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Mark Thomas' Blog

By Mark Thomas | Broker in San Francisco, CA

The Tremendous Conflict Of Interest Between Buying Agents And Their Clients

The real estate process is riddled with many archaic, asinine aspects of it that would make any intelligent person take a step back and go, “Are you kidding me?”  The obvious ones are the ridiculously high 6% commissions that sellers need to pay, the lack of visibility into the process, etc.  While those 2 aspects are definitely bad, nothing is more absurd than the fact that the Buying Agent is paid a commission for his/her work based on the final sale price of the property.  Even though it’s true that the Buying Agent’s commission is paid for by the seller, there is still a tremendous conflict of interest between the Buying Agent and the Buyer because of the fact that the Buying Agent earns a higher commission when the Buyer pays a higher price for the property.

I made a comment over on Cassy Rowe’s blog on Trulia yesterday about this very topic.  It was in reference to her first point regarding distrust among agents and Buyers.  Is there any wonder that this distrust exists when the most obvious of conflicts of interests are staring us right in the face regarding how this relationship is organized?  Here’s an excerpt from my comment on her blog:

“. . . in what other industry is the person that is supposed to look out for your best interest and get you the LOWEST price possible, actually making more money the HIGHER the price that you pay? It’s nuts. And even though there are plenty of Buying Agents who are completely ethical and follow the guidelines of fiduciary responsibility, the reality is that we’re all humans, and as long as there’s the PERCEPTION that Buying Agents make more money the higher price that you pay, there will never be that trust.”

This last sentence is key — as long as there is the perception from Buyers that their Buying agent is profiting off of their higher sales price, the distrust will never go away.  And when you have no trust, you have no relationship.  So is it any surprise that more and more buyers are taking the process into their own hands and phasing out many of the responsibilities that a Buying agent performs?  Buyers no longer are relying on Buying Agents to give them a list of properties that they should view, or driving them around to open house appointments — more Buyers are doing the legwork themselves, and just bringing their agent into the process when it’s absolutely necessary.  This includes Buyers researching comps and county records on their own to determine what the final purchase price should be –> not relying on a recommendation or research from their Buying agent.

As more and more Buyers become comfortable with managing the process themselves, the role of the Buying agent will become less and less, to the point where they’ll eventually be phased out altogether.  The exception to this will be one-off questions that Buyers may have, which many real estate technologies are already solving for through hourly, flat-fee, or per-use models, generally paid for by the seller.  This is a welcomed change for the industry that has long been stuck in its archaic way of doing things, and this change will greatly benefit consumers in the long run.

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