When Sellers hire a real estate agent to sell their home, they are actually hiring the brokerage company that “employs” the agent. Commissions are paid to the broker which then in turn pays the agent. Before you hire an agent, you should be given a written CONSUMER NOTICE (or verbal equivalent) of the ways that they can represent (or not) you. One possibility, if you permit, is for the same broker/agent to represent both you, the Buyer AND the Seller. This is called DUAL AGENCY. [Permission to act in this manner is actually placed in the Pennsylvania of Realtors agreement of sale and so if you DON’T want this you have to take action and strike it.] If you think it’s a head scratcher, we agree. How does the same broker/agent get you the best deal and lowest price and get the Seller the best deal and the highest price? While, as an attorney, our legal clients can elect to waive some potential conflicts of interest, just the issue of who gets the best price alone seems like a pretty direct conflict that would be hard to manage. Nevertheless, it’s allowed….for now.
With the changes under the NAR settlement, you, the buyer would have to sign a contract with an agent for them to be paid. With the changes, buyers do not need to hire a real estate agent, they can, for example, elect to go it alone or hire an attorney. Early in the process Buyers should ask the Seller’s agent whether the Seller has agreed to pay an amount “baked into the sale price” to be paid to your real estate agent. If Buyers do want to hire an agent, and it’s the same agent representing the Seller, now the Buyer can to decide how much to pay. Buyers don’t have to give the agent what the Seller has built in. Some of that can be used to reduce the price or pay costs. If you want to go down this path of divided loyalties in which the agent is working for you but also working for the seller, ask yourself, how much are the services really worth and can you buy those cheaper from an attorney or other agent? Admittedly there is more work but how much? Did you identify the house? Maybe found it on a website? The agent may show you the property but isn’t the Seller paying them to do that as part of their representation? A contract needs to be prepared but, the Seller’s agent should have a lot of the information already; names, addresses, contact information, etc. and the agent would have to review the agreement anyway. They could help to advise you on the amount to offer, based on comparable sales that they should have from helping the Seller establish the price (but are those comps ones that favor a higher price because the agent was trying to get the Seller to hire them?). The agent might be able to go over the contract and point out clauses that favor you and those that favor the Seller, or maybe they can’t or just don’t. The agent could help find a home inspector, or you could google American Society of Home Inspectors and come up with a bunch. You need to pay attention to time limits in the agreement, the agent could probably help with that. The agent might strongly suggest a lender and closing company but you should ask why those and what affiliation or compensation, direct or indirect, might they receive (we have seen instances where the affiliation is disclosed on a backdated paper signed at closing). Buyers should ask how much time is involved and for what services before they decide on what to pay an agent.
Keep in mind that the Seller’s agent (aka the “Listing Agent”) has the incentive to procure, you, the buyer which can double their commission (or more). When they advertise the Seller’s home on certain sites, the sites require the agent to pay a fee in order for them to be listed as the contact. They of course do this because they want you to call to them directly to increase their commission (which can beg the question, if they ignore you, because you don’t want to hire them but you just want them to show you the property, is that proper?). The sign in the yard probably has their name hanging below it (pretty good marketing, the Seller is paying the agent to advertise the agent’s services) because they want calls to come to them directly.
Then to add a twist, at times a thing called DESIGNATED AGENCY, is used where the broker of the company may designate an agent other than the agent representing the Seller, within the same company, to represent the Buyer in somewhat of an attempt to create an invisible wall, isolate information and to carry out arms-length negotiations between the listing agent for the Seller and the Designated agent. This all takes place with the assumption that the agents, who work for the same broker, possibly within the same office, perhaps coexisting on a day-to-day basis, or even have lunch together, don’t talk to each other about what confidential terms one will accept or the other will offer. THAT ASIDE, and that’s a lot to set aside, the question becomes how much should that cost and how much is the Designated agent being paid? You, the Buyer, should have a say in that.
In conclusion, serious consideration should be given to whether or not Buyers should agree to Dual agency and if they do, consider, in dollars-not percentages- what an appropriate amount of compensation should be considering the lack of full representation, the actual tasks involved and the estimated amount of time required.
