Sometimes sellers want to sell their home without the representation of a licensed real estate agent (FSBO, For Sale By Owner). But to try to encourage agents to show their home to a buyer, those same sellers might offer a buyer’s agent a commission (often somewhere between 2.5 and 3%, but it varies). The sellers are surprised when they don’t get a ton of real estate professionals clamoring to see and show their properties.
What’s going on? Why are licensed real estate sales people sometimes (or often) reluctant to show the home of an “unrepresented seller” (or “for sale by owner” seller)?
There are a couple of reasons why Realtors and other licensees may not be wildly enthusiastic about getting into a transaction with an unrepresented seller.
- There is more liability for the licensed real estate professional
- There is the risk of “implied agency“
Sometimes, as you know, transactions don’t go as planned and buyers or sellers are both unhappy at the end and the whole mess may end up in court. (Knock on wood, this has not happened to me!) If it does, the judge may well look at everyone involved and find that there was one professional real estate person in the bunch. The liability may shift greatly onto that person – even if he or she was not representing both sides (was not a dual agent) and was not compensated for the responsibility of both sides.
When both parties are working with a real estate professional (salesperson or broker), those agents will help to advise and guide their clients. But when an agent only represents one side, it gets very very sticky. As agents, we owe a higher duty to our clients, a fiduciary duty, but only the duty of fair and honest dealing with the other side. So, those “FSBO” (for sale by owners) are not going to get the kind of advice and guidance they’d get from having their own agent in their corner. But if it goes to a lawsuit, what extra burden might the court decide the one agent should have provided to both sides?
When both sides have an agent, there is peace of mind that the liability is fairly split. If the seller is confused, it is not going to be the buyer’s agent’s fault. But if there is no seller’s agent or listing agent, the buyer’s agent may be taking on more risk that is really necessary, or possibly wise.
Implied agency is a scary concept to me and to other real estate professionals. The agency relationship is not based upon payment, but instead upon the buyer or seller’s reliance upon the guidance offered by the real estate licensee.
If we take on a sale where only our client is represented, there is a very big and real fear that the other side will claim that they relied upon the guidance of the one realty professional in the transaction.
When a Realtor or other real estate licensee is working for either side (or both), then there won’t be any implied agency. But when one side is unrepresented, this is a real possibility.
So, sellers of “for sale by owner” properties, the agents are going to feel that it’s far safer to work with a seller who has representation – his or her or their own agent. Further, their buyer clients may feel like it’s a more level playing field, and therefore also safer, if the seller is also getting professional guidance.
Selling “by owner” can sometimes work for home owners, particularly if their house, condo or townhouse is in a highly desirable area and especially when it’s a “hot” market. Today’s market is more challenging, though: it’s harder for loans to go through, buyers are demanding that properties be in great shape, and the general “nervousness” of buyers can make it tougher to sell. Offering a commission to buyer’s agents may be a huge help in getting your property sold. But if you’re finding that agents are simply not that interested, it may be because you do not understand the risk they see in working with a seller who lacks professional representation.