There are distinct differences when a real estate agent represents a buyer or a seller and you should be aware of them before you become either one.
Unless you are a real estate investor or in a profession requiring you to move often, buying a house is rare occurrence. In fact for most people, buying a home is the single largest financial transaction they will be involved with in their lives. Most people can easily see the wisdom in obtaining professional support for complicated legal and financial matters, such as hiring an attorney to draw up a will or consulting with an accountant over sticky tax issues. When it comes to buying a house, this same wisdom should prevail and for all kinds of reasons, prospective homebuyers should seriously consider putting a realtor on their side.
Two sides to every transaction
For many people looking to buy a home, there is a familiar scenario: prospective homebuyers typically sit down with a financial adviser to determine what the budget for buying a home is. Many may even go through the process of getting a formal pre-approval letter from a financial institution, declaring how much that institution is prepared to loan the homebuyers. (This is a highly recommended step.)
With that budget and perhaps a shopping list of needs and wants, the homebuyers will then start looking at listings or properties for sale. If they find a property or two they think might work, the homebuyers may schedule a walk-through inspection of the property to really get a feel for the place. These appointments are typically scheduled through the agent representing the people selling the property in question, the listing agent. Let's say the prospective buyers really like a property after walking through it and the listing agent (who helpfully guided them through the tour) suggests they make a formal offer. In fact, the helpful listing agent may even have the necessary paperwork on hand to facilitate the submittal of a formal offer.
That listing agent is there to represent the interests of the people selling the home. While they may be very helpful and very knowledgeable (and in fact, there are no technical differences between the licensing requirements of a listing agent and a buyer's agent,) the listing agent isn't there to protect your interests in the transaction.
Buyer's agents, a fairly new wrinkle
Given the complexities that can arise during the home buying process, it's surprising how many people fail to get their own professional assistance in the process. Before the 1980s, most homebuyers had no choice. There was no real distinction between a buyer's agent and the seller's or listing agent. It was almost pro forma for a listing agent to handle the entire transaction without informing the purchaser of any potential conflicted interest. (There were exceptions and many people routinely hired an attorney to represent them when they were considering a house purchase.)
In 1983, the Federal Trade Commission (FTC) conducted a study and found that 72 percent of homebuyers believed the agent that facilitated their purchase (in nearly all cases, the listing agent) was there to represent their interests as well. In response to this widespread misinformation, by 1988, most states had implemented disclosure laws requiring listing agents to be clear with prospective buyers about who they represented (and who they didn't.)
As a result, the industry has adjusted and today, there are some agents who specialize in serving the interests of buyers only (just as there are some agents who only work on new construction developments or those who only sell land.) A licensed agent can work for either a buyer or a seller (in many cases, one quickly becomes the other) but clarity and transparency in the transaction are easier to come by for any prospective homebuyers these days. Even given that, there are still many people who don't put somebody on their side of the transaction when buying a home. The National Association of Realtors reports that 20-30 percent of homebuyers still rely solely on the listing agent when purchasing a home.
Buyer beware and be represented!
One reason why buyers may not enlist the assistance of their own agent in a real estate transaction is that today, much of the information buyers initially seek from an agent can now be found online. For example, online home listings include information about the home, its purchase history, the sale prices of homes surrounding it and other historical data that was once only available to real estate agents. There are even some property listing sites that can run you details of comparable homes that are for sale or that have sold recently in the area (comps), and most County Assessors now have property tax and title history information available online.
You can easily find local real estate agents, today.
With this information readily available, many buyers may believe they can successfully negotiate the purchase of a home. But there are many nuances and technicalities to a home sale transaction and having a professional working on your behalf is prudent. Your agent will be just that, your agent. That agent can help you create a bidding strategy, negotiate the purchase price, arrange home inspections, request title reports, properly write up any required contingencies to an offer, and complete the closing paperwork necessary to finalize the transaction.
Perhaps the biggest incentive to acquiring a buyer's agent is that, as a buyer, it won't cost you anything and it won't add to the price of the home you hope to purchase. Agents (all agents) receive a commission from the home's sale. The listing agent has negotiated with the sellers what the commission will be prior to listing the property. Smart listing agents also include provisions in commission agreements to accommodate a buyer's agent should any homebuyers have one in tow. When a property is sold, the listing agent will forward an agreed-upon percentage to the buyer's agent, and you (as a buyer) won't be out any money at all.
If you are a first-time homebuyer looking to get out of an apartment or shared housing situation, it would be particularly helpful to you to secure the services of a buyer's agent. If you're looking to buy a home as an upgrade or downsize to a current one, or if you've been required to relocate, you may have the perfect agent available to represent you on the buying side of a transaction your listing agent.
There are numerous schools of thought on the subject of when or whether a homeowner should sell a current home in the course of buying a new one. On the one hand, if you sell your current home before settling and closing on a new one, you'll be stuck having to secure temporary housing. On the other hand, if you buy a new home before selling your old one, you'll be stuck with two house payments. Either way, you'll likely need the services of a listing agent. If you have a home you're selling and you've already enlisted an agent to represent you, you should have a good idea as to whether that agent is a good fit for you and you can certainly engage him/her in helping you find a new home when you now become a buyer again.
Even if you're not selling a home, having a sense of what a listing agent does can help you understand more about the entire process. It can also help you appreciate why having an agent solely dedicated to your interests would be a good idea.
One of the first (and perhaps most important) tasks a listing agent undertakes is determine the best asking price for home that's going to be sold. They do this by conducting a Comparative Market Analysis (CMA) that will take into consideration a number of factors, including:
- The house's location
- The age and notable features of the home
- Comps on the market in your area
- Comps that have recently sold in your area
- Any planned major changes in the area
- General market activity/recent history in your area
After the price has been set, they'll begin to market the house to other agents and prospective buyers. To complement their efforts, they might also advise you on how to stage the house to show off its amenities and potential. They may also suggest that you hold an open house (or two, or three) as a way of attracting potential buyers and showcasing the strengths of your home that will make it an attractive option for buyers.
Closing the deal
Once interested buyers have been attracted (and it only takes one!) the listing agent will be the lead in evaluating and encouraging the most qualified buying candidate(s) for your property. S/he will negotiate on your behalf to get the best possible offer for your property. There may be cases where that won't be the highest price as other priorities may take precedence. For example, if you are in a situation where you need to sell a home fairly quickly because you have already purchased another home you intend to move into, your listing agent may suggest you take the offer of a party that can close quickly (or even one that has cash-in-hand) over a slightly higher offer that may have a prospect of a lengthy closing.
Once you agree to accept an offer presented to you by your listing agent, the agent is then responsible for making sure all of the legal and contractual details of transferring ownership are properly executed. The listing agent is also going to serve as the lead in making sure that the sales proceeds are properly disbursed as agreed-upon in your original contract.
Yes, your relationship with either a listing or buyer's agent will be governed by a contract. That contract will (or should) spell out what you expect from your agent and, likewise, what your agent expects from you. A listing agent is likely going to have you agree to certain terms such as the number of open houses you will make your home available for and what you will undertake in terms of staging and cosmetic upgrades to the home to list and show it in its best light.
You and your agent will agree to the length of time under which your contract will be valid. That timeline will depend a lot on how quickly you need to sell your home (or on how quickly you need to find a home, in the case of a buyer's agent agreement.) Your listing agent agreement will also clearly define what the commission structure will be and how all agents involved in the process (listing or buyer's) will be compensated.
If you should have any complaints or issues that arise from your relationship with an agent, there are a number of steps you can take and levels of oversight where you can have your issues addressed. Beyond addressing your issues directly with the agent, you may want to enlist the assistance of that agent's principal or managing broker. Most agents work within the structure of a real estate brokerage (some national, some regional, some very local) where there is a hierarchy of management and oversight. While a growing number of states have stiffened the licensure and continuing education requirements of real estate agents to also include matters once left solely to brokers, most agent still have to report to a manager.
Real estate agents and brokers are governed at the state level. Each state has an agency that regulates the licensing, qualifications and discipline of real estate agents and brokers. If you have issues with your agent, you can bring them directly to your state's agency overseeing real estate agents and brokers. In fact, checking with your state's real estate agency is a great way to get a clear, objective view of whether any prospective agent you are considering has current, past or even pending issues with how s/he does business and treats clients.
When it comes to legal matters, there's an old warning: a person who acts as his/her own attorney has a fool for a client. Given all that is at stake, perhaps the same advice should be given to potential homebuyers and sellers. These days, it just makes sense to have a licensed and experienced professional working on your behalf. Whether you engage a real estate agent to help you buy a home, or whether you bring one on board to help you sell your home, you really can't go wrong putting a professional in your corner. RealtyNow can help you in the endeavor as we can connect you to local real estate agents ready to help you get the most out of any real estate transaction.