"I Want to Work with the Listing Agent" - Types of Relationships in Florida
It seems like we are hearing this more and more from home buyers that contact us about a property for sale. Perhaps they are getting this from real estate TV shows like Million Dollar Listing.
Most home buyers are not familiar with the intricacies of agency representation, nor do they know the difference between a buyer’s agent and seller’s agent. They typically just view the person they contact about a property or the one they meet at an open house as an “agent.”
Buyers who seek out the listing Realtor (seller's agent) to buy a property they have listed can run into potential problems of conflict of interest. The state of Florida legally allows this to happen, but is it smart? First, let's review agency in Florida.
Dual agency is not allowed in Florida. Agency in real estate terminology means that the Realtor enters into a relationship with a client to whom he/she owes a fiduciary duty, also known as obedience, loyalty and confidentiality. It is an attempt to act in both the buyer and seller's best interest at the same time. How is that possible? It is the equivalent of being charged with a crime and hiring the prosecuting attorney to also represent you as your defense attorney. This is why dual agency is outlawed in most states.
In Florida, we have a limited agency classification known as transaction broker. The agent is simply working for the transaction but does not have a fiduciary duty to the buyer or seller. Essentially, the agent is a neutral party in the middle to facilitate the transaction and owes both parties limited confidentiality. That means the agent is not allowed to tell the seller that the buyer will pay more for the property or tell the buyer that the seller will take less for the property without permission from the party in question.
A Single Agent is defined as a broker who represents either the buyer or seller of real estate, but not both in the same transaction. It is the highest form, providing the most confidence to the customer that the Realtor represents only the customer’s interest. Whether you are a buyer or seller, the real estate agent and brokerage are required to act solely on behalf of your interests.
Using the Listing Realtor Will Save Me Money
This is not necessarily true. Many buyers think they will get a better price for the property if they work directly with the listing Realtor. They think the listing agent will reduce the commission if they don't have to share it with a buyer’s agent, thus lowering the purchase price. It certainly does happen from time to time but there are no guarantees.
Is the perceived savings worth the risk of not having a Realtor represent you in the transaction? Maybe. Maybe not.
Real World Example #1
Some friends of mine bought a home in Orlando. I didn't represent them (I don't know that real estate market). I encouraged them to hire a Realtor to represent them but they ignored my advice and decided to call listing agents directly in hopes of saving some money. It actually did work in the short run. The listing agent reduced his commission from 6% to 5% to put the transaction together. The purchase price was $525,000, so in their minds they saved 1% or $5,250 on the purchase.
The listing Realtor acted as a Transaction Broker. Thus, he was supposed to be a neutral party and there to facilitate the transaction. This agent had sold several properties in the past for this seller. Regardless of what Florida law says or what documents were signed, who do you think the Realtor was partial to? The buyers he just met or the seller who he has known for many years?
The home and transaction were riddled with problems that were discovered after the closing. Repairs were not done properly. Problems with the home that the buyers felt were hidden by seller. Ultimately, the buyers felt that they were bamboozled by the listing Realtor. The costs of these problems far exceeded the $5,250 they felt they saved by not having their own agent.
Real World Example #2
Years ago one of my agents was working with a buyer to find a downtown sarasota condo. Over the course of a few months my agent showed this buyer many condos and educated her on that segment of the Sarasota real estate market. The buyer ultimately contacted the listing Realtor directly, purchased it through them and essentially deprived my agent out of a transaction. Not only was it a horrible thing for the buyer to do but it also turned out to be a big, expensive mistake. The listing Realtor did not reduce his commission to save the buyer any money and the transaction was a complete nightmare. Had the buyer worked with my agent it would have gone much smoother and she would have saved thousands of dollars in the long run due to the thoroughness, professionalism and representation of my agent. Perhaps it was karma for the buyer to learn an expensive lesson.
Real World Example #3
I have been in the middle of a transaction acting as a neutral party. I didn't do or say anything to cripple either party. I was there to facilitate the transaction. Buyers and sellers were happy with the transaction.
Quality is Remembered Long After Cost is Forgotten
Hiring a Realtor to represent you on a purchase does not cost anything. In most transactions the agents are paid by the seller. Typically, the listing Realtor will market their listing on MLS and share half the commission with the agent that brings the buyer. So, if the commission is 6%, then each agent typically get paid 3%. The buyer does not directly pay their Realtor for services rendered.
A home purchase/sale is most people's largest transaction. A transaction can be pleasant with the listing Realtor acting as a Transaction Broker. Or, it can turn out to be a horrible situation. Something to put a little thought into the next time you are purchasing a home.