Let the Buyer Beware
Part 3 in a series: What buyers and sellers need to know about the NAR industry changes
The first post in this NAR series covered new options for sellers to pay buyer’s agents—or not. The second post navigated the Buyer’s Representation Agreement which commits a buyer to possibly pay for their agent’s services.
There is fear in the industry that if buyers increasingly must pay for their agent, some buyers may opt out of having representation. This post will explain your other two options as a buyer: to go unrepresented, or dual agency with the seller’s agent. Unfortunately for buyers, both of these usually tip the scales in the seller’s favor.
Later in this post is a list of questions to ask potential buyer’s agents with the new NAR rules and practices in mind.
Representation defined
Before we talk about being an unrepresented buyer or working with a dual agent, let’s review what it means to be fully represented. Merriam-Webster’s definition of representation (in the real estate sense) is:
“the action or fact of one person standing for another so as to have the rights and obligations of the person represented”
When you hire a buyer’s agent, they will stand for you, your rights, and your best interests. Your agent’s motives will be aligned with yours; your agent is your advocate and confidante. Buying a home is stressful enough! You’ll have one less layer of concern knowing your agent is on your side and looking out for you.
As you continue to read about your two other choices, contrast them with having a buyer’s agent fully represent you.
What are the rules for open houses?
Next, let’s understand the new NAR rules for open houses: buyers do not need to have an agreement with a buyer’s agent to visit open houses. So if you’re casually looking around or you like to visit open houses as a hobby, no problem!
The NAR rules still allow buyers to visit open houses or arrange a private showing directly with the listing agent because the agent showing the listing represents the seller, not you, the buyer. But you might notice the agent only points out positive things about the home, or says things like “the seller’s price is firm.” Always remember the agent at open house is working for the seller’s best interests.
An unrepresented buyer means a fully-represented seller
Being unrepresented means you stand alone. You’ll communicate directly with the seller’s agent and, however friendly or helpful they may seem, they work for the seller. There will always be a question mark in your mind if you can trust the seller’s agent.
The listing agent has the longer, stronger relationship with the seller: the seller has signed a listing agreement and the agent has agreed to act 100% on the seller’s behalf. The listing agent can do some things for you—draft documents, answer basic questions, refer you to a home inspector or loan officer—but all may be slanted toward the seller’s best interests (and possibly their own, so they can collect their commission paycheck).
You may not realize or appreciate everything a buyer’s agent does—until you choose not to work with one. Do you have confidence to analyze comps to see if the list price of a home is fair? Can you read the fine print in a contract and fully understand your rights—which you’ll then need to fight for on your own? The seller will have the advantage at every juncture because they have the full representation of their agent; if you choose to be unrepresented, you’ll have no one backing you up. Buyer beware!
Dual agency means a divided agent
The third option buyers have is for the seller’s agent to also represent them. If it sounds contradictory, yes, it is. How can one agent—a human being with weaknesses and biases—represent both sides in a negotiation?? It’s almost impossible for a dual agent to remain completely neutral and impartial—so much so that many states and local boards ban dual agency; others require both the seller and buyer to sign disclosures which waive certain rights.
When a dual agent handles dual agency correctly, the agent can be relegated to the level of an order-taker and facilitator, not able to favor or advocate for either side. For the buyer, the basic problem again is the agent has the longer, stronger relationship with the seller. The agent and seller have been enjoying a confidential, fiduciary relationship long before you came on the scene. They might be lifelong friends, or have worked a string of real estate transactions together. If you join the party—kind of like a third wheel—now the dual agent is supposed to remain neutral. Do you really trust that they can? Buyer beware!
The coming paradigm shift for agents
Until now, it’s been rare for an agent to handle dual agency transactions—in fact, it seemed suspicious if an agent did a large proportion of their business as a dual agent. We agents are wired to say and do certain things as we advocate for a buyer vs. when we work for a seller. Agents will need to learn what they can and cannot say if dual agency becomes more common.
If the new paradigm creates more unrepresented buyers or dual agent situations, it will force agents to become more careful to remain neutral. Some agents are already saying they refuse to put themselves in a dual agent position for fear of lawsuits. These lawsuits could come from either the seller or buyer accusing the agent of not remaining neutral. In our litigious culture, this is a very real threat.
The new paradigm may also see sellers—possibly the ones who don’t want to pay anything to the buyer’s side—express they’d prefer their agent be the only agent in the transaction. Maybe it’s for the commission savings or maybe these sellers know the potential for a power imbalance—in their favor. I would personally decline to work as a listing agent for this type of seller if I sense they are intentionally seeking out an advantage over unrepresented buyers or in a dual agency.
The opposite recently happened to me: there will also be (wise) sellers who refuse to allow their agent to help an unrepresented buyer—let alone be a dual agent—for fear they will lose their own full representation. These sellers don’t want their agent to be divided in their allegiance.
Questions to ask a buyer’s agent in light of the new NAR rules
Unless you are that rare, experienced real estate buyer who has confidence with legal forms, evaluating a home, and analyzing comps (which is about to get more complicated adding the varying amounts of compensation to the mix), please think twice about the risks of going unrepresented or working with the seller’s agent as a dual agent.
Many sellers will continue to offer some amount of compensation to the buyer’s side, and a savvy buyer’s agent can help get the seller to pay all or most of their fee. Buyers, if you’ve read the second post in this series, you understand you don’t have to give up your right to a buyer’s agent out of fear of having to pay their fee.
Because each realty company will be setting their minimum buyer’s fee, this is a good opportunity to comparison shop and interview a few buyer’s agents—even if you already have an agent. Everything is changing on August 17, so buyers, be aware!
Here are some questions to ask a buyer’s agent:
1. Are you seeing many listings in our market where the seller is not paying anything to the buyer’s side?
2. How would you help me craft an offer if the seller is not offering anything to the buyer’s side?
3. What is your company’s minimum fee and what services are included?
4. Can you give me a recent example where you helped save your buyer from paying your minimum fee?
5. Would you allow me to sign a Buyer’s Representation Agreement for a shorter period of time, to see if we are a good fit for each other?
Countdown to August 17!
Will we start to see listings with no buyer’s side compensation sit for longer on the market? Will buyers shun these listings and sellers? In the next post, we will consider these and more possible pitfalls for sellers if they don’t offer anything to the buyer’s side. Subscribe for free so you you don’t miss the next post!
(Disclaimer: There are already some markets across the country that have implemented changes ahead of August 17. As of the original date of this post, I’ve reviewed initial drafts of the new forms from the Hawaii Association of Realtors. Each state or local MLS across the country will be producing their own standard forms. This post will be revised as necessary after the final forms are released on August 12, 2024.)