Who does your real estate agent really work for?

By: kcole
If you are a new home buyer, you must understand the difference between seller, buyer and dual real estate agents. 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 in any real estate transaction.

There has been a significant amount of talk over the past few years about buyer's agents and seller's agents. Real estate law has evolved to require that an agent list who they are representing. This is normally done early in the process through a disclosure document that you must sign that clarifies whether the agent is working for the buyer or seller. A seller's agents represent the seller. Most real estate agents who show and market houses are seller's agents. They may be friendly to you as a potential buyer, show you multiple listings and help you through the offer process. However, they typically are working for the seller and looking out for the interests of the seller. Conversely, buyer's agents actually work for the buyer and have a fiduciary responsibility to look out for the interests of the buyer. There are also dual agents, but we'll come back to that in a moment.

Normally, this has nothing to do with who actually pays the agent.

So, why does it matter? If you are the buyer, it is important for you to use a buyer 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 during all negotiations a seller's agent will be looking out for the interests of the seller. Here's a real life example to help clarify. Suppose an agent discovers that the seller must relocate for a new job, has become highly motivated and is now willing to accept $15,000 under the listed price. If the agent is a buyer's agent - working for you - he/she will be obligated and excited to tell you this information. If the agent is the seller's agent - working for the seller - he/she does not have to disclose this information to you and may withhold the information initially to get the highest offer from you.

Sometimes agents will disclose that they are performing in a dual role; meaning they are working for both parties. Be careful; as a buyer you may want to avoid a dual agent. The agent cannot realistically fully represent your interests without adversely affecting the seller and visa versa. There are some excellent agents that can operate effectively in the dual role. However, as a buyer, you should realize the potential conflict. If you want the lowest price, seek a good buyer agent whose loyalties are aligned only with you.

So who pays for a buyer's agent? Typically the selling agent lists the property in 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 although the buyer's agent is working for you, the seller is actually paying for the buyer's agent.

Understanding the financial, legal and ethical implications of buyer, seller and dual agents is important to you as a home buyer. Before you start searching for a new home, find yourself a good buyer's 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 home.

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