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Friday, April 4, 2014

First time buyers – Why not just call the name on the yard sign?


Question - I see the listing agent’s name and phone number on the sign in front of a house that I like. Wouldn’t I get a better deal by going through him/her?

Answer – The short answer is no, you probably won’t get a better deal. You may make that agent very happy, since he/she would get what is called a double dip (both sides of the commission) but that doesn't necessarily mean that they work out a better deal for you on the sale.

Remember who that real estate agent works for. He/she has signed a listing agreement with the seller. Because of that they owe their fiduciary responsibility to the seller. They don’t have any obligations to you at all; however, they are obligated to tell the seller anything that they learn about you or from you in your discussions with them. Don’t you think that may put you at a disadvantage later when you are trying to negotiate the price or terms?

Speaking of negotiating; the seller’s agent is contractually bound to negotiate on behalf of the seller, to try to get the best deal possible for the seller. Who, in this call-on-the-sign scenario, is negotiating for you? That’s right; you are out there by yourself when negotiating with the listing agent. Negotiation is a process in which any little piece of information about the opposite side is potentially valuable and can impact things greatly. So, do you want to just hand the keys to the process to the other side?

How bad could that be? Well if you started out by calling on the sign and visiting the home with the seller’s agent, you probably wouldn't stop there. After all, they are probably really nice and
may seem to be really interested in you, so maybe you talk with them the whole time.  You may drop a hint to him/her about the maximum that you are willing to go to get the house or how much you have saved up for the down payment and closing costs; or, maybe you just casually mention that you have to find a place quickly because your lease is up in two months. Don’t you think those little tidbits might help the seller in his negotiations with you? Do you really believe that the seller’s agent, the agent that owes his fiduciary loyalty to the seller, is not going to tell the seller those things? What color is the sky in your world?

If you do call on the sign and happen to get an honest and ethical listing agent, he/she will tell you that they represent the seller and perhaps recommend someone else in their agency to help you. They will at least explain the concept of agency to you and what that means in terms of where their loyalties must be for this house. Depending upon the state that you are in they may explain any options that are available to them and you for them to act as dual-agents, representing both parties in the deal. Michigan is a Designated Agency state, so this is a big deal for us here.

In Michigan an agent must have a signed Agency Agreement with either the Seller or the Buyer. That Agency Agreement spells out in great detail the duties that are owed to the seller or buyer by that agent. There are also provisions that allow dual-agency to happen; but, it is a bit cumbersome and requires that the seller first agree to release the listing agent from his fiduciary responsibilities for the deal with this buyer. The agent then really just become a paperwork facilitator and is not able to negotiate on behalf of either side. Dual agency is rarely used because it is cumbersome and because most sellers don’t want to give up the fiduciary loyalty of their agent. Besides that, the listing agent was probably already privy to confidential information from the Seller and how does he/she now handle that? It’s a slippery slope that most Realtors® do not want to step out upon.

But let’s assume for the moment that you are not in a Designated Agency state. Even in that case there are reasonable expectations that any client should have and probably Real Estate Laws in every state that define what the parties in the deal can expect from their licensed real estate agents. These should include keeping the secrets of the party that they represent and negotiating on behalf of that party. They also include putting the interests of the client that they represent above their own interests. Nowhere in there will you likely find anything about getting you, the buyer, a good deal if they represent the seller.

So, you may ask, why is their name and phone number on that sign to begin with? The main reason is that it’s advertising for them. They hope that other would-be sellers see their name and call that number to list their house, too. It might also help a buyer’s agent by giving them someone to call directly to ask questions about the house. It does serve a purpose to have their name and phone number there on the sign, but that purpose for it being there is not about you, the buyer.

So, when the listing agent’s phone rings and someone on the other end says, “Hey, I was driving by this house and saw your name and number; can you show it to me?”; the answer
should be, “Well, I’m the listing agent for that house, so I represent the seller; but, I can find someone else in our office to show it to you if you’d like.” If instead you (the buyer) hear the sound in the listing agents voice of “ Yes- cha-ching!”; that is the listing agent counting his commission from a double dip opportunity that you just tossed him.  Just hang up and go get a Realtor® to represent you. You will be better off in the long run.

This whole issue won’t come up if you just start out by getting a good buyer agent – a Realtor® - to work for you and to represent you in any offers and negotiations. I posted here about the things that you should do before you start looking in a post in February that is meant for all buyers. Click here to read that post. You may want to read the entire 10-post series for Buyers, since that advice applies whether you are a first time buyer or have bought lots of houses.

The point of this post was not to denigrate listing agents. They are performing a needed and valuable task; but the point is that they work for the seller. You need an agent working for you. Buying a house isn't a fun and games process like buying a car. Most people know how fake that process is and how to play that game, now. Buying a house is the biggest financial decision most people ever make in their lives. It is a game that you are not qualified to play in alone. It is a team effort. Why would you choose to play 1 against 2 in this game? Get your own Realtor partner and then go for it.

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