During this peak season when more houses and condos sell than during any other time of this year, prospective home buyers (especially first-timers) often wonder how to go about purchasing their first homes.
As I have often suggested, the first step is to get pre-approved in writing by a mortgage lender so buyers will know the maximum mortgage for which they can qualify. With a mortgage lender’s pre-approval letter or certificate (not just a worthless pre-qualification letter where the buyer’s loan application hasn’t been verified), the second step is to start looking at local houses and homes available for sale.
Purchase Bob Bruss reports online.
Most buyers begin their quest on the Internet, usually at www.realtor.com, where more than 70 percent of today’s home buyers start their search. At this point, the home search can become murky.
Many prospective home buyers contact the home’s listing agent, either by e-mail or by phone. Although the listing agent is likely to be extremely helpful, few buyers realize that listing agent primarily represents the home seller, not the buyer.
Or another scenario might develop as prospective home buyers scan the weekend newspaper homes-for-sale ads, especially the advertised open houses. No matter how helpful and charming the open house host agent might be, most prospective buyers don’t understand that agent legally represents the home seller, not the buyer.
PROS AND CONS OF “DUAL AGENCY.” In most states, a home’s listing agent can also represent the home buyer. When both buyer and seller fully understand the agent represents both parties, this is called a disclosed “dual agency.”
Some states have statutes allowing the listing agent to represent the home seller while another agent working for the same brokerage, called a “transaction agent,” represents the home buyer. Depending on state law, there are several other possibilities.
But home buyers should be certain they fully understand who represents whom. In a dual-agency situation, the one agent theoretically represents both buyer and seller. Such an agent owes a fiduciary duty of honesty, truthfulness, and full disclosure (with notable exceptions) to the other party.
However, this is an inherent conflict of interest situation for the dual agent.
To prevent misunderstandings, most states now require real estate agents to provide written agency disclosures to home buyers and sellers who they represent in the sale. At this point, smart home buyers ask, “Who really represents me?”
DO HOME BUYERS NEED THEIR OWN BUYER’S AGENTS? The answer in most situations is probably “yes.” The reason is a buyer’s agent, who is truly looking out for the buyer’s best interests and using the best efforts to find a house or condo meeting the buyer’s needs, will emphasize to the buyer the pros and cons of each residence inspected.
But a “dual agent” representing both home seller and buyer can hardly be expected to do so, especially pointing out the drawbacks of a listed home under consideration by the prospective buyer.
Any licensed real estate sales agent or broker can be a buyer’s agent representing the home buyer in the transaction. A typical buyer’s agent can represent any home buyer, but also take listings of local homes forsale.
However, when a buyer’s agent shows homes listed for sale by that agent, or another agent working for the same brokerage, then the dual agency issue occurs.
WHO PAYS THE SALE COMMISSION DOES NOT DETERMINE AGENCY. In most buyers’ agent situations, the buyer’s agent receives half of the sales commission paid to the listing agent. This commission split is usually stated in writing in the local Multiple Listing Service (MLS) disclosure between MLS member agents.
Just because the home seller pays the listing commission, which is then split with the buyer’s agent, doesn’t mean the buyer’s agent works for the home seller.
However, when a buyer’s agent shows a prospective buyer a “for sale by owner” house or condo where there is no listing agent, if the seller refuses to pay the buyer’s agent any sales commission, then it becomes the obligation of the buyer to pay their buyer’s agent a commission. For this reason, many buyers’ agents require their buyers to sign a written buyer’s agency contract, typically for 30 to 60 days.
HOW HOME BUYERS CAN FIND A GOOD BUYER’S AGENT. Any real estate agent can be a buyer’s agent to help locate your home purchase. In addition, there are a few exclusive buyers’ agents who represent only home buyers, never accepting listings from home sellers.
The best way to locate a successful buyer’s agent is to ask friends and business associates who have recently purchased a house or condo for their buyer’s agent recommendations. Because the drawbacks of not having a buyer’s agent can be costly, especially when the same agent represents the home seller, home buyers should spend considerable effort to locate an effective buyer’s agent.
If a buyer’s agent requires a written buyer’s agency contract exceeding 60 days, buyers should be aware they will be “tied up” with that buyer’s agent even if they find a home to purchase on their own. For this reason, unless you have received a superb recommendation to a buyer’s agent from a recent home buyer, it is best not to sign a long-term buyer’s agency contract.
CONCLUSION: Home buyers need their own buyers’ agents, just as most home sellers hire listing agents to represent their best interests. Likewise, home buyers need a separate buyer’s agent looking out for their best interests. Representation by a “dual agent” who represents both seller and buyer creates an inherent conflict for the home buyer. For more details, please consult a local real estate attorney.
(For more information on Bob Bruss publications, visit his
Real Estate Center).
