Category Archives: real estate agent as fiduciary

Should I go directly to the listing agent when buying a house?

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Should I go directly to the listing agent when buying a house?

For some reason, buyers of real estate think they are getting an advantage by going directly to the listing agent to buy a house. I am going to explore why buyers might feel this way and then I will go on to say that it does not matter if you choose the listing agent or a selling agent to help you buy the house.

Lots of people like to find the listing agent of the property because they feel they are going straight to the source to buy the house. When this happens, the listing agent will become a dual agent to both the buyer and seller, both of whom must consent to the dual agency via a disclosure of agency relationship. My opinion about dual agencies is incidental to the main point of this article, but what I can say about dual agency is that it is ethically permissible.

Dual agencies are ethically permissible because the agent works in a way that helps both parties and does not reveal the “weaknesses” of either party and maintains confidentiality throughout all her actions. Many of my colleagues might have different opinions about this, but what I can say is that most agents find the dual agency morally permissible (its legality is obvious and nobody is trying to overturn its legality).

So if the buyer goes directly to the listing agent, a dual agency will be created. Buyers think that going to the listing agent will give them a distinct advantage over other offers. This is not necessarily the case. When the listing agent presents all offers to the seller, the seller will not choose an offer simply because the listing agent is representing the buyer. The seller will choose the highest and best offer—highest in terms of price, and best offer in terms of the terms and details of the offer that determine the costs divided to the parties.

So if the seller chooses the highest and best offer, it’s not the case that going to the listing agent will get you the house, especially if your offer is not higher than the rest.

Another reason buyers might want to go to the listing agent is so that they think they can close faster because all the files are being worked on internally. Again, this is not necessarily true. While I have been a dual agent before and it is convenient to have all the files in one place for myself, that is merely a convenience to myself, the professional Realtor, and not necessarily a benefit passed on to the buyer. How fast the transaction closes is determined by the terms of the contract and the loan of the buyer. If the buyer’s loan needs time to qualify and fund, then the closing is determined by that, and not by the fact that the listing agent is representing the buyer.

Recall now the original purpose of putting a listing on the MLS: sellers do this to get the exposure, with each MLS board providing at least 20,000 members who are Realtors. Chances are that the listing agent will not be the one to sell the property.

What the consumer should be aware of is that the listing agent does represent the seller, but the listing agent may not necessarily be the best person for the job. Good buyers should get a strong feel for the Realtor by meeting them face to face and having frequent phone conversations with them in order to see if there is compatibility. Imagine automatically choosing the listing agent only because they represent the seller in the house they are selling but they are incompetent. As a buyer, you will feel neglected, trapped, and worst of all, there might be miscommunications that could cost you money.

I’m not saying that always selecting a buyer’s agent will save you from agent blunders; what I am saying is that choosing a Realtor is like interviewing a series of professionals to make sure you are represented properly. By automatically defecting to the listing agent, you completely skip over the interviewing process which is essential to your own self-regulating consumer protection protocol. You wouldn’t operate heavy machinery without reading the manual, right? So too would you not select your Realtor without learning more about the Realtor and determining whether they are right for you.

Equity Sales are Up

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According to the California Association of Realtors distressed sales report, “…equity sales – or non-distressed property sales – rose further in May, rising to 89.2 percent, up from 88.4 percent in April [2014].” I will first get into what it means to have an equity sale, then continue by comparing this market to previous ones.

An equity sale is quite simply the sale of the house where the seller receives money from the sale. Realtors are trained to estimate the net proceeds for the seller to provide an overview of the costs of selling a house.

In previous years, equity sales were not occurring as much as other sales, such as short sales and REOs, because sellers often were facing a depressed market where their loan value exceeded market value. When a seller decides to do a short sale, their net proceeds is often zero. Of course, not receiving net proceeds from sale is far better than owing somebody (i.e. the bank) money, which is why the short sale was so popular to begin with (i.e. it bestowed debt forgiveness to the seller).

So, what does this mean? This means that 9 out of 10 homes on the market, and viewed by buyers like you, are most likely transactions wherein the seller will receive money from the sale of the property. The seller getting money from the sale in no way affects the buyer’s purchase—the buyer does not pay more to purchase the house if the seller is making money on the house. Sometimes buyers ask how much the seller is making on the house, and to some extent the answer is obvious and finite to two possibilities:

(1)    The first possibility is that the seller is making net proceeds equal to the purchase price, less fees, less existing loans.

(2)    The second possibility is that the seller has net proceeds equal to the purchase price, less fees, assuming the seller owners the property free and clear.

Buyers are people, too, and they sometimes inquire about the seller’s gains. This is natural and if the answer is available, I will share an estimation with the buyer when it is appropriate.

Ethical consideration: If the seller is making money on the property as a flip, do I have an obligation to tell the buyer that the seller is making money on it? Legally, properties flipped within 90 days or less and transferred to a new buyer triggers a disclosure to the buyer that the property has been flipped. Beyond that, there is no legal disclosure required.

As a Realtor, we have access to public records that show us the last transfer date of the property, which means it is apparent to us if the property is a flip, even if the 90 days flip rule has passed and the seller does not disclose to the buyer that it is a flip.

As a fiduciary to the principal, I would disclose that the property transferred between individuals very recently, alluding to the possibility that it was a flip. I won’t get into it here, but the fact that a property is flipped means that we probably need to scrutinize the property on a stricter level in order to make sure the repairs were done correctly. By disclosing this to my client, it enhances my client’s perspective on the property and will make more rigorous the client’s investigation process.

Why We like Working with Savvy Real Estate Buyers and Sellers

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Some real estate agents are terrified by the thought that their clients have researched an area as much as they have. This puts real estate agents in less of a position of power and that is somewhat threatening, or so they say. However, my question is this: were agents ever in a position of power to begin with in the first place? The answer to this is ‘no’. Agents are fiduciaries for their clients, or principals, and it is an agent’s duty to represent the interests of the client in the highest regard. And buyers want to pay only as much as they need to to get the house, while sellers want as many offers as possible at the best price and terms. A Realtor gets the client in this position whether the client is savvy or not. But if the client is savvy, then we love it! Let us first discuss what it means to be a savvy client of real estate.

When buyers start their process on the internet, it’s no surprise that they view listings casually, or with a specific purpose in mind. Instead of streaming their favorite Netflix show (mine is Orange is the New Black, by the way), they may instead decide to go on real estate websites to see what the latest inventory is out there in their target market. Savvy real estate buyers and sellers already have a strong familiarity with their market from online data that is readily available for everyone to see.

Savvy real estate buyers and sellers often ask very detailed questions about the neighborhood and can go through large amounts of listings in a short period of time. This means the consumer is well-informed. And we find this to be a good thing. When a consumer is informed, it takes less time for us to convince a buyer or seller that they must offer or sell at a certain price. If a buyer wants to low-ball a property and we tell them there are 10 offers to the property, a savvy buyer will know to increase the price in order to get the offer accepted. Sellers wanting too high a price will know right away with our advice that the price might be too high, and we would do this by corroborating our opinion with the data the seller views for herself on other websites. I think when all parties are informed in this manner, decisions can be made more efficiently.

Some people think that to service a client, that the Realtor needs to be an order giver and the client an order taker, but this is not the case at all. As real estate agents, we are, legally, special agents with limited powers to bind the principal to contracts. In layman’s terms, this means that the client is 100% the decision maker in all aspects of real estate. So when we work with savvy buyers and sellers of real estate, and these clients of ours end up making the final decisions for themselves with our guidance, do you think we want them informed or not so informed? The former wins over the latter every time.

What if a client is a first time home buyer and does not know much of the real estate market? That is perfectly fine– it is our duty to fill in the gap and inform our clients to make the best decisions they can. After our preliminary advice to our clients, our clients’ understanding of the market improves, and over time, less needs to be explained to them (less explanation does not constitute less disclosing, please keep this very distinction in mind). Either way, we are always excited to help our wide range of clients, whether they be savvy or buying or selling for their first time. While Realtors are still the real estate experts, we recognize the thoughtfulness and knowledge our clients have picked up along the way and we think it’s great that our clients are doing their homework.