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Buyers Going it Solo?

I am shocked by how many buyers go unrepresented by real estate agents even though buyers’ real estate agents come free of charge. There are two reasons why buyers do not get representation. The first reason is they generally haven’t heard the good news that it’s free. The second reason is that buyers think they’ll get a better deal if they are not represented by a real estate agent.

First, let’s clarify how buyers’ agents get paid for those who don’t know; buyers’ agents are paid by the seller. Here’s how it works. The seller and the seller’s agent have a listing contract where a pre-set commission amount is established for both agents. The full amount of the commission, which on average is 6%, goes to the listing agent’s broker and then the listing agent’s broker splits the commission with the buyer agent’s broker. On average, each agent’s broker receives 3%. Both agents then receive a portion of their broker’s commission based on a separate contract they have with their broker. For buyers this commission structure is great! You don’t have to pay a buyer’s agent; they are paid by the seller. On the down side, when it’s your turn to sell you’ll likely pay two commissions, or roughly 6%.

The second reason why buyers don’t use an agent really scares me. Some buyers think if they forego representation then they’ll get a better deal on a home. They reason that since the seller doesn’t have to pay a second commission, then the seller will reduce the purchase price and the buyer get a better deal. This is simply untrue. In reality, the seller has a contractual obligation to pay a full commission to his or her listing agent’s brokerage. The listing agent then typically splits this commission with the buyer agent’s broker. If the buyer isn’t using an agent, then the full commission is still paid by the seller but just to the listing agent. Every listing contract specifically states that if a buyer is not represented by a real estate agent, then the seller is obligated to pay the full commission to the listing agent. Why would a seller have to pay their agent the full commission? The reason the contract is written this way is because without a buyer’s agent, the listing agent ends up doing both sides of the work in the transaction.

So you see, there is really no point in a buyer skipping representation. Not convinced? I just heard a story from two home inspectors… While conducting a home inspection for an unrepresented buyer, Suzanne and JJ Greive of Home Inspectors of Puget Sound were told the buyers that they weren’t using a real estate agent because they were getting a really great deal on the house. They further bragged that they were getting $20,000 off of the listing price. Considering the usual things a buyer’s agent would consider when coming up with an offer price, (such as what the sellers paid for the house, the home’s condition, the average sold price compared to listing price in the area, and the sold comparable homes in the neighborhood) the buyers were actually overpaying for this house. Had they the knowledge and negotiating skills of a buyer’s agent on their side, they likely would have shaved a lot more than $20,000 off their purchase price.

Another buyer beware: when a buyer is unrepresented, many unscrupulous listing agents love to take both sides of the commission and engage in dual agency, which is the term for when one real estate agent represents both the buyer and the seller. Dual agency, though legal, is not advisable for either party because neither the buyer nor the seller is having their best interests represented. In fact, the only party that benefits from dual agency is the real estate agent! I’ve heard many horror stories about pushy agents pursuing dual agency so they can receive the bigger paycheck. One ambitious dual agent told the buyers that the purpose of the inspection response form was to acknowledge that an inspection was performed. This is absolutely untrue! The inspection response is another negotiating phase where buyers have the right to demand repairs on the home as a condition to closing.

Here are some signs of an unscrupulous dual agent: they don’t explain the paperwork fully, tell you that you’ll get a better deal without an agent, rush you through signing relevant documents and lie about what the documents mean, or say that the inspectors are overreacting to major issues on the home or that you’re overreacting.

A good, ethical agent will encourage you to find representation. They will tell you that they cannot represent your best interest and that you should find an agent or a real estate attorney before signing any paperwork. Even when acting as a listing agent, I’ve frequently had this talk with buyers and given them a friendly reminder that there’s nothing to lose because buyers’ agents are free. It’s simply the right thing to do.

Feel free to share your stories, questions, or comments on this subject.