Buying a home is considered a significant — and stressful — life experience. Not only is it one of the biggest financial transactions you'll ever make, but it also requires a great deal of effort, energy, time, and, of course, patience.
Many homebuyers, especially those in a competitive market, wonder if working directly with a seller's broker versus their own broker (aka the buyer's broker) is beneficial. The quick answer is: probably not. Here's what you should know.
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What is a seller’s broker?
A seller's broker, who may also be referred to as the listing agent, is a licensed real estate professional who represents the party selling the property. Their allegiance is to that party. They manage the whole scope of the sale — from listing and showing it to negotiating with potential buyers, doing their best to ensure that the seller receives the best deal on their property.
What is a buyer’s broker?
A buyer's broker is a licensed real estate professional who represents a homebuyer in the process of purchasing a home. Their fiduciary responsibility is to you. Not only does the broker help the homebuyer find their future home, but they also represent them in sourcing their real estate purchasing team, including a mortgage broker (if financing) and a real estate attorney; negotiating the purchase price; creating board packages; and attending walk-throughs along with the closing.
It's a buyer's broker who will ensure the purchase is advantageous to you. A buyer's broker is also paid by the seller, not the buyer.
What is a dual agent?
Brokers who represent both the seller and the buyer are called dual agents. This occurs when a buyer works directly with the seller's broker. This is legal in most states, but there are plenty of regulations around its practice. This is a tricky position for dual agents, since they must legally agree to and disclose neutrality toward both parties. And both parties must also agree on this.
"By consenting to dual agency, you are giving up your right to have your agent be loyal to you, since your agent is now also representing your adversary. Once you give up that duty of loyalty, the agent can advance interests adverse to yours," says the New York Department of State.
A dual agent's fiduciary responsibility — to both clients — negates them from taking anything but a neutral stance. This neutrality can inherently make it hard to get the most money for the seller and the best deal for the buyer.
The importance of a buyer's broker:
"When it comes to buying a home, your broker's fiduciary responsibility is entirely to you, which means they'll go to bat for you," Ben Falchi, a senior real estate agent at Triplemint in New York City, tells Hunker. Besides having access to sales data and comparable sales (aka comps), the buyer's broker is armed with smart negotiation tactics and helpful contacts.
This broker's job often goes beyond knowing the market, though. "When I work with homebuyers, I understand how stressful the next three to six months are going to be for many of them. Part of my job as an attentive real estate agent is to be their de facto sponge for that stress," Falchi says. "I'm their broker, friend, and advocate."
A broker's knowledge comes in handy from start to finish, especially during more complicated situations. For example, buying a home means going through a process called due diligence, which is a buyer's investigation into a property. This is a deep dive, conducted by a real estate attorney, into the background and financials of the house or building. Your broker can help you make sense of this complex process, which can be a relief during what is already a stressful time.
"A broker who will hold your hand and guide you through the complexity of this process is such a necessity," Falchi says.
Peta Couzens, a real estate agent at Triplemint, agrees: "You don't see winning athletes at the Olympics without their coaches. And you wouldn't represent yourself in court without an attorney. A buyer's agent should be viewed in the same light. We are here to help you get across that finishing line — in first place — and we have your back (because we have a fiduciary duty)."
So, is there ever a time when you should work with a seller’s broker?
By this point, you might be asking yourself why anyone would go without a broker representing them. The thing is, there is a slim chance there could be a financial benefit to the seller that, in turn, could benefit the buyer.
Here's what you should know: First off, the benefit won't save you any money, but it could mean having a potential leg-up against the competition in a bidding war.
Why is this the case? "The broker's commission structure in N.Y.C., for example, is traditionally 6% of the purchase price," Falchi explains. "3% is paid to the buyer's broker, and 3% is paid to the seller's broker." On the other hand, if the seller's broker also doubles as the buyer's broker, "the seller's broker may be willing to negotiate — with the seller — their fee percentage, reducing it from 6% to 5%, or potentially slightly lower," says Falchi. Remember: The seller pays both fees, so this low-cost dual agent deal would benefit them.
If the seller's broker's fee is reduced, the seller's broker will still earn more money than they would if they were splitting it with another broker, while the seller potentially pays less of a fee. If you work with the same broker as the seller, and want to purchase the seller's home, this may make your offer more appealing than another offer coming from someone with a different broker representing them.
It's important to know that as a buyer, you won't be privy to what the seller's broker is earning if they should enter into a contract as a dual agent with you. This fee may be the full percentage, or it could be a reduction. These terms are decided upon in the listing agreement at the beginning of the process.
The verdict:
In the end, going with a seller's broker is a risk. "You're giving up a lot to gamble on receiving a financial benefit, given that that benefit isn't guaranteed. And what you're giving up can amount to your protection," Falchi says. "When you're managing the largest transaction of your life, it's always better to have a professional help you." As for the professional you choose, you want them to have your back — not the seller's.
Disclosure: The author has a personal connection to Ben Falchi, but his opinions are entirely his own.