You found the home, like, THE ONE. You were looking on Zillow casually and you haven’t talked to an agent about representing you yet, but you found it. You go to the open house and you talk to the listing agent who’s hosting the Open House – he’s really nice. He seems to know what he’s doing and you decide quickly that you’re just going to work with him to write an offer on this house. Why involve another person when he already knows all there is to know about this house?
LET ME TELL YOU WHY.
The above is a trend we are seeing pop lately – buyers using the listing agent as the only broker of the deal. I’ve personally encountered this trend four times in the past six months alone and data from the National Association of Realtors seems to suggest that as many as 10 percent of residential transactions could be single-agent deals
On the surface it seems harmless, like it may save both parties money which means a better deal on the house, right? WRONG. If you were being sued, would you ask the same attorney of the person suing you to represent you both? That’s exactly what you’re doing here. The listing agent works for the seller and has a fiduciary duty (meaning a financial obligation) to the seller. think – CEO has a fiduciary duty to their shareholders to make them the most money possible.
Once you hire the agent to work for you and the seller, it depends on where you live as to how the broker will act. In most states (including Indiana) Dual Agency is the prevailing choice – meaning the broker has a fiduciary duty to BOTH parties to the transaction (I’ve personally never understood how you can act in the best financial interests of competing parties equally). In Colorado, Dual Agent is illegal and the broker representing both sides of the transaction is called a Transaction Broker – meaning they have NO fiduciary duties to either party any longer and now they act as an information carrier between the two parties.
While this type of transaction can work – if all parties are highly ethical – it’s important to note that this model always, always, ALWAYS benefits the seller – almost never the buyer. And it almost always benefits the listing agent’s bank account. The listing broker (whether hired as a transaction broker or in dual agency) does have an obligation to present material defects of the property and to conduct honest dealing with all parties. However, my idea of ethical and honest might greatly differ from someone else’s. Remember that agent was hired by the seller and they likely have a closer relationship. Human nature shows us that it’s nearly impossible to be completely impartial when working to broker a deal between a ‘friend’ and a stranger. Right?!
Now, let’s talk commissions. You need to know that the agent most liked isn’t taking a smaller cut – they are taking a larger one. And frankly this is with good reason. The agent brokering this deal now has a larger job than they did before they took you on as a customer. They have to look out for double the landmines. Every deal is different, and every agent is different but, in my experiences I’ve seen the agent take their listing commission and half of the buyer’s agent commission. So, sure it saves 25% of the broker cost but, that’s not much on most homes in savings. And the seller pays both agents so, it always benefits them. Do they pass that cost savings to the buyer? Not usually.
The rebuttal I often hear from these buyers when I object to this type of transaction is that buying a house is fairly straight forward. You’re smart, maybe you’ve even done this before, and you should be able to represent YOURSELF – and this is entirely true. This transaction can work for some people. Remember in the beginning, I told you I’ve encountered this scenario four times in the last six months – that’s because they were friends or acquaintances who have come to me for advice (which no agent can legally give at this point) about a transaction they are currently in. Something came up on inspection, the title work came back with exceptions, the property didn’t appraise or the transaction closed and now they think the agent wasn’t truthful about a defect in the house. Remember, even when you hire a buyer’s agent you are working for yourself. What your agent is doing is guiding you through the process and taking out potential landmines you never knew existed. They also know the laws and local ‘norms’ of how contracts are written and executed. As someone licensed in two states I can tell you a local expert is important.
This trend is on the rise and it’s quite frankly scary to me. I have been asked to represent both sides of a deal and I have declined. I will take the commission cut and bring another broker in to act on the behalf of the buyer. It’s less work for me, it’s safer for everyone and is much fairer, in my humble opinion. No one can say I’m withholding information, or didn’t act fairly and everyone will feel like they have fighting for THEM – because they do. And if your agent isn’t selfish and is actually working for your best interests they won’t accept these type of transactions either.
Written by Sarah Whitely, SarahWhitelyHomes.com
