The Perils of Dealing Direct
One of the biggest mistakes a buyer can make is when they adopt the strategy of “going it alone”, which means they search for properties themselves (without the help of a hired Buyer Agent) and then negotiate directly with the listing agent when they find something they like. It’s a monumentally stupid and unproductive approach, so why would anybody do it you may ask? The wealth of information available online and the crazy bidding wars are the two main factors, without a doubt.
The buyer that deals only with the listing agent is operating on 2 main assumptions.
- They can manage their home search as well as a registered realtor.
- They will get an inside negotiating position in a multiple offer scenario.
A potential third reason is the hope that the listing agent will cut their commission since it is a double ender and thus the purchase price will be reduced, but I will leave this out for now as it is unlikely to occur in the majority of bidding wars.
Now let me explain why this is a really bad idea, on a par with back to back to back episodes of anything Kardashian related (but I do have a soft spot for Bruce). First of all, it doesn’t make somebody a realtor just because they can go online, view listings and find open houses. I dare say there is a bit more to it than that, and when you actually hire a realtor you get more – like an expert in the neighbourhood who will find the houses that best suit your needs, personally preview them, talk to you about the merits (or lack of) for the local schools, analyze the relevant comparable sales, walk you through each element of a home inspection, and then finally help you negotiate the best price possible when you make an offer. Small details to some, perhaps.
Then there is the craziest thing of all – it doesn’t cost a buyer a DIME to have a realtor help them find and purchase a house! That’s right – zip, zilch, nada. Zero point zero, to quote the immortal Bluto’s GPA from Animal House. In a real estate transaction the seller pays out all commissions. What rational person then, when about to embark on the biggest purchase of their life, wouldn’t want an expert in the field representing them and looking out for their best interests, for FREE? I know if (when?) I am in trouble with the law I wouldn’t just go online to a few half assed websites and then try to make a deal directly with the judge.
The second part of this deals with the nature of the relationship between a listing agent and seller. In a nutshell, the listing agent has been hired by the seller and works for them, with their ultimate goal to fetch them the highest price possible for their home. This is clearly diametrically opposed to the objective of the buyer, which is to get the lowest price possible for a home. I don’t honestly know how a single agent can balance these two positions, especially in a multiple offer scenario. It’s no coincidence at all that the majority of complaints filed with RECO arise from a single agent representing both sides in a transaction, and I don’t see that ever changing.
Consider the following scenario. Buyer Jones wants to make an offer on a house, and decides to approach Listing Agent Smith directly to put a bid in for him on the offer night, which will surely fetch multiples. Listing Agent Smith is best friends with the seller (happens all the time) and is put off by Buyer Jones, who is very transparent about the fact that he wants to pay “$1000 more than the highest offer, and not a penny more”. Listing Agent Smith provides the bare minimum service that is required, gives a cursory review of the home inspection (which has troublesome observations) and doesn’t say anything about the pending condo development nearby (Buyer Jones is unaware) that residents fear will affect street value. On offer night Listing Agent Smith advises Buyer Jones to submit an offer that is $90,000 higher than the next closest bid, and he is now the proud owner of a house with multiple red flags. If Buyer Jones just would have hired a realtor to represent him things would have been different.
I hate to be pessimistic, but the above situation happens in the city every week. Many agents view buyers who insist on dealing directly with listing agents as the lowest form of client out there, and they deal with them accordingly. Don’t be Jones – go out and find yourself a great buyer agent. You will be glad you did, and way further ahead in the long run.