Should I Buy With The Listing Agent?

“A Common Buyer Story”

You see a house in your neighborhood or in your way back home with a for sale sign in the front lawn. You pretty much fall in love with that house. Then you decide to call the number provided on the sign by the listing agent and see the house. Usually the first question the listing agent will ask you is ” are you working with an agent?” and your answer is most likely “No” because first of all if you say “yes”, the listing agent will tell you “please ask your agent to contact me to arrange a vbuyer-see-listing-agentiewing” and you don’t like the answer because you want to see the house ASAP. Secondly, if you had an agent, you never called the listing agent to show you the house because your agent would have advised you about the danger of working with the listing agent when buying a home. You may even proceed and buy the home with the listing agent. Now, you may ask “What is wrong with that?” Here are the problems:

Risks of Buying With The Listing Agent

1- The listing agent will receive dual commission when representing the buyer (as customer) and seller (as client) at the same time. There is a fundamental difference between the customer and client in real estate agency relationship. Briefly, to make it more understandable, you can imagine a “client” as the first-class citizen and the “customer” is a second-class citizen. Simply, the listing agent protect his/her “client” interest by covering up the downsides about the property when serving buyer “customer”. The conflict of interest plays an important role when advising buyer customer. Interestingly, buyers like to hear more positive things about the property they fall in love with.

2- You will most likely lose more money when buying with the listing agent:

We would like to assume two different situations:
A) When there is no bidding war and offers are reviewed individually: The Listing agent is representing the best interest of the seller client and would like to get most money for the house. You may ask why? other than being obligated to do represent the sellers best of interest the seller-agent relationship is much more stronger than agent-buyer. Sellers usually are willing to buy anther house with that agent and they have more business to do than a buyer-agent. The price of the house even if it is over priced has been set by agent and the listing agent does not intend to change it. When it comes to negotiating the price, the listing agent who is now playing as the buyer agent knows exactly how much you are willing to pay therefore sets the bar to get the maximum price for his/her seller client. Remember, the agents are usually trained to negotiate and right from the beginning they know how much you are interested and willing to pay. After all, the listing agent not only will receive more if sells higher but also gain the reputation of selling for %100 of the listing price.

B) Now imagine that there is a bidding war (multiple offer involved): As the Listing Agent will see all of the offers unless he does something illegal he cannot buy that home for you and it is usually ended up paying couple of thousand over the asking price. He may inform you about the maximum price could win you in the war but if there is another agent whose buyer wants to bid more then you have to spend much more to get that house. Most of the complaints filed by sellers, buyers at Real Estate Council of Ontario (RECO) is related to multiple presentation where listing agent is representing the buyer.

3- You should ask you this question, “why do I need to have an agent? ”  Most people give this answer: to represent my interest with a great negotiation skill. Choosing a listing agent to represent a buyer is like  going to a court where the prosecutor and defense attorney are both the same person. The Listing Agent’s goal isn’t to get you the RIGHT house, it’s to get you to buy THIS house.

4- When you ask the listing agent to show you the home knowing that you are not represented by another agent, you are legally entered into an agency relationship with the listing agent as a customer. because the agent served you as a customer. Having that said, if you hire another agent to represent you and prepare an offer that you like then the listing agent has right to sue over procuring cause because he/she first showed the home to the buyer. What should you do when you are in such situation:

When you ask a listing agent arrange a showing for you, and the agent asks you whether you have an agent. The best way to answer is:

  • No, not yet, but when we are ready to buy a home, we will hire our “buyer’s” agent to represent us.

  • Yes, we are working with an agent.

Other answers are more likely get you in trouble. Agents usually ask the question to establish an agency relationship. If you have an agent, the listing agent should back off.

Terms Definition:

Multiple Representation : When one real estate brokerage (through their agents) represents the interest of buyer (customer or client) and seller (customer or client). While it is legal for an agent to work for both the Buyer and the Seller in Ontario but is not recommended for the amount of complaints filed due to the misrepresentation is . The written confirmation from buyer or seller must be obtained when multiple representation exist.

Agent (real estate agent): The person who is authorized by the hiring brokerage to deal in real estate. Agent can sign the agreements on behalf of the brokerage.

Listing Agent : The agent who represents the Seller on behalf of the hiring brokerage . The listing agent’s  duties to the seller include: Promoting the best interests of the Seller (ie, negotiate price and terms favourable to the Seller) Telling the Seller anything they know about the Buyer (eg the Buyer’s circumstances, their willingness to pay more than they’ve offered, etc) Keeping confidential anything the Seller shares (eg. why they are selling, the price they are willing to accept, etc.)

Buyer’s Agent: The agent hired by a brokerage different than the listing agent who represents the buyer.

Customer:  Who signs the Customer Service Agreement with agent who is authorized by the brokerage. The agent does NOT solely work for the best interest of a customer and provides limited services.

Client: Who signs a Seller  or Buyer Representation Agreement . The obligations to a client are more than customers including the Fiduciary obligations to protect client’s best interests at all times and maintain confidentiality.

Categories: Greater Toronto Area Real Estate Updates, Popular Cities: Toronto Homes for Sale, Uncategorized