Just like any other financial transactions (stock, life insurance, auto insurance, etc.) real estate practice has evolved to include a professional third party who is interested in the party he/she represents.
There are following main relationship you can have with real estate agent:
Listing Agent is the one who is interested in selling the home at a highest price for the home owner. This is the person who enters into the contract with the seller and shares his/her commission with the agent who is representing the buyer (one of the two from below).
Sub Agent is the one who is subcontracted by the listing agent to sell the house. By entering a house for sale in MLS, the listing agent invites all the other agents to be a sub agent. Sub-agent furthers the listing agent’s interest (to sell the home at a highest price for the home owner). When you do not have any contract/agreement with your agent to document your relationship as Buyer’s Representation, the default relationship your agent will have with the listing agent is Sub Agency. Sub Agent’s compensation comes from the listing agent’s total compensation that is shared with sub agent.
Buyer’s Agent is the one who is hired by the buyer to find a right home in the price range that the buyer is willing to spend or able to get loan for the house. This is the agent you will ask to show any house you are interested in. By the nature of this relationship, his interest is to get you the right house at the fair market price. He is the one who will bring the whole team of professionals to help you making the right choice with respect to home’s condition (based in home inspection), price (based on appraisal), and any other important factor you may be concerned about. Except in some high end homes, Buyer Agent’s compensation typically comes from the listing agent’s total compensation that is shared with buyer’s agent.
Additionally if a same agent represents both the buyer and the seller, it’s called Dual Representation and the agent in that case, according to ethics code of the Association of Realtor® cannot advise any party on the price of the house, etc. This is a murky area where there are special requirements for the agent to fulfill to ensure fairness to both parties.
What does the buyer’s agent do?
Though the buyer’s agent usually performs most of the tasks listed below, the first duty of a buyer’s agent is to always act in the best interest of the buyer.
- Helps you tour homes
- Gives advice on homes
- Performs comparative market analyses (CMA)
- Gives advice on price & crafts your offer
- Negotiates with seller on price and repairs
- Helps you find inspectors, lenders & other service providers.
- Helps you deal with closing and contingencies
Why you should NOT hire the Seller’s Agent (Listing Agent) to buy a Home?
When you contact the listing agent, the seller’s agent (or colleague from the same office) will represent you by default. With that, you are entering into Dual Agency relationship (or Designated Agency if agent from same office represents you). By avoiding Dual Agency/Designated agency, you will ensure that the information you are sharing with the agent and preferences you have for the house/repairs is not affecting the deal adversely (for you) in the transaction. According to Code of Ethics by Association of Realtor®, the Realtor will not be able to advise any party on the price of the house etc. in this relationship.
A buyer’s agent fiduciary responsibility is to look out for your interests first. A buyer’s agent’s duties are to:
- Negotiate on your behalf.
- Fight for the sales price, terms and conditions that best match your criterion.
- Anticipate problems and head them off at the pass.
- Tell you the truth.
- Disclose defects the agent can see.
- Provide you with seller disclosures and every piece of documentation to which you are legally entitled.
Additionally you have following benefits:
Home search based on your criteria for the types of houses, in the areas you want to live in.
- Custom tours, planned by the Buyer’s Agent. You can talk over the houses privately during showings.
- Someone to explain the whole process to you, from making the offer to getting the deal closed.
- Someone to help you understand what you must do to protect yourself in a real estate transaction so you don’t end up with a crappy house that you paid too much for.
- Someone to buffer you from pushy Sellers, pushy Listing Agents and anyone else who is not obligated to look out for your best interests.
- A highly qualified negotiator to get you the best terms for the house you want.
- Someone who can pull together all of the information about what other houses are selling for like the one you want to buy so you don’t pay too much, or get into a contract that can’t close because the house isn’t worth what the Sellers want for it.
If you don’t have a Buyer’s Agent, the agent or agents you talk to may not be obligated to keep your information confidential, or to help you get the best deal.