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There are two options available for buyers when it comes to purchasing property through organized Real Estate in Ontario and is classifies them as either a Client or a Customer.
Client Relationship
Client relationship with a buyer is established by signing the buyer agency agreement.
Customer Relationship
Buyers have the option of representing themselves in a Real Estate transaction and still expect honest, fair and due care treatment by the listing real estate agent. The agent, when questioned, is required by law to disclose factual information about the property or refer the buyer to an individual or company that can provide the information.
This form of relationship is not that common since the buyer doesn’t necessarily have to pay anything to get full service of the agent but this is an option that is available.
When buyers sign a buyer agency agreement with a listing agent to represent them in the transaction of a property listed with the agent, a Dual Agency relationship is established. There are restrictions on what the agent can’t disclose as outlined below:
- The seller may or will accept less than the listed price, unless otherwise instructed in writing by the seller
- The buyer may or will pay more than the offered price, unless otherwise instructed in writing by the buyer
- The motivation of or personal information about the Seller or Buyer, unless otherwise instructed in writing by the party to which the information applies, or unless failure to disclose would constitute fraudulent, unlawful or unethical practice
- The price the Buyer should offer or the price the Seller should accept
- The terms of any other offer
The other difference when using the listing agent to represent you is in the amount of commission the agent makes. The listing agent stands to make the listing portion as well as the buyer portion of the commission hence called double ending the transaction.
Now, I’d like to switch gears and talk about two topics that required this introduction to Dual Agency Relationship. These are the topics:
- Using the listing agent to view then following up with an offer from a buyer representative
- Using the listing agent to get a reduced price (saving the buyer commission)
Listing Agent to view, Buyer Agent to buy!
In my practice, whenever I receive a call/email/online inquiry/Open House Inquiry from a perspective buyer regarding a property, one of the questions I ask is if they are working with an agent to help them find a property.
- If the answer is no, then I ask if they would be inclined to use my services to help them purchase this or any other property.
- If the answer is yes, then I ask them if they could share the property information with their agent so he/she can setup the appointment to view the property or share the agent’s name with me and I will follow up with the agent to setup the appointment for them.
The issue arises when a perspective buyer tells the listing agent that he/she is not working with an agent and would like to be represented by the listing agent to come out and view the property. Once they go through the property, they like it and ditch the listing agent and use their own agent who was busy or wasn’t available or wasn’t even informed about his/her clients visiting the listed house.
One could argue that the listing agent is hired to show the house to perspective buyers which is true but also note that the listing agents don’t work for free. The market is saturated with agents and commission portion is usually much higher for the cooperating broker than the listing broker which makes the idea of dual agency very attractive for listing agents. So, when a buyer agent brings in an offer from a perspective buyer who was shown the property by the listing agent, surely there will be a bad taste left there.
It would take a real talker buyer agent to walk into this situation and win the cooperation of the listing agent. Also, offer acceptances can be staged where decisions made by Sellers are influenced by listing agents in which case you might loose out on your home.
The best way to avoid a situation like this is to be upfront with the listing agent and when asked if you have a buyer agent representing you through your home purchase, use one of these answers:
- No, we don’t have a buyer agent at the moment but when we find the right home, we will find a buyer agent to represent us
- No, we don’t have a buyer agent. Would you be interested in representing us?
- Yes, we have a buyer agent.
Saving the Buyer Portion of the Commission:
There are numerous articles found on the internet and some even made it to my in box where the author has created a plan of action that will guarantee to save you 2.5% of your purchase price. The author suggests that you would either go into customer relationship the listing agent and negotiate to take off the buyer portion of the commission since you’re not using his/her services. The plan outlines the events that need to take place for the transaction to be legal but there are couple of flaws in the scheme that I wanted to highlight so if you decide to use it, you’re not side swiped
The first assumption in the plan is that the listing is at a nominal commission rate of 5%. While true in some areas, that is not true in others. Also depending on the circumstances in which the listing was taken will be a factor in the commission of the listing. So, if there’s no incentive for the listing agent to proceed with your offer, you won’t be able to put the plan in action.
Secondly, how do you know what the value of the property is. Since the market has been so hot recently, sellers and speculators have been trying to take advantage of it by listings as high has $100,000 above market value. I’m not suggesting that you won’t be able to tell a property that is listed $100,000 over the market value but if its listed 5% over market value, and you saved 2.5% off the list price, you still over paid for the property by 2.5%! Let’s put this in Math
Average Sale Price in June 2008 was $395,866 which is the average market value for a property in the Greater Toronto Area. If the property was listed at $415,000, an average person who is hunting for a property and doesn’t have detailed data available to review won’t be able to tell the difference in value. Now, if you were to save 2.5% of the list price, your purchase was for $405,000 which was over $9000 above market value.
Now a days, we’re looking for ways to become more efficient in all things we do as one thing we are short on is time. If you are to follow the scheme outlined, do you have the time available to dedicate to the transaction? What if you’re not able to attend the home inspection or meet with the appraiser or drop off paperwork to the lawyer? What’s your backup plan?
The idea sounds great on paper and no doubt there are people that have followed it and come out ahead. I just ask you to keep the above mentioned issues in mind when doing it. Buyer agents have systems setup to take their clients from house to house till they like a house, review the market value of the property, negotiate an offer that is acceptable and competitive, help you through the mortgage process, inspection process, closing process, recommending service professionals… etc… all for NO CHARGE which makes me wonder why anyone would go through the whole process of trying to manage a transaction themselves.
I hope you find this article useful. If you need additional information about what other issues to watch out for, feel free to contact me.
The contributing factor,
Addy Saeed
Real Estate Sales Representative,
Re/max Active Realty Inc., Brokerage
www.HeyAddy.com
