Who does your real estate agent really work for?

If you are a prospective homebuyer, you need to understand the difference between dual seller, buyer, and realtors. Using the wrong type of agent could affect the financial terms of the deal and have significant legal implications. Read on to arm yourself with an understanding of the difference and how to use it to your advantage when buying a home.

There has been a lot of talk in recent years about buyer’s agents and seller’s agents. Real estate law has evolved to require an agent to list who they represent. This is usually done early in the process through a disclosure document that you must sign that makes it clear whether the agent is working for the buyer or the seller. A seller’s agents represent the seller. Most real estate agents who list and market homes are sellers’ agents. They may be friendly to you as a potential buyer, show you a number of homes, and help you through the bidding process. However, they usually work for the seller and look out for the seller’s interests. Rather, buyer’s agents actually work for the buyer and have a fiduciary responsibility to look out for the buyer’s interests. There are also dual agents, but we’ll get back to that in a bit.

Typically, this has nothing to do with who actually pays the agent. So why does it matter? If you are the buyer, it is important that you use a buyer’s agent because of the financial, legal, and ethical implications. A seller’s agent has a fiduciary responsibility to the seller, not to you as the buyer. This means that during negotiations the seller’s agent will look out for the seller’s interests. Here is a real life example to help clarify. Suppose an agent discovers that the seller needs to move for a new job, has been highly motivated, and is now willing to accept $15,000 below the listed price. If the agent is a buyer’s agent, working for you, he will be obligated and probably excited to provide you with this information. However, if the agent is the seller’s agent, working for the seller, they do not have to disclose this information to you and may withhold the information initially in an effort to get the highest offer from you.

So what is a dual agent? Occasionally, you’ll find an agent who says they’re playing a dual role; which means that they are acting as a buyer and seller agent. Be careful in this situation. As a buyer, you may want to avoid a dual agent. Realistically, the dual agent cannot fully represent the buyer’s interests without negatively affecting the seller, and vice versa. There are some excellent agents who can operate effectively in the dual role. However, as a buyer, you must be aware of the potential conflict. If you want the lowest price on a home, find a good buyers agent whose loyalties are aligned solely with you.

You may be wondering who really pays for a buyers agent. Typically, the listing agent lists the property on the MLS (“multiple listing service”) and agrees to split the commission with the agent who brings the buyer. In this scenario, the seller’s agent and the buyer’s agent split the real estate commission 50/50. This means that even though the buyer’s agent is working for you, the seller is actually paying for the buyer’s agent. Occasionally you may find a listing where the listing agent will not agree to split the commission with the agent bringing the buyer and in that case you will have to negotiate who will pay for the buyer’s agent.

Understanding the financial, legal, and ethical implications of dual buyer, seller, and agents is important to you as a homebuyer. Before you start looking for a new home, find a good buyers agent with at least 10 years of experience in your market. They will be aligned with your interests and have the experience to help you negotiate the lowest price for the house.