We’ve noticed a new trend in the last few years: buyers wanting to buy with the Listing Agent (the agent who represents the Seller) instead of having their own agent (the Buyer’s Agent). These Buyers work the open house circuit, troll the MLS for properties they like, and make appointments for the properties they want to see directly with the Listing Agents. When it’s time to make an offer, they make it via the Listing Agent, who represents both the Buyer and the Seller. We’ve also noticed that the decision to buy with the Listing Agent is based on some basic misunderstandings about how real estate agents work (and sometimes it’s based on some blatant lies that some agents tell too).
Before getting into the risks of buying with the Listing Agent, it’s important to understand a few terms and rules in Ontario:
Technically, Buyers and Sellers hire a brokerage, not an agent, and their agreements are with the brokerage, not the agent.
The Listing Agent is the person who represents the Seller. The agent’s responsibilities to the Seller include:
- Promoting the best interests of the Seller (ie, negotiate price and terms favourable to the Seller)
- Telling the Seller anything they know about the Buyer (eg the Buyer’s circumstances, their willingness to pay more than they’ve offered, etc)
- Keeping confidential anything the Seller shares (eg. why they are selling, the price they are willing to accept, etc.)
The Buyer’s Agent is the person who represents the Buyer. There are 2 ways an Agent can work with a Buyer:
- By having the Buyer sign a Customer Service Agreement, making them a Customer. When you’re a Customer, the agent does NOT work solely in your best interest and provides restricted services. The agent’s obligations are:
- Fairness, honesty and integrity to everybody
- Conscientious and competent service
- Only disclose to you the material facts that he or she already knows or ought to know – they aren’t required to take any further investigative steps.
- Limited privacy obligations
- By having the Buyer sign a Buyer’s Representation Agreement and treating you like a Client. The obligations to a Client are:
- Fiduciary: the agent must promote and protect your best interests at all times
- Negotiate favourable terms for the Buyer
- Maintain confidentiality
- They must take reasonable steps to determine and then disclose to you all material facts about the property.
See the difference?
In Ontario, it’s legal for an agent to work for both the Buyer and the Seller. It’s called Multiple Representation and it’s complicated. When an agent works for both the Buyer AND the Seller, they are acting as mediators and have certain obligations:
- Confirm in writing that all parties understand and consent to the agent representing both parties
- Do what is best for both Buyer and Seller (it’s hard to provide the best service for one party when that usually means sacrificing something for the other party)
- Not reveal confidential information to either side
Confused? That’s OK. It’ll be clearer when you read to the end of this blog!
The Dangers of Buying With The Listing Agent
Despite popular opinion, working with the Listing Agent won’t actually guarantee you’ll win the bidding war. True, the Listing Agent will see all of the offers and could, in theory, tell you how much to bid to win it, but that is 100% against the real estate code of ethics. Any agent who tells you’ll have an edge when you work with them is unethical and risks losing their real estate license.
The secret inventory of houses that Buyers dream of is exaggerated and rarely works to the Buyer’s advantage. There’s a common belief out there that every agent has a bunch of secret inventory – homes that aren’t actually on the market that can be solely accessed by the agents’ own Buyers without any competition. While it’s true that top agents may have the inside scoop on the homes they’ll be listing in the future, most agents in Toronto only list a handful of properties per year. (Pro tip: work with top agents like us). More importantly, it rarely ever makes sense for a Seller to sell to you instead of exposing their home to the open market…unless they think they can get you to pay more than market value, or there’s something wrong with the house. Some Listing Agents will tempt you with the secret inventory line to get you to be their client, but it’s rare that ever works out for the Buyer.
Generally, it’s not actually cheaper to buy with the Listing Agent. Some people believe that if they buy with the Listing Agent, they’ll save money because the agent is going to make extra commission, so they’ll get part of that commission. Truth: the Seller pays the commission so Buyers can’t actually negotiate the commission with the Listing Agent – that conversation took place long ago between the Seller and the Listing Agent and has nothing to do with you, the Buyer. While the Seller may save some money if the Listing Agent brings a Buyer themselves, that’s cash in the Seller’s pocket, not yours.
While the Listing Agent does probably know the house better than anyone else, it’s their job (and to their benefit) to focus on the positives of the house and the neighbourhood. Don’t count on the Listing Agent to volunteer information about the termite problem on the street, the hoarder next door, the lawsuit against the condo or the dampness problem in the basement. If you work with an experienced Buyer Agent, it’s their job to represent you and only you. They’ll get the scoop on the house and the neighbourhood. They know what questions to ask, where to research and they hopefully already know the neighbourhood. Also: some Listing Agents in Toronto don’t do a great job of finding out about the house and the neighbourhood and the Buyer’s Agent already knows more than them. Don’t get me started on that one.
When an agent represents both the Buyer and the Seller (multiple representation), irrespective of whether you’re a Customer or a Client, they can’t tell you how much to pay for the property. With Customers, their duties are to the Seller so sharing historical comparable sales that don’t support the Seller’s price, for example, wouldn’t be working in the Seller’s best interests. In the case where the Buyer is a Client, and the brokerage represents BOTH sides, they can’t reveal anything they know to the Seller about the Buyer and vice versa. And they can’t recommend a price.
The Listing Agent’s goal isn’t to get you the RIGHT house, it’s to get you to buy THIS house. Having your own agent means they are motivated to find you the perfect house in the perfect neighbourhood no matter how long that takes. Of course, some agents are primarily motivated by the possibility of a bigger commission, so the person they are most concerned with is themselves. Ugh.
People who work with the Listing Agent almost always reveal their position – their budget, that they’re pregnant or that need to buy a house in the next 30 days. The Buyer’s Agent keeps all of that information confidential so it can’t be used against you in negotiations.
One of the most important qualities you need in an agent is negotiating skills. As a Buyer, you want someone who can negotiate on your behalf, and that’s not really possible under Multiple Representation.
Questions? Comments? Leave them below or get in touch!