Agency 101 : Who Works for Whom, How, and Why ... Baron Chestney's Blah Blah Blog #18
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You asked for it, so here it is: real estate agency defined and explained once and for all! Sit back, relax, clear your mind, and get ready, for the truth shall set you free... The term "agency" in real estate refers to the relationship between agent/broker and client. The "listing agent", also known as the seller's agent, represents the seller. The "selling agent", also known as the buyer's agent, represents the buyer. Simple enough. However, it starts to get tricky when the lines begin to blur and the roles get mixed up and crossed. Remember, as a home buyer, you have a right to be represented by whomever you want -- you get to choose your agent. The seller of a house has already signed a contract and entered into an agreement with a listing agent. Things get REALLY tricky during open houses, though... Who is hosting the open house? Is it the listing agent? Some other open house host? It could be either, or both. As a home buyer, the best thing you can do is proceed with caution. You can ask questions, but try not to answer too many, and try not to give out too much information about yourself. Why? Because it can and will be used against you. The open house host, whether it be the listing agent or someone else, is NOT your friend. Remember that at all times. When asked whether or not you have an agent, the best thing to say is "yes", or "we are working with someone", or "my friend is my agent". It will avoid a lot of confusion and a lot of trouble for you -- and it will save you a lot of money, as well! You have a right to be represented by the agent/broker of your choice. You should NOT be pressured, coerced, tricked, fooled, or even "charmed" into using someone you really don't want to wortk with, and who does not have your best interests at heart -- or even worse, someone who is actually working for the seller and has the SELLER's best interests at heart -- by definition and by law!
You and your husband attend an open house. You are greeted by the open house host, a charming woman with a botox smile who explains to you that the listing agent is busy hosting an open house at his other listing across town, but she would be happy to answer any questions or help you in the meantime. So, this woman is hosting the open house, but it is NOT her listing. So, what is her game? Well, she is looking for clients. She would be happy to represent you as the buyer for this particular house, or, if you don't care for this one, she will gladly offer to show you some other houses. She would be happy to represent you as your buyer's agent on the purchase of whichever house you like, in fact -- pick a house, any house -- just pick one and buy one, and let her represent you in the purchase. That is what she is hoping to do. Open house hosts who are NOT the listing agent are almost always, in fact, younger and/or less experienced agents who are new to the business. They work out an agreement with the listing agent -- the experienced, veteran listing agent might have several listings and cannot host open houses on all of them at the same time, and the rookie agent does not have any listings of his/her own, and is trying to meet new home buyer clients and build up a clientele of his or her own, so this type of arrangement works well for both the listing agent and the open house host. Although lacking in experience and knowledge, perhaps the open house host is a "nice guy" or "nice gal", and seems likable enough -- that's exactly what he or she is hoping you'll be drawn to. Maybe, just maybe, he or she will really luck out, and you'll want to buy the house that is being held open! OK, fair enough. Sure, it's not right for him or her to try to get you to "dump" your current agent, but he or she is going to at least try. Weasels will be weasels, after all... He or she is hoping to "make friends" with you quickly, convince you that he or she can help you find what you are looking for, and then get a commission by representing you as your buyer's agent in the purchase of one of those homes. However, they aren't really offering you much more than just their "friendship", are they? After all, they are inexperienced rookies, and they had to "borrow" an open house from a more experienced agent in their office (or another office of their company) just to get the gig hosting the open house in the first place. Is that really the kind of agent that will have the knowledge and experience to represent you in making what is probably the biggest purchase of your life? Is that really someone you can count on when it really counts? No, not at all. You need a veteran buyer's broker with decades of experience who will represent you and only you, with your best interests in mind at all times. You want someone who will show you some great homes, negotiate aggressively on your behalf, work for you and only you, and be there for you every step of the way, through the offer, negotiations, property inspections, escrow, etc,, and all the way through to the successful completion of the transaction. Use the Baron as your buyer's agent, and you not only get full service, but you also get a rebate, to boot!
Now, what about the listing agent himself? Why the listing agent would host an open house is obvious -- he wants to sell the house, and thereby earn a commission for doing so. But, is that the listing agent's ONLY motivation in hosting the open house? Of course not. He does indeed want to sell the house, but in addition to that, he or she wants to make "friends" with you, and then quickly become your AGENT, as well, thereby supposedly representing the seller as listing agent, AND you as buyer's agent, in the purchase of the house. So, he is hoping that you do not have an agent, or that you will dump your current agent and work through him, instead. The listing agent who is hosting an open house on his own listing is a chess MASTER, thinking WAY ahead of you, toying with you and baiting you and manipulating you, leading you into a trap, and using you as a pawn! Remember, the listing agent is going to get paid when the listing sells, no matter who buys it, because the listing agent already represents the SELLER. The listing agent also has a far more sinister, far greedier, and ulterior motive in mind. The listing agent wants to quickly become good friends with ANY and ALL potential buyers who attend the open house and display any interest whatsoever in the house for sale. Why? Because the listing agent is hoping to convince you AND ANY OTHER potential buyers to use him as your buyer's agent, even though he is ALREADY representing the seller as well, as the listing agent, such that he will then be "representing" BOTH the seller AND you, the buyer -- with the end result being that he will be collecting BOTH SIDES of a full 6% commission! Let's quickly do the math on that: assuming a full 6% commission on a $900,000 house, the listing agent is going to slip, squirm, and slink away like a weasel in the night with $54,000 in total commissions!!! Now THAT is a chess MASTER!!! Talk about putting a price on "friendship"!!! The listing agent who is hosting his or her own open house wants it ALL -- he ALREADY represents the SELLER, so he will be getting one side of the commission (the seller's side) when the house sells, no matter WHO buys it, and he can get the FULL commission (BOTH sides -- the SELLER's side commission AND the Buyer's side commission) if he can only convince YOU that he or she is your friend... Don't believe it, though! Why not? Well, here are a dozen good reasons, for starts...call them the "dirty dozen", if you will... 1. The listing agent works for the SELLER only. 2. The listing agent has a fiduciary (financial) duty and responsibility to the SELLER only. 3. The SELLER pays the listing agent's commission. 4. The greater the sales price the listing agent obtains for the SELLER, the more money the listing agent makes. 5. The listing agent only gets paid if he/she sells the seller's home. Therefore, any "impediments" to the sale of the home (for example, an expensive termite bill, a leaky roof, a cracked foundation, etc.) could potentially prevent the listing agent from getting paid. 6. The listing agent has NO financial (fiduciary) duty or obligation to the buyer. 7. The buyer does NOT pay the listing agent's commission -- the seller does. 8. It is NOT the listing agent's job to guide or assist the buyer with property inspections, interpretations of disclosures, review and analysis of market comps, offer and pricing amount, terms, and strategy, etc. 9. Though providing NO services whatsoever for the buyer, the listing agent, if he/she "represents" the buyer, will STILL be paid the buyer's agent's commission, anyway, IN ADDITION to the listing commission! In other words, the listing agent would receive the FULL 6% commission if he/she "represents" both seller and buyer. 10. A "different" agent, also from the listing agent's company, is simply another employee of the listing agent's company -- they both work for the same office, and are employed by the same broker. Most companies offer an "extra" bonus whenever both seller and buyer are represented by agents from the same office, in fact! So, working through a different agent who also works out of the listing agent's office is essentially the same as just working through the listing agent himself/herself. 11. The listing agent can and will also "represent" OTHER potential buyers, just like you -- he or she may represent SEVERAL, in fact... (all while representing the SELLER as well!) 12. Are you sure your best interests are being represented by a listing agent who is working for the SELLER and ALSO "representing" OTHER potential buyers who are COMPETING against you for the same property, and who advises that you waive your rights to a home inspection and simply offer whatever the seller wants for the home?! That's just the "top 12" list as to why the listing agent is NOT your friend. The list goes on and on, and there are many more reasons. In fact, if you've learned your lesson well, that the listing agent is NOT your friend, you might even be able to come up with an additional bunch of reasons to add to this list. So, NOW, do you STILL want to use the listing agent when he or she approaches you at the open house or during a broker tour or a "by appointment only" showing and offers to be your "friend" and your agent, as well?! Be smart -- remember what you have learned here -- use a buyer's agent instead, who works only for YOU. The listing agent is the SELLER's friend, and the SELLER's agent -- he or she works for the SELLER and represents the SELLER's best interests. So, how can he or she possibly do the same for you?! If you were involved in a legal proceeding, would you hire the OTHER party's attorney to represent you? Of course not! So, why would you use the other party's real estate agent?! Don't do it -- there is an inherent conflict of interests if you do -- and by law, the listing agent's loyalties must lie with the SELLER. Use a buyer's agent who works only for you. Use the Baron as your buyer's agent, and you get an experienced full service broker who works for YOU and for you only -- and you even get a rebate, to boot!