A home is typically the largest financial investment of your life. It can be extremely stressful and it’s always challenging to keep your emotions out of the process. Finding the right Realtor to represent you is essential to protect you throughout the home buying process. When it’s time to make a move you need to know that you have someone on your side whose experience you can trust. You’ll have tough decisions to make throughout the process and you’ll want someone who makes the current market in your area not only their business but their life.
Let’s first look at this from the seller’s perspective. They’ve hired a Listing Agent. This person has the responsibility of placing the home on the market and trying to get the seller as much money for that home as possible as their fiduciary. The person representing the buyer is known as the Buyer’s Agent. It’s their responsibility to make the home buying process as easy as possible for the people they are representing, and hopefully to negotiate them the best deal on the home, as their fiduciary.
Sometimes, the same person who is representing a listing for a home on the market will find the buyer for that home. When the same person handles the sale and the buy for the same transaction they make all of the commission on the home and it’s called Dual Agency or a Transaction Broker. Dual agency is actually illegal in the State of Florida, while being a Transaction Broker is not. The distinction can be hard to see for some but it has to do with whether the agent has complete confidentiality with their customer and whether there is a fiduciary relationship. With a Transaction Broker (which is what is legal in the State of Florida) there is NO full confidentiality or fiduciary relationship formed, the broker is merely there to facilitate the transaction but cannot work to the detriment of either party, nor can they give you much advice on pricing because they cannot take sides.
Think of it like this. Let’s say that unfortunately you are involved in a lawsuit – maybe your neighbor sued you for encroaching on your land. Would you use your neighbor – the plaintiff’s – attorney to defend your case? No way – that would be silly, and a conflict of interest! It’s the same when you call the Listing Agent’s number on the sign of the house you are in love with. Unless you are prepared to handle all negotiations on your own, against someone who is probably a more skilled negotiator than you are since they do it for a living – why wouldn’t you have your own representation? Not to mention, it’s free for buyers to use a Buyer’s Agent, because Buyer’s Agents are paid by the Seller in most states.
There are many reasons a buyer should beware of engaging in working with the Listing Agent to buy their listing, and yet many people believe that they can get a better deal by going straight to the listing agent. Ultimately, the choice is up to you but before you decide to contact the listing agent directly you might want to educate yourself on the pros and cons.
Pitfall #1: You think you’ll get a better deal
Many buyers go straight to the listing agent because they believe they will be able to negotiate a better price by not bringing their own representative to the table. In reality, it typically backfires. The listing agent represents the seller and wants to get the deal closed as soon as possible to collect their commission and move onto the next property. So, be prepared that any information you share with the listing agent can and more than likely will be passed onto the seller. This could give the seller the upper hand especially if you let on that you’re really interested in the property.
Remember, the agent has already negotiated their commission with the seller. Let’s assume a scenario where a Seller is paying their listing agent a 6% commission. Some buyers mistakenly think they can negotiate a piece of that 6% if no other broker is involved who would normally receive half that amount – but why would the listing agent give up their money? What the listing agent gets paid does not go down to a 3% commission if there is no agent on the other side, rather, the listing agent does what is called double siding the commission. Now, as the buyer, you’d have no one representing your best interests, and the listing agent represents the Seller’s interest, and that of their own (and their full commission).
Finally, the more the agent sells the home for – the more money they make. It’s a conflict of interest that doesn’t favor the buyer at all.
Pitfall #2: You could end up paying more… A LOT more
If you engage in a single-agent transaction for a good deal you might get the exact opposite. Instead of saving money, studies show you could pay a premium of up to 20%! Don’t take our word for it…
Check out this study by Bennie Waller that was referenced in a Bankrate article:
“Data are mixed on whether buyers in single-agent transactions end up paying more, according to Bennie Waller, a finance and real estate professor at Longwood University in Farmville, Va., who has co-authored two papers on the topic. But the reason for the mixed results, says Waller, most likely has to do with the time the property is on the market. Single-agent deals that happen within 30 days of listing typically sell for a 10 to 18% premium. But when the property sells within the last 30 days of the listing contract, the price actually drops by 5 to 6 percent.”
Pitfall #3 Be prepared to show all of your cards
Imagine sitting down to a game of poker. Everyone is dealt their hand. In this case, the seller gets his cards, the dual agent gets theirs and the buyer gets his. Here’s the catch… as the buyer using a dual agent or transaction broker your hand is sitting face-up on the table. It’s going to be very hard to win when everyone your trying to beat is staring at your cards.
The agent is not going to be able to suggest prices or tell you what they think you could actually get the home for. Instead, you’ll have to do all of the research on your own and they will get paid for it.
Pitfall #4 The Inspection Process
Remember, the dual agent REALLY wants this sale to happen. They ONLY collect commission when you actually close on the property. So, when you start to go through the inspection process be prepared for the agent to downplay any issues with the home. It’s typical for the inspection to reveal a laundry list of items that need to be fixed. You’ll have to do the research and get the quotes and make sure any “tiny issues” aren’t actually very costly issues. Negotiating your way through the inspection process and figuring out what the seller might pay for and what they won’t is likely going to be a lot more difficult when you can’t trust your agent to be completely transparent with you. Remember, their job as a transaction broker is to be neutral so you really are on your own.
Pitfall #5 Know what you’re in for…
We’re talking about the biggest investment of your life here. Sure, there are situations where you can make using a dual agent (or transaction broker, in the State of Florida) work. The question is… Why would you want to? The home buying process is stressful and it will likely get very tense before you get to pop the champagne and use your new keys to open your front door for the first time. If you’re going to go straight to the listing agent just know what you’re in for.