I’m Just Going to Contact the Listing Agent. I Don’t Need Buyer’s Agent.
Understanding the Role of a Buyer’s Agent in Real Estate Transactions
The Misconception: “I Don’t Need a Buyer’s Agent”
There’s a common misconception among many prospective homebuyers that they can save money by directly contacting the listing agent, bypassing the need for a buyer’s agent. This thought process, however, is flawed for several reasons. The real estate transaction process varies from state to state, with different rules, regulations, and procedures in place. For instance, while some states allow dual agency, others, like Colorado, do not.
The Problem with Dual Agency
Dual agency is a situation where a real estate agent or broker represents both parties equally and has a fiduciary obligation to both. This arrangement is generally frowned upon in the real estate industry and is even prohibited in some states, including Colorado. The reason for this is simple: it’s extremely difficult for an agent to serve the best interests of both parties simultaneously.
Imagine a scenario where an agent helps a buyer write up an offer, only to present it to the seller and suggest that the offer is too low and should be countered with a higher one. This situation becomes even more complicated when you consider that the agent has likely already had a conversation with the sellers about what they believe the house is worth.
The Limitations of Transaction Brokers
In Colorado, the broker can only act as a transaction broker in such situations. This means that the broker or agent cannot provide any advice except in the explanation of the contract. Their role is solely to ensure that the transaction runs smoothly. They can provide raw data and comps to each party, but they cannot advise on what they believe. This can lead to a situation where the buyer is negotiating a real estate transaction without really knowing how to do so, potentially leaving them in a weaker position and possibly losing money in the long run.
The Importance of Having Your Own Representation
The best analogy to use would be a legal one. If you were arrested, would you let the prosecution defend you? If someone was suing you, would it be in your best interest to have their lawyer represent you? Most people would agree that having your own representation would be best.
Some people believe that if they use the listing broker, they can negotiate lower commissions and offer less, thereby saving money on the purchase. However, this is usually not the case. If an agent “double ends” a deal (at least in the state of Colorado), they will usually receive the same (or very close to the same) commission they would if they only represented the seller and the buyer had their own representation.
The Value of a Buyer’s Agent
Real estate agents and brokers handle real estate transactions all day long. Buyers need to understand the importance of having someone in their corner, guiding them and advising them at every point in the contract. Considering that buying a home is often the biggest investment one makes, going in without someone explaining market conditions and value can be risky.
There might be times when you can complete a transaction without needing an agent representing you, but if you can get better service with no additional cost to you and potentially have a better outcome, since commissions are paid by the seller 99.9% of the time, wouldn’t it make more sense to use a buyer’s agent when buying your home?
There are so many people that don’t understand how this real estate transaction thing works. There are just as many people that think they do and are going to save money on using the listing agent for their transaction. There are so many things wrong with this thought process that it will be hard to list them all. Many people in other states are used to a different kind of process. Every state has different rules, regulations and procedures for real estate transactions. For example some states allow for dual agency. This is something that most Realtors will agree is a very bad idea. Colorado does not allow for dual agency. Dual agency is when a real estate agent or broker represents both parties equally and has a fiduciary obligation to both. This is very difficult to achieve. How can an agent help a buyer write up an offer and then present the offer to the seller and say “i think this offer is too low and we should counter with a higher offer.” Also you have to think that the agent has already had a conversation with the sellers about what they believe the house is worth. So prior conversations have already taken place in a fiduciary manner. On the flip side in Colorado the broker can only be a transaction broker. What this means is the broker or agent can not help or advise in any way except in the explanation of the contract. The broker is only there to assure the transaction runs smoothly. They may not do anything but provide raw data and comps to each party. They may not advise on what they believe. So again what if the listing agent or broker has already had the conversation about the proper value and other things about the property? Hardly seems like it would be a true non-fiduciary situation.
The best analogy to use would be if you are arrested would you let the prosecution defend you? If someone is suing you would it be in you best interest to have their lawyer represent you or would be in your best interest to have your own representation? Most people would think that having your own representation would be best for you. Although some think “well if I use the listing broker I can negotiate them to get less money for commissions and offer less and save money on the purchase”. Well those people are wrong. If an agent “double ends” a deal (at least in the state of Colorado) they will usually get the same (or very close to the same) commission they would if they only represented the seller and the buyer had their own representation. So they buyer at this point is a person negotiating a real estate transaction without really knowing how to do so. This will usually leave the buyer in a weaker position and possibly losing money in the long run.
Real estate agents and brokers do real estate transactions all day long. Buyers need to understand the importance of having someone in their corner. Someone guiding them and advising them what they should be doing a any point in the contract. It is their biggest investment and to go in without someone actually explaining market conditions and value is not really understanding how this whole thing works. There might be times that you can do a transaction and not need an agent representing you but if you might get better service with no additional cost to you and perhaps have a better outcome, since commissions are paid by the seller 99.9% of the time, wouldn’t it make more sense to use a buyer agent when you are buying your home?
