We’ve noticed a new trend in the last couple years: buyers wanting to buy with the Listing Agent (the agent who represents the Seller) instead of having their own agent (the Buyer’s Agent). Is this in your best interest?
Article By: Neil O’Donnell
We’ve noticed a new trend in the last couple years: buyers wanting to buy with the Listing Agent (the agent who represents the Seller) instead of having their own agent (the Buyer’s Agent). These Buyers work the open house circuit, watch the MLS for properties they like, and make appointments for the properties they want to see directly with the Listing Agents. When it’s time to make an offer, they make it via the Listing Agent, who represents both the Seller and them, the Buyer. We’ve also noticed that the decision to buy with the Listing Agent is based on some basic misunderstandings about how real estate agents work (and sometimes it’s based on blatant lies that some agents tell too).
Before we dive into it, you really need to understand a few key things:
Technically, Buyers and Sellers hire a brokerage, not an agent, and their agreements are with the brokerage, not the agent.
The Listing Agent is the person who represents the interests of the Seller. The agent’s responsibilities to the Seller include:
- Promoting the best interests of the Seller (i.e negotiate price and terms favourable to the Seller not you)
- Telling the Seller anything they know about the Buyer (ex. the Buyer’s circumstances, their willingness to pay more than they’ve offered etc.)
- Keeping confidential anything the Seller shares (ex. why they are selling, the price they are willing to accept)
The Buyer’s Agent is the person who represents the Buyer. They are always supposed to be fair, honest and work with integrity. They are to be conscientious and provide competent service.
On top of that there are 2 ways an Agent can work with a Buyer: The Buyer can be a Customer or a Client.
When you’re a Customer, the agent does NOT work solely in your best interest and provides restricted services. As a Customer the agent’s obligations are:
- Only disclose to you the material facts that he or she already knows or ought to know – they aren’t required to take any further investigative steps.
- Limited privacy
When you are a Client you sign a Buyer’s Representation Agreement and their agents’ obligations are:
Fiduciary: the agent must always promote and protect your best interests at all times.
- Negotiate the most favourable terms possible for you the Buyer
- Maintain confidentiality (not disclose the most you would pay for the property etc.)
They must take reasonable steps to determine and then disclose to you all material facts about the property.
See the difference?
Okay, now that we know all of this, you should also know that in Ontario, it is legal for an agent to work for both the Buyer and the Seller. It’s called Multiple Representation and it can be very complicated.
When an agent works for both the Buyer AND the Seller, they are acting as mediators and have certain things they must do:
- Confirm in writing that all parties understand and consent to the agent representing both parties
- Do what is best for both Buyer and Seller (it’s hard to provide the best service for one party when that usually means sacrificing something for the other party)
- Not reveal confidential information to either side
If you’re confused that’s OK. I’ll clear it up for you, just keep reading!
The Dangers of Buying with The Listing Agent
First, despite popular opinion, working with the Listing Agent won’t guarantee that you’ll win the bidding war or get the best price. True, the Listing Agent will see all of the offers and could, in theory, tell you how much to bid in order to win it, but that is 100% against the real estate code of ethics. Any agent who tells you that you’ll have an edge when you work with them is unethical and risks losing their real estate license. If they’re unethical and willing to break the rules then how can you trust that they are working in your best interests?
Second, the secret inventory of houses that Buyers dream of is at minimum exaggerated and almost never works to the Buyer’s advantage. There is a common belief out there that every agent has a bunch of secret inventories – homes that aren’t actually on the market that can be solely accessed by the agents’ own Buyers without any competition. While it’s true that top agents may have the inside scoop on the homes they’ll be listing in the future, the average agent in our area only list one or two properties per year (Pro tip: you should work with top agents like us). More importantly, it rarely ever makes sense for a Seller to sell to you instead of exposing their home to the open market…unless they think they can get you to pay more than market value, or there’s something wrong with the house. Some Listing Agents will tempt you with the secret inventory line to get you to be their client, but it’s rare that ever works out for the Buyer.
Third, and maybe one of the most important, it’s not actually cheaper to buy with the Listing Agent. Some people believe that if they buy with the Listing Agent, they’ll save money because the agent is going to make extra commission, so they’ll get part of that commission. Truth: The Seller pays the commission to the Listing Brokerage not the Listing Agent – that conversation took place long ago between the Seller and the Listing Agent and has nothing to do with you – the Buyer. The Brokerage often sets limits on how low the listing agent can make the commission. While the Seller may save some money if the Listing Agent brings a Buyer themselves, that’s cash in the Brokerage and Seller’s pocket, not yours.
While the Listing Agent probably knows the house better than anyone else, it’s their job – and their benefit – to focus on the positives of the house and the neighbourhood. Don’t count on the Listing Agent to volunteer information about the termite problem on the street, the hoarder next door, the lawsuit against the condo or the dampness problem in the basement. If you work with an experienced Buyer Agent, it’s their job to represent you and only you. They’ll get the scoop on the house and the neighbourhood. They know what questions to ask, where to research and they hopefully already know the neighbourhood. Also listing Agents who are from Toronto (using out of town agents to list your home is a topic for another day) don’t do a great job of finding out about the house and the neighbourhood, which means the Buyer’s Agent already knows more than them.
When an agent represents both the Buyer and the Seller (multiple representation), it doesn’t matter if you’re a Customer or a Client, they can’t tell you how much to pay for the property. In the case where the Buyer is a Client, and the brokerage represents BOTH sides, they can’t reveal anything they know to the Seller about the Buyer and vice versa. They also can’t recommend a price. Essentially you are on your own.
The Listing Agent’s goal isn’t to get you the RIGHT house, it’s to get you to buy THIS house. TRUTH: they don’t get paid unless the house sells. Having your own agent means they are motivated to find you the perfect house in the perfect neighbourhood no matter how long that takes. Of course, some listing agents are primarily motivated by the possibility of a bigger commission, so the person they are most concerned with is themselves.
Again, not you. Ugh.
People who work with the Listing Agent almost always make a critical mistake. They reveal their position – their budget, that they’re pregnant or that need to buy a house in the next 30 days. The Buyer’s Agent keeps all that information confidential so it can’t be used against you in negotiations.
One of the most important qualities you need in an agent is negotiating skills.
As a Buyer, you want someone who can negotiate on your behalf, and that’s not really possible under Multiple Representation.
For a more in-depth discussion on these topics, go to: Request a FREE Copy of our latest book, “The Value-Driven Approach to Sell Real Estate: How to protect yourself from Real Estate Greed and bank extra profit by thinking like the great Warren Buffett.”