Q: I am looking to buy a home soon. Who represents who in a typical transaction? And what is the “agency” thing I keep hearing about?
A:The topic of agency is important to you because it answers the most basic and fundamental question that can be asked of any real estate professional: Who do you represent in this transaction?
One of the hot topics facing the world of real estate right now is the issue of agency. Some would have you believe that it really doesn’t affect you, the buyer, and that nothing much has changed. But they are wrong.
Until that question is answered, you may be left with the impression that all agents who work with buyers actually represent those buyers, and that you have somebody going to bat for you in this transaction. Well, the issue of agency is important because without it, we can never be sure who represents who.
Here’s the scenario:
You meet a really nice agent at an open house named Betty. Even though Betty’s house is not right for you, she tells you she has others to show you that fit your needs exactly. You spend an hour or so with Betty looking at a half dozen homes and talking about your needs and your wants. During the course of the conversation, you volunteer that you have $200,000 cash to spend and that you will not go over $200,000 purchase price no matter what. Then you find the perfect house. Asking price is $200,000 but you decide to offer $192,500 based on recent sales in the area. During negotiations, the seller asks Betty directly how much cash you have and how high will you go? What does Betty say?
Here’s the answer: Unless you have signed a “Buyer Agency Agreement” with Betty making her your buyer agent, she is most likely acting as a sub-agent to the listing broker who represents the seller. If that is the case, she has a fiduciary obligation to the seller to disclose to him any information she has that might “promote or protect his interest” in the transaction. Guess what? Betty has that information.
The Seller, now having knowledge of your financial position, counters at a full $200,000. He knows you can afford it and that this price falls within your desired range. He also knows that you have seen a number of other homes and that his is the one you want.
Regardless of what eventually happens in this scenario, it can hardly be called an even playing field. So, how can you protect yourself from a possible disclosure required of a seller’s agent?
1. Make sure that the agent you are working with has agreed, in writing, to represent you as a “Buyer’s Agent.” This will mean signing a buyer brokerage agreement in which you promise to work only with that particular agent for a specific period of time, often 90 days. It also means that you promise not to buy from anybody else, even FSBOs, without involving your buyer’s agent. In almost every case, the commission will still come from the seller, but your agent must present the offer.
2. Never say anything to anybody unless you would be willing to have that information repeated into a seller’s ear. Assume that everybody, and I mean everybody, is working for a seller unless you have specifically hired them to work for you. And even then, be discreet. During the second world war, the military promoted a phrase designed to stop idle gossip: Loose lips sink ships! You would do well to adopt that philosophy in your home-buying as well.