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Why Buyers Do Not Save Money By Working Directly With Listing Agents
Dated: May 28 2018
Why do so many buyers think that working directly with the listing agent they can save a bundle? Like most urban legends, this one just can’t seem to die a natural death.
The scenario goes something like this: The buyer “hires” a buyer’s agent (sucker) to open a few doors and drive them around. Once they find the house they are interested in, they ditch the buyer’s agent and call the listing agent directly. They then fantasize that they can pocket the buyer’s agent share of the commission all for themselves. The few that actually pull this off congratulate themselves at so cleverly “beating the system” by posting their success story on every real estate platform they can find. The legend lives on.
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Although the fantasy of pocketing anywhere from 2-3% of the sales price is non-starter, it still begs the questions: Is working directly with the listing agent really a good idea? Can it save you money?
The answer is complicated. Some people will save some money on the transaction, but two questions remain: How much can they really save? At what cost to them?
Basically, it all comes down to risk. If you choose to represent yourself, you are taking on a greater risk than when you work with an agent. Further, since most people don’t know what they don’t know, the answer to the second question can be elusive.
Buyers almost never pocket the entire buyer’s side commission..
Most buyers forget that the listing agent has a contract with the sellers. That contract generally includes a contingency for when the agent negotiates directly with the buyer. Usually, the listing agent offers has a reduced commission to the seller for such a contingency. So most buyers can forget about pocketing the entire sum.
Working with both the buyer and the seller is far more time-consuming than working with the seller alone, so most listing agents are not going to reduce their commission much further than what they agreed to in their contract with the seller.
The end result is that the amount of savings available to most buyers is usually far less than they imagine. Meanwhile, they give up representation that could save them a great deal of money and heartache to pocket a couple of thousand dollars.
With this in mind, be aware that there are several ways in which a buyer might work directly with a listing agent.
Working with the listing agent as a customer..
This is perhaps the most common way a buyer interacts with a listing agent. The buyer is viewed as a customer rather than a client. As such, the fiduciary obligation of the listing agent remains with the seller.
In other words, the listing agent is obliged to represent the seller’s best interests even if it at the buyer’s expense. That means the following:
The agent is obliged to tell the seller everything that might be material to the sales price and terms including:
Your motivation for moving
Your timeline for finding a new home
Your bottom line price-wise
Your eagerness to purchase their home
The list goes on…but you can see where this is going. It is going to the advantage of the seller at your expense.
Please understand that this is not dishonest and it is not double dealing. It is our JOB. When I have a listing, my fiduciary obligation is to the seller only. We owe customers fair and honest dealing but nothing beyond that.
Some states don’t allow dual agency, and with good reason. Dual agency is a minefield for an agent and I believe that most ethical agents try to avoid it at all costs. Unfortunately, it is legal in New York.
What is dual agency?
Dual agency occurs when an agent attempts to represent BOTH sides of a transaction as a fiduciary. In other words, they are trying to wear two hats, that of the listing agent and the buyer’s agent.
Conflicts of interest..
The potential for a conflict of interest is extremely obvious. How can any fiduciary serve two conflicting masters? I don’t see how this can be done effectively which is why I have never done it.
Instead of an advocate on your behalf, you end up with something of a neutral party who can give very limited advice and information to either side. The only person who benefits from this arrangement is the agent who gets to collect both sides of the commission pie. Since a dual agent acts as a full fiduciary to neither side, I find the fact that they can get to double-dip absolutely staggering.
Beyond the obvious issues, dual agency can impact the course of the transaction in unexpected ways as well. “Your agent” may be unable to answer questions that a normal buyer’s agent would be expected to answer because of a potential conflict of interest with their other client.
How do you manage an inspection? If something significant comes up on the report, how does the agent advise BOTH the buyer and the seller to put each of them in the best negotiating position without betraying their fiduciary obligation to their other client? In many cases you will get half answers or be on your own.
When the listing agent and buyer’s agent are from the same brokerage..
There is one big exception to all of the above. That is when the listing agent and the buyer’s agent are from the same brokerage. This is technically considered dual agency even though each side has representation.
This is not an uncommon occurrence. In some locations, where one or two brokerages dominate the area, a buyer is very likely to encounter this situation. In this case, both the buyer and the seller each get their own agent who is acting as a fiduciary on their behalf.
New construction is a unique situation. Most developers have a staff of agents that work for them. They have an onsite office where they try to reel in buyers without having to pay an agent. But buyers need to be aware that that nice agent at the building site has a fiduciary obligation to represent the builder. They can not and do not represent you.
Don’t just stop by the sales office for a quick peek..
I can’t tell you how important this is. Once you have visited a new construction site and have signed in with the agents that are onsite, you have generally given up your right to have a free buyer’s agent at the seller’s expense.
That’s right. Once you signed in with their agents, they feel that they have “procured” you as a buyer and are not willing to pay a buyer’s agent.
So many clients won’t listen to us on this issue. Most buyers figure that just a quick look shouldn’t seal a relationship. But in the case of new construction this, is not the case. I understand that the temptation to take a quick look around can be overwhelming, but please wait for your agent to make an appointment and go with you!
You can still have representation, but the money to pay the commission will be your responsibility. It’s potentially a very expensive mistake. This is the case with almost ALL new construction sites. So beware.
Negotiating new construction is as challenging as resale..
Many buyers fail to see the need for a buyer’s agent when they look at new construction.
New construction can be as much of a mine field as the resale market. In some cases more so. So working with an agent who knows the development is a good idea. Here are just a few of the issues that can come up:
Sometimes final sales prices are hard to come by because not all sales in new construction are on the MLS. A buyer’s agent can conduct more research on your behalf to determine market value.
The number of units that have actually “sold” can mean just about anything from a simple refundable binder to a full blown sale.
There are sometimes lending issues if the complex is not even half full.
Don’t think just because it’s new, it’s perfect! You need a good inspector just as much as you do with any other home purchase.
So that about sums up the three most common ways in which a buyer might work directly with a listing agent. As you can see, there are many potential pitfalls when going it alone. So I hope most recognize that having a good buyers agent at your side is worth the couple of thousand you might save in the short run.
Written by Ruthmarie Garcia Hicks
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