We recently worked with a client who we were able to save from a potentially disastrous situation and it got me thinking. This particular transaction was the ideal case study of the dangers of foregoing a buyers agent and working directly with a listing agent, and I thought that it was the perfect topic for this month’s blog post, as many buyers are unaware of the potential risks that come with this approach to purchasing a home. Before I dive into the details of the risks, I want to share with you our client’s story.
The Initial Stages
We first met at an open house we were hosting and she had expressed her frustrations with the current state of the competitive market and her poor experiences with other San Diego Realtors. From getting outbid by other buyers in bidding wars, to getting beat out by cash investors, to dealing with unresponsive and pushy Realtors in a market with low inventory, it would be an understatement to say that she was feeling discouraged.
As sad as it may be, this is not an uncommon story to hear from buyers that we meet. We find that many of the clients that we have worked with have fired previous Realtors because of their dissatisfaction. After listening to her needs, we assured her that we were more than willing to help and that we were confident that we could provide her with a better experience.
While we shared a few properties with her and the relationship developed, she was very eager and proactive in her home search. She ended up finding a home on her own that was currently off-market, undergoing renovation, and was expected to be listed in the coming weeks. She spoke with the contractor who was on site and was able to be put directly in touch with the listing agent, who also happened to be the owner/ investor who was doing the renovations.
The agent said that if she was interested and wanted to work with her, that she would be willing to sell the property for $15,000 under the price she was planning on listing it. Now, this sounded very attractive to the buyer and who could blame her? We’d all like to get a home at a nice $15,000 discount! But, when you start to peel back the layers, you’ll see why this was more beneficial to to the listing agent than to our client.
While the home was beautifully renovated, there were a few areas that our client noticed that it seems like corners were cut. Because we were not in the picture at this time, she was on her own as she worked with the listing agent/ seller. She probed the agent, asking about a variety of items within the home and was met with a not so friendly and pushy response. With multiple phone calls between them, the agent was very aggressively trying to pressure our future client into contract, with her representing both sides in what is called “dual agency”. It was at this point that the buyer reached back out to us.
We had not been formerly working with her yet, as we were very much in the beginning stages of the relationship when we got a call from her. She gave us the run-down of the situation and a few major red flags popped up in our heads:
- An agent should never be pressuring you into something you are not comfortable with.
- If you have the listing agent represent you, there is no guarantee that they have your best interests in mind.
- Not only was this the listing agent, they were also the seller and investor, meaning they had everything to gain and our client, as the buyer, had everything to lose. We advised our buyer of the risks and ultimately left the decision up to her.
After more pressure and back-and-forth between our client and the listing agent, our client began feeling uncomfortable and committed to working with us. With our help and negotiations, our client was then able to get the home under contract at the same price ($15,000 under asking price), but the real benefit now was that she was well-represented, we were in her corner backing her 100%... (believe me, you don’t want to be up against Melissa in any negotiations! - John)
Not only were we still able to get the home at the price that our client wanted, but we were also able to find some issues that the agent/seller was trying to sneak by that could have been very costly down the road for our buyers. Through a thorough home inspection, a few things were found that needed to be repaired. Despite the agent/seller being adamant that they would not be doing any repairs or offering any discounts or credits, we were still able to negotiate many of the important repairs we requested.
Things may seem fine and dandy at this point, right? Not so fast! After the agent/seller had given us confirmation that the repairs had been completed, we brought back the home inspector for a reinspection during our final walk-through and it was found that two of the biggest and most important repairs had not been completed! One of which we would never have been able to find ourselves, as it was in an inaccessible part of the home (the attic).
This all happened just days before we were supposed to close. We put our foot down and demanded that the repairs be completed before close and that our buyer be reimbursed for the reinspection. In the end, everything was completed to our buyers satisfaction, and she was able to move into the perfect home that she had imagined after a mere two-day delay. Had she not had us representing her, though, who knows what would have slipped by! You can read this client’s testimonial here.
That’s it for story-time, now let’s dive into the risks of using the listing agent to represent you as a buyer!
Risks of Working With a Listing Agent as a Home Buyer
In a competitive market, buyers are looking for any way to increase their odds of getting that perfect home and, if possible, to get it at a discount. After all, that’s what you would want as a buyer, right? That’s why it’s no surprise that we frequently hear of buyers mentioning that they would like to have the listing agent represent them when submitting offers. The thought process here is that if the agent who is listing the property is also representing them, it will make that offer more appealing to the agent and they may even be able to get a discount. While it is a great idea in theory, in practice it can leave you susceptible to some major risks.
For most people, the purchase of a home is a big deal. It often takes years of planning and saving just to be able to afford a home, and that’s before you even begin the home search process. When you do close on a home and are given the keys, it is a major milestone and achievement in your life. The last thing you want to have happen during this time is for you to get screwed over because you had no representation, no one in your corner to fight for you and represent your best interests. That is why we always suggest that a buyer work with a strong Realtor who can protect them from these risks and provide guidance through the transaction from start to finish.
What is Real Estate Agency?
In a real estate transaction there are always two parties involved, the buyer and the seller. Along with the buyer and seller, there are typically 2 Realtors involved, a listing agent and a buyers agent (also referred to as a selling agent). A listing agent is contractually obligated to represent the seller’s best interest in the transaction whereas the buyers agent is contractually obligated to represent the buyer’s best interest. When you have one agent that is representing both sides, you have what is called “dual agency” and that particular agent is contractually obligated to represent both sides. This is easier said than done, though.
Conflict of Interest
What stands out to me the most when buyers talk about working with the listing agent to help their offer get accepted, is the conflict of interest. Here is an agent who already has a contractual obligation to represent the seller’s best interests and has likely been spending a few weeks or even months working with the seller to prepare their home for sale, and now the buyer, someone who this agent has likely just met and has no relationship with, is asking the agent to also represent their best interest. See a problem here? Who do you think is going to get more of the attention?
Think of it this way. If you were defending yourself in court, would you hire the prosecuting attorney to defend you? No matter how ethical the agent, it’s a tough line to walk.
We’ve all heard the term “money talks” and have likely seen firsthand what money and greed can do to people. When a listing agent has the opportunity to also represent the buyer in the transaction, they have a chance to grab both ends of the commission. Obviously this is very attractive as an agent, but as with the conflict of interest in the paragraph before, can it really be done ethically? If, when presenting the buyer’s offer to the seller, the sellers then ask the agent to try and get the buyer to come up in price, who is the agent now fighting for? More than likely the seller, as they are the one who is paying the commission, and the higher the price, the more money the agent stands to make. Why would that same agent want to fight for a lower price for the buyers if it means less money for them?
Walking a Fine Line
Aside from the money involved in a transaction, there is also the time for your due diligence as a buyer where you can conduct your inspections and do your research. If anything is found during the home inspection, when working with the listing agent, you may find it hard to negotiate the repairs. The agent may downplay issues making them seem insignificant or common issues for the area. This leaves you as a buyer in an uncomfortable situation. Is the agent telling the truth? Are these issues really minor and something you shouldn’t worry about? Or are they trying to pull a fast one and save the seller’s money? It’s hard to really say, after all, they are the real estate professional with likely much more experience than you.
The Legality of Dual Agency in Real Estate Transactions
Dual agency is legal in all 50 states, with some states enforcing some additional restrictions. Here in the state of California, it is legal as long as it is properly disclosed. This is very important! Should an agent be representing both sides of the transaction, it is an absolute must that all parties in the transaction be aware through proper disclosure. Failure to disclose dual agency is illegal and can lead to the agent’s license being revoked.
Final Thoughts on Dual Agency in Real Estate Transactions
Although there are both buyers and sellers that have had positive experiences with dual agency transactions and situations where it can make sense, as a general rule it is not advisable unless you are a very seasoned and experienced homebuyer or investor. If you are considering this approach, be sure to do your research. If you are having any hesitations or questions regarding the process, reach out to us! We are always here and happy to help you through one of the biggest and most exciting transactions of your life!
The above real estate information on Buyer Beware: The Dangers of Using the Listing Agent as a Buyer was provided by John and Melissa Steele. John and Melissa can be reached at firstname.lastname@example.org or by phone at 619-887-4429.
Steele San Diego Homes services all of San Diego county and also works with out of area clients to connect them with a strong local agent. Whether you’re interested in buying, selling, investing, or just want to learn more, John and Melissa Steele are here to help you.