in all of our brokerage agreements.)

Postscript: What About Maryland?

Maryland’s rules about agency relationships are slightly different and more pro-consumer, but with so many buyers looking in multiple jurisdictions in this area, we find that consumers are best served by protecting themselves as if they were going to be working in the less pro-consumer jurisdictions of DC and VA; that way, they are fully protected in all three local jurisdictions.

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