Smart home buyers avoid dual agency

Why hiring your own agent is so valuable

By Robert J. Bruss Inman News

If you are considering buying a house or condo during this peak home-buying season, an issue that has probably crossed your mind is, "Who represents me in this home purchase?"

When visiting a weekend open house, it pays to understand that the friendly agents you meet there represent the home sellers. Although they have duties of honesty and truthfulness to you, a prospective buyer, as listing agents their prime duty is to get the best price and terms for their sellers.

HOW TO BUY A HOME IN TODAY'S "BUYER'S MARKET" IN MOST CITIES. Because there are more houses and condos listed for sale in most communities than there are qualified buyers, that is known as a "buyer's market." The buyer is king.

Unfortunately, many buyers (especially first-timers) are not aware of the best ways to buy a home to get the best price and terms. The place where more than 70 percent of today's home buyers start their search is on the Internet, usually at www.Realtor.com and other large Web sites showing most local listings available.

After searching local residence listings available and perhaps visiting a few open houses, the next step for savvy home buyers is to get preapproved in writing by a mortgage lender. The reason for this key step is to avoid disappointment later if you discover you have credit issues or can't afford to buy the home you want.

Mortgage preapproval means the mortgage lender takes your loan application, runs a credit check, verifies the information, and issues a mortgage certificate or letter stating the maximum mortgage that lender will approve. Expect reasonable preapproval conditions such as (a) the lender's satisfactory appraisal of the property and (b) reverification of the applicant's financial information, including employment, shortly before the sale closes.

The reason mortgage preapproval is much better than mere prequalification is that an actual lender makes a loan commitment to you. A mortgage prequalification means merely that based on the borrower's information, which has not been verified, it looks like you can get a home loan.

PROS AND CONS OF "DUAL AGENCY." In most states, a home's listing agent can also represent the buyer in the same transaction. This is called a disclosed "dual agency" when buyer and seller understand one agent represents both parties.

Some states have laws allowing the listing agent to represent the home seller while another agent in the same brokerage firm, called a "transaction agent," represents the home buyer.

Home buyers should fully understand who represents whom in the sale. When there is only one realty agent in a transaction, that agent either represents the seller alone or can be a dual agent representing both seller and buyer.

When acting as a dual agent, the realty agent has a fiduciary duty of honesty, truthfulness and full disclosure to both parties. However, a dual agent is not required to disclose (a) the lowest price or terms the seller will accept, and/or (b) the highest price and best terms the buyer is willing to offer.

Just as an attorney would never represent both parties in a divorce or a lawsuit, real estate dual agency creates an inherent conflict of interest that can be difficult for agents to handle. For this reason, most states now require real estate agents to provide written agency disclosures so home buyers and sellers know who represents whom.

DO SMART HOME BUYERS NEED THEIR OWN BUYER'S AGENTS? As a prospective home buyer, you are probably wondering why some buyers hire their own agents. The key reason is a buyer's agent who looks out for his or her client's best interests will emphasize to the buyer the pros and cons of each residence inspected.

But even the world's greatest "dual agent" representing both buyer and seller is unlikely to highlight to the buyer the disadvantages of a home that said agent listed for sale.

Any licensed real estate sales agent or broker can be an exclusive buyer's agent in a transaction. Because most buyer's agents also accept residence listings, if a buyer wants to purchase a listing of that agent then that agent couldn't act as an exclusive buyer's agent for that sale.

WHO PAYS THE SALES COMMISSION DOES NOT DETERMINE AGENCY. In typical home-sale situations, the seller pays the sales commission to the listing agent. If there is a buyer's agent representing the buyer, that buyer's agent usually receives part of the listing commission when the sale closes.

The commission split is usually stated in writing in the local Multiple Listing Service (MLS) disclosure for each residence. Although this commission split it typically 50-50, it may vary if the listing agent (or the home seller) is especially anxious to give the buyer's agent a large sales incentive.

However, just because the seller pays the full sales commission doesn't mean both agents work for the seller. Although the listing agent clearly represents the seller, the buyer's agent represents the buyer even if the buyer's agent commission is paid by the seller.

A similar situation arises when a buyer's agent shows a "for sale by owner" home and the seller agrees to pay the buyer's agent half of a normal sales commission, typically 3 percent of the gross sales price. Although the commission money comes from the do-it-yourself seller, the buyer's agent still represents the home buyer rather than the seller.

In the rare situation where a buyer wants to purchase a "for-sale-by-owner" residence but the seller refuses to pay any sales commission, if the buyer's agent has a written commission agreement with the buyer, then the buyer would be obligated to pay the agent's fee.

THE BEST WAY TO FIND A GOOD BUYER'S AGENT. Although most real estate agents are eager to act as a buyer's agent, locating a top-quality buyer's agent is not always easy.

The best way to find a successful buyer's agent is to ask friends and business associates who recently purchased a house or condo. If they recommend their buyer's agent, he or she is probably worth interviewing.

Because the drawbacks for a home buyer not having a buyer's agent can be costly and because it usually costs the buyer nothing extra to have his or her own buyer's agent, smart home buyers spend considerable time and effort finding a savvy buyer's agent.

But home buyers should be very cautious about signing a buyer's agency contract unless the agent came very highly recommended. For this reason, signing a buyer's agency contract exceeding 30 days is usually a major mistake.

SUMMARY: Just as most home sellers have their own listing agents, smart home buyers understand the benefits of having a buyer's agent represent their best interests in a home purchase. Buyers who allow the seller's listing agent to act as a "dual agent" for both parties are creating an inherent conflict of interest for themselves. For more details, please consult a local real estate attorney.