It’s a practice that since 1996, has been commonplace in Real Estate. You’re a buyer looking for a house. Maybe you’ve connected with an agent that has dropped you on their mailing list to keep you up to date with new listings that come on the market. Maybe one has even shown you a couple houses. Either way, you’ve also been looking on your own. You’ve been going to open houses and talked to many listing agents who are more than willing to answer your questions and seem very interested in getting to know you more. So why then, when you find that perfect house and view it, would you leave and call up another agent that may or may not know about that house when the listing agent is right there and could give you a better opportunity at being able to get an accepted offer?
Well, let me dispel some myths for you;
MYTH: The listing agent will give you a better opportunity and/or better chance of getting your offer accepted.
FACT: The listing agent must BY LAW, present your offer equally and show no bias toward your offer over any other offers that come in. They must present offers factually and advise only on the content of the offer, not by who’s offering it or who is representing the buyer. If another better offer comes in, the agent still wins because the other offer is better and they have no ties to you.
Another myth that goes along with this is that you’ll get a better chance because it’s double commission for the listing agent. Well, one part of that is true. The listing agent does stand to make more money off the deal if they also represent the buyer in the sale, but that’s not a benefit for you, it’s a benefit for them. Even IF they end up getting your offer accepted over others, their loyalty still lies with the seller. You are generally on your own once an offer is accepted. If something goes wrong with the deal, the listing agent can find another buyer. It is very likely you’re not the only one they’re writing an offer up for. It will be harder for the listing agent to find another seller if they lose the listing. Therefore they are more likely to side with the seller in any dispute or issue that may arise once an offer is accepted.
MYTH: I worked with an agent that promised me the same level of service, if not better than any other buyer agent could offer.
FACT: If you’re a buyer working with an agent OR agency that also carries listings, you likely have signed away fiduciary rights you have a legal right to. When working with an agent, any quality agent is going to want you to sign an agency agreement. If there’s a chance your agent could also end up being the listing agent in any deal… or even the agency for that matter, you will have to sign a page that states you’re willing to sacrifice certain fiduciary duties owed to you, so that the agent or agency can represent you on both sides and make double commission from you. The reason you have to sign off on that is because what becomes dual agency in this case is actually illegal… but! In 1996, the Realtor association appealed that law in Congress and allowed dual agency slide AS LONG AS IT IS DISCLOSED TO BOTH PARTIES. In the end, once again, the agent wins a double paycheck and you get a house… when you likely could have gotten the same house with full representation and no more money out of your pocket… furthermore, commissions are based on sale price. An agent advocating for you from an outside firm may have been able to get that house for you for a lesser price as they would have no qualms negotiating the price lower for you. That outside agent that only represents you also may have good connections to lenders and attorneys that could end up saving you even thousands more. Listing agents generally are focused on making money, not saving money. E.g. they promise their sellers to get as much for their house as possible and a double paycheck will increase significantly more with each thousand they make you go up on price as the commission goes up on both sides. An outside buyer agent will of course make a little more if the sale price is higher, but it’s not double AND they have likely built their business on saving their buyers money. To go against that will hurt future business for them.
MYTH: If it was really as bad as you say, no one would be doing it.
FACT: The Real Estate industry is a multi-billion dollar industry and most people don’t know the difference. Most agencies aren’t very eager to explain the pros and cons of specific types of representation, especially the type of representation that is making them millions more than they would be otherwise. In fact, I just came across an article from a blogger calling himself ‘Darryl Speaks’ selling advice to real estate professionals trying to justify why they should NOT stick to buying or selling, but should do both… and you know what it came down to? It wasn’t the benefit of the consumer, it was about making more money for the agent;
“We could make a list of pros and cons for each, but the answer is pretty clear when you think about it from a money-making perspective.” — Daryl Speaks
In this article they were talking about doing the selling side or the buying side. They compared it to buying shoes; “Let’s say you decide to sell shoes for a living. You can accomplish this in one of two ways — you can find a vacant property to lease, decorate it with the latest shoe store fashion, set up all the shoe racks, purchase a vast number of shoes wholesale, hire staff, and host a big grand opening and advertise your business and draw customers to your shore to buy your shoes. You keep up with inventory to restock your shelves as shoes are sold.
The other way is to find someone who is looking to buy a pair of shoes, take them in your car and drive them from shoe store to shoe store to find that one person a pair of shoes they love, then once they find a pair, they pay you for your service!” — Daryl Speaks
Except that the way it works in Real Estate really can’t be compared to shoes. Using their shoe analogy, let’s look at it from a realistic home buying angle. You walk into their store and they have a wide range of shoes. How can I help you? They say. You respond; ‘yes! I’m looking for a pair of shoes.’ Great! They respond, let me show you what we have! As they’re showing you, you go on to explain your ideal pair of shoes. As your explaining your ideal pair, the agent is showing you shoes that aren’t quite what you’re looking for. You decide to go home and think about it more. You do some online searches and find your ideal pair. You go back to the store and tell them you’ve found the perfect pair. They tell you with disappointment; ‘oh, we don’t carry that. They then go onto show you other shoes they do carry… but you’ve already found your perfect pair. Why are they looking for others for you? They’re doing that because they know if you go to a different store to buy, they lose your business.
Now that same scenario with an outside shoe salesman. In this article, they go onto say a buyer agency is a disadvantage to the agent; “ If you have no listings, you have no shoes to sell, and you spend all your time searching for “shoe” buyers rather than letting them come to your “shoe store,” aka – your listings.”
That is true… but is that really such a bad thing? This shoe salesman… that has no shoes to sell, but makes his money off of shoe buyers who come to them has the world at their fingertips. They aren’t married to one shoe store. They can help you find your perfect shoe regardless of who is selling them, then help you buy them. The store has only one pair of shoes left and they are your perfect pair? The shoe store might try to sell them off to one of their own clients, but your shoe salesman has dealt with this scenario before. They know how to play the game and win. It benefits both the shoe store and the shoe salesman to sell this pair of shoes. It benefits your shoe salesman more to sell them to you because you want those shoes specifically and they’re working with you. The shoestore wins either way. This is how it is in real estate. A real estate agency who holds a listing wants to sell that listing. If they get it under agreement, they win whether it was from an outside agent or not. The difference is, if you come in with an agent that just advocates and works for you, you stand to benefit from the commitment they have to getting you that house, because the only way this agent benefits is if YOU win.
