One of the things I do countless times every day to make sure I’m always right up to date with the market is check to see what sold and how much it sold for. Every now and then a sale price causes me to pause because it’s so much higher than the comparable sales. When I investigate a little further to determine why this happened, it’s not unusual to find that the buyer bought from the listing agent.

Now, I’m not saying this happens with such alarming frequency that it should be considered an epidemic and I’m not saying it happens every time a buyer buys from the listing agent, but it happens often enough that I’ve noticed it. So why don’t all buyers hire their own Realtors to represent their best interests? As far as I can figure, there are 3 reasons:

• They either don’t trust Realtors or haven’t found a Realtor they trust yet.
• They think they can do as good a job as a Realtor.
• They think they’ll get a better deal if they buy through the listing agent.

I know very well that we all have our reasons for making the decisions we make (although I have to admit it took me a while to accept this – see 1,000,000 Reasons Why People Haven’t Hired Me), but here’s what I think about these 3 reasons:

1. You Don’t Trust Realtors

First, if you haven’t found a Realtor you trust yet, just keep looking. There are loads of great Realtors who will care for you like you’re one of their family. Ask your friends, relatives, neighbours or other Realtors for recommendations and don’t stop looking until you find the right Realtor for you.

2. You Think You Can Do As Good a Job As a Realtor

Second, it’s true that you may be able to achieve as good a result on your own as you would with some Realtors. Heck, there are times when you may even achieve a better result. But I can’t remember coming across anyone who could do as good a job on a consistent basis as a great Realtor. Once in a while, yes, but not consistently and usually  only with a little luck. This isn’t surprising – a professional who’s totally immersed in their job should be able to perform at a higher level than a regular person who attempts to do that job every several years for short periods of time. I may be able to go out and shoot 72 on the golf course once in a blue moon, but I can’t (yet) do it on a consistent basis like a pro golfer.  A great Realtor is immersed in real estate 24 hours a day. Sure, you can go to open houses and speak to Realtors and do online research and do all the due diligence you’d like. You have access to a lot of data these days, but it’s the analysis of this data that counts. While you’ll probably look at 20-50 homes, most great Realtors have mental databases of thousands of homes they’ve looked at from which to draw upon. They know what problems to look for and which homes will be easy to resell and make good investments. A great Realtor will really listen to what you want, even when you don’t come out and say it, so he or she can find a home that will fit you just perfectly. Great Realtors also have excellent negotiating skills since they’re constantly negotiating agreements of purchase and sale. They know where the landmines are and how to avoid them. And, perhaps most importantly, during the course of their careers they’ve developed an instinct, or a sixth sense, if you will, for finding the right home for each client.

So, yes, it’s possible that you can do as well on your own as you would do if you hired a great Realtor, but the odds are that you won’t and the stakes are high because mistakes can be expensive i.e. You could end up paying tens of thousands of dollars too much or you might buy a home you won’t be happy in and feel compelled to sell sooner than you planned.

3. You Think You’ll Get a Better Deal Buying Through the Listing Agent

But what about reason number 3: buying from the listing agent because you think you’ll get a better deal? Some buyers believe the listing agent will cut his or her commission so they can pay a lower price or divulge confidential information to them so they’ll get the inside track in a multiple offer situation. If you’re considering buying from a listing agent for this reason, here are a few things to think about:

• Most of the Realtors I know are highly ethical and won’t risk their reputations by divulging confidential information to anyone, let alone a buyer they’ve just met.
• If a Realtor elects to cut his or her commission, do you think he or she would do so in a way that would benefit a buyer they’ve just met or a seller to whom they owe a legal fiduciary duty and with whom they already have an ongoing relationship?
• When you buy from a listing agent, remember that the listing agent already has a relationship with the seller. You won’t be party to any conversations they have regarding commission or anything else for that matter. You’ll have no way of knowing what’s going on behind the scenes and will have to rely on your own knowledge and expertise while you negotiate against an expert with tons of experience. You may think you got a good deal until you find out later that you actually overpaid by a huge amount.

Here’s an example of how things can play out: Let’s say a home is listed at $1,500,000 and there are 6 offers, including one from Bill Buyer who is trying to buy through Ron Realtor, the listing agent. Bill asks Ron “how much do I have to pay to get the home?”. Is Ron going to say “ The highest offer is $1,550,000 so offer $1,552,000.”? It’s  possible, but extremely unlikely because most Realtors are highly ethical. More likely that Ron will say something along the lines of “I can’t divulge that kind of confidential information, but you should come in with your best offer.” Bill then offers $1,700,000, which is way over market value. Ron won’t tell Bill that he overpaid because Ron’s duty is to the seller and not to Bill. Bill might think that Ron helped him get the home, but he’ll eventually realize that he overpaid by a significant amount.

Or how about this example: Sally Seller lists her home for $1,000,000 and tells Ron Realtor that she’s willing to sell for $950,000 because the total commission will be $50,000 and her bottom line after paying commission is $900,000. Do you think Ron is going to say to a buyer “I’ll cut my commission in half, to $25,000 and you can have the home for $925,000”, thereby giving the buyer the advantage of the lower commission? Or do you think Ron is more likely to say “I’ve spoken to Sally and, wink, she’s prepared to let you have her home for $970,000” thereby ensuring that his client, Sally, gets a better deal? Ron may or may not have cut his commission. The buyer will never know because he’s not party to any conversations between Ron and Sally. What he WILL know, eventually, is that he overpaid. [Note: If you’re selling, you should be aware that many Realtors don’t cut their commissions so don’t count on this happening unless you get it in writing.]

Here’s the bottom line: Buying from the listing agent involves some risk. You could buy the wrong home or you could overpay by a significant amount. The only possible benefits are if the listing agent cuts his or her commission to benefit YOU and not the seller or if the listing agent happens to give you an unfair advantage in a multiple offer situation. Neither or these things is likely to happen and even if they do, the extra savings to you won’t be all that great. So the risk is large and the payoff is small when you weigh buying from the listing agent v. the benefits of having a great Realtor represent you. Is this really a bet you want to make?

As always, if you know of anyone who’s looking for an honest realtor who really knows his stuff and won’t pressure them, Please Don’t Keep Me a Secret. I really appreciate your referrals. Thanks for reading and don’t be shy if you have any questions or comments!