A few years back, I took a client of mine to see about a half dozen homes in San Jose (Cambrian and Blossom Valley areas) and Campbell; all of them happened to be Open Houses situations filled with unrepresented buyers (people who did not have a buyer’s agent). We saw an incredible range of marketing styles on the part of the open house host. Some agents were so “sleepy” that they didn’t get up to greet us. Others were orchestrating traffic of such high levels that we felt like it was some sort of over-packed party. It was so busy that you could hardly even pay attention to the house.
In that last example, with the frantic levels of visitors to the property, the listing agents had grossly under-priced the house to attract attention. It did – there was virtually no place to park on the street!
Why would the Realtors under price a home by a very large amount? Here are a few reasons why they might:
- traffic – the agent can bring a lot of people through the house (granted, many cannot afford what it’s actually worth)
- that traffic can provide great leads to the agents for future buyers and sellers – the spin is “look how differently I market the home”
- get a ridiculous number of offers on the home – with more offers, agents hope to get massive overbidding and sell at a premium (some of them, of course, will be lowball offers as they will come in at or close to list price, which is far below market value)
By creating an extraordinarily chaotic environment, the listing agents hope to motivate serious buyers so that they feel compelled to write their best offer. But if it’s under-priced by 25% or more, how many of those buyers will be able to compete or really understand the game at hand to write a viable offer on the home?
Those browsing Silicon Valley real estate & visiting open homes may not be armed with a good agent. In a scenario like the one I described above, hapless consumers may find themselves with an aggressive listing agent who’s (understandably) anxious to claim more clients. My client and I overheard a consumer speak with an agent and tippy toe around the subject of whether or not he had a Realtor. “You’re working with me, now!” exclaimed the hungry agent. It felt downright predatory.
Should the buyer work with that agent to write an offer on the home, or work with a buyer’s agent? Would you work with any agent who happened to have the listing or who held the home open? Would you feel like you and your best interests would be represented?
For the listing agent, if successful, we’d call this “double ending the deal“. Naturally many realty professionals seek out this opportunity because it means two sides of the transaction (like two sales). Most are not so aggressive as what we experienced that day, though.
It’s not always the open house agent who instigates dual agency. Some home buyers approach the listing agent and discuss potentially having him or her write the offer. This happens to me all the time, and my response is NO. I work for one party at a time.
For this strategy, they’re hoping to low ball their way into home ownership and pressuring the agent to take a reduced commission to get the deal through (make a low offer, get the agent to reduce his or her commission to lessen the blow to the seller). Others seek out the listing agent to write up the offer and ask for the agent to rebate some of the commission to the buyer (playing on the agent’s greed – you’ll make more, so give me some of it). Either way, if the buyer’s looking to eliminate a buyer’s agent, it’s usually because the perception exists that they “don’t need an agent” and that they can either get the house for less or get cash back if they just work with the listing agent.
Whether the agent is pressuring the buyer to work with him/her OR the buyer is seeking out the agent who’s listed the home for representation, it’s wise to stop and ask: is this a good idea?
The most important element of having an agent assist you in home buying is “representation“. That is, the agent has a fiduciary relationship with you, the client. The agent’s supposed to take care of you, your money, assets, and position as if it were her own. With dual agency and the same individual representing buyers and sellers, the listing agent owes the same duty to both parties. It is legal in California when disclosed, meaning all parties know about it going into the transaction.
The topic of agency is huge. In California, agents can represent the seller exclusively, the buyer exclusively, or be a dual agent (if disclosed), legally.
If you want the listing agent to assist you when you purchase that home that he or she has listed, you are either asking for dual agency or for no representation at all. Do either of those sound ideal to you, if you’re buying a home?
If you’ve considered doing this or have felt pressured by an overly-assertive listing agent to write up an offer on the house with him or her, please slow down and learn about about agency & representation.
Here’s some “further reading” to assist you: