Who does your real estate agent really work for?
If you are a potential home buyer, you need to understand the difference between dual seller, buyer, and real estate agents. Using the wrong type of agent could affect the financial terms of the deal and have significant legal implications. Read on to arm yourself with an understanding of the difference and how to use it to your advantage when buying a home.
In recent years there has been a lot of talk about buyer’s agents and seller’s agents. Real estate law has evolved to require an agent to indicate who they represent. This is usually done early in the process through a disclosure document that you must sign that clarifies whether the agent is working for the buyer or the seller. A seller’s agents represent the seller. Most real estate agents who show and market homes are sellers’ agents. They may be friendly to you as a potential buyer, show you various houses, and help you through the bidding process. However, they usually work for the seller and look out for the seller’s interests. Rather, buyer’s agents actually work for the buyer and have a fiduciary responsibility to look out for the buyer’s interests. There are also dual agents, but we’ll get back to that in a moment.
Typically this has nothing to do with who actually pays the agent. So why does it matter? If you are the buyer, it is important that you use a buyer’s agent due to the financial, legal and ethical implications. The seller’s agent has a fiduciary responsibility to the seller, not to you as the buyer. This means that during negotiations, the seller’s agent will look out for the seller’s interests. Here is a real life example to help clarify. Suppose an agent discovers that the salesperson must move out for a new job, has become highly motivated, and is now willing to accept $ 15,000 below the list price. If the agent is a buyer’s agent, working for you, they will be obligated and probably excited to provide you with this information. However, if the agent is the seller’s agent, working for the seller, he does not have to disclose this information to him and may withhold the information initially in an effort to obtain the highest offer from you.
So what is a dual agent? Every once in a while, you will find an agent who says they are playing a double role; which means that they act as a buyer and seller agent. Be careful in this situation. As a buyer, you may want to avoid a dual agent. Realistically, the dual agent cannot fully represent the interests of the buyer without adversely affecting the seller and vice versa. There are some excellent agents who can operate effectively in the dual role. However, as a buyer, you need to be aware of the potential conflict. If you want the lowest price on a home, look for a good buyer’s agent whose loyalties are uniquely aligned with you.
You may be wondering who actually pays for a buyer’s agent. Typically, the sales agent lists the property in MLS (“multiple listing service”) and agrees to split the commission with the agent who brings the buyer. In this scenario, the seller’s agent and the buyer’s agent split the real estate commission 50/50. This means that even though the buyer’s agent works for you, the seller actually pays for the buyer’s agent. Occasionally, you may come across a list where the sales agent does not agree to split the commission with the agent bringing the buyer, and in that case, you will have to negotiate who will pay for the buyer’s agent.
Understanding the financial, legal, and ethical implications of the buyer, seller, and dual agents is important to you as a home buyer. Before you start looking for a new home, find a good buyer’s agent with at least 10 years of experience in your market. They will be aligned with your interests and will have the experience to help you negotiate the lowest price for the home.