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
MIP or PMI? The choice grows more difficultThe choice between an FHA-backed loan with mortgage insurance premiums (MIP) or a conforming loan with private mortgage insurance (PMI) is about to become more difficult.
Conventional vs. FHA financing: Which is cheaper?Buying a home? Should you choose a FHA-backed mortgage or conventional financing? This article will help you to understand the advantages and disadvantages of each.
Should I buy a better house or a better neighborhood?Should you buy a better house or a better neighborhood? We discuss advantages, drawbacks and thing to consider.