Should you buy a home through the seller's agent?
With home prices on the rise and for-sale homes in short supply in some markets, it's no wonder homebuyers are looking for an edge. Some think that making an offer through the seller's agent, rather than their own buyer's agent, will save them money and provide an advantage amongst multiple offers.
Are they right?
The answer isn't exactly clear since there are both pros and cons to purchasing a home through the seller's agent.
Reduced commission? Maybe.
Some listing agents will indeed give the seller a break on their commission if there is no buyer's agent, but that's not automatic, says Ken Pozek, a Realtor with Keller Williams Realty in Northville, Mich. Rather, it's solely up to the agent to decide.
"Some listing agents -- not all, but some -- will offer a discount to the seller if they find their own buyer. In that case, a seller might say, 'I have these (two offers) and one is from my listing agent and one is from a buyer's agent, so instantly, I save maybe 1 percent. That does happen. Sometimes, not all the time," Pozek says.
Carl San Miguel, broker-owner of Highland Properties in Campbell, Calif., says most agents understandably aren't keen to give up part of their commission even when there's no buyer's agent. Extra work and liability exposure are two reasons why.
"Buyers don't understand that now the agent is taking the responsibility of both sides, so giving up the commission isn't high on their list. Some will do it," he says.
A bigger gun in a bidding war?
Whether buying a home through the seller's agent will help the buyer in a bidding war is also a maybe.
"A lot of buyers think that because they worked with me, they automatically are going to get the house," Pozek says. "Some unscrupulous agents will make that happen, but in all honesty, I work for the seller. It's not always the best-case scenario for the buyer to come to the listing agent."
A listing agent or "seller's agent" can "legally manipulate" the seller's net sheet to make an in-house buyer appear more attractive, says Douglas R. Miller, an attorney and executive director of Consumer Advocates in American Real Estate, a nonprofit group in Navarre, Minn., that educates the public about conflicts of interest in real estate.
The net sheet shows how much money the seller will get from the sale, and an in-house buyer is one represented by the same brokerage company as the seller, resulting in what agents call a "double end" or "double pop."
Miller thinks it's a poor strategy for buyers to sacrifice the buyer's agent.
"There are lots of other things buyers can do to improve their position in a multiple-offer situation short of forfeiting their right to representation. We highly discourage any buyer from ever seeking out the listing agent to buy a house," he says.
Inspection and appraisal bias
Pozek points out two particular areas of concern regarding buyers choosing to work with the seller's agent:
- The listing agent might not push the seller to make repairs or compensate the buyer for material defects that turn up in the inspection report.
- If the appraised value is lower than the agreed-upon sale price, the listing agent might not fight for the buyer to be able to purchase the home at the lower value.
"If the listing agent is one-sided," he says, "that will usually scare them off and they will get their own representation."
Who represents whom?
Many states allow one agent to represent the buyer and seller. But others prohibit this practice, known as dual agency. And still others use transaction brokerage, in which the agent doesn't represent the seller or buyer, but offers services without representation.
"Buyers should ask their agent, whoever that is, about agency laws," Pozek says.
The bottom line is that buyers should consider the risks as well as potential rewards before they decide to forgo buyer representation.
"Although it may be tempting upfront to work with the listing agent, I think in the end, it hurts you more than it helps you," Pozek says.
"There's nothing wrong with the agent doing both sides," San Miguel says, but says buyers need to decide whether they will be treated fairly.
More help from HSH.com
The salary you must earn to buy a home in 27 metrosHere’s how much salary you would need to earn in order to afford the median-priced home in your metro area.
Can I separate tax and insurance payments from my mortgage payment?It may or may not be possible for you to take on the responsibility
HSH.com on the latest move by the Federal ReserveThe Federal Reserve concluded a meeting today with no change to the federal funds rate and no changes to other monetary policy tools.
Advantages of a FHA mortgage in 2017FHA loans became more affordable in 2016, thanks to a drop in the annual mortgage insurance premium that the Federal Housing Administration charges. More cost reductions may be on the way in 2017, too.
Streamline Refinance Program to Replace HARPThe HARP refinance program for troubled or underwater homeowners will come to an end in 2017, but a new streamline refinance program will takes its place.