They don't know any different. Like me when I was young and foolish. (And that's why we now have our disclosure document that we're required to get signed).
They think they have to pay for their agent.
A blog cannot deal with all aspects of a subject and is not intended to replace professional advice. It's purpose is to highlight information and identify areas of possible interest. Anyone wishing to discuss this blog or to make any comments or suggestions about this blog is invited to do so by either posting comments or emailing me directly.
May 17, 2011
Question: If I Attend an Open House, Do I Have to Use the REALTOR® Who is Holding the Open House?
Q: If I attend an Open House, do I have to use the REALTOR® that is holding the open house? - Anonymous.
A: Absolutely not! In fact, this may be the very worst person for you to use!
You aren't the first buyer to be confused about the role of a real estate agent in their quest to purchase a home. Buyers, whether it's their first time or their fifteen, may not understand exactly who the agent represents and real estate agency (broker) relationship. Let me educate you a bit about what’s called "Agency" (i.e. who represents whom) in a real estate transaction for Alberta (every province or state has their own rules and laws). In Alberta, real estate agents must give buyers and sellers an "Agency Disclosure" form to sign before a transaction is started or offer is written. This form is not a contract or an agreement, it simply disclosures the various types of possible agency relationships that may exist. But it does require a signature to show that you have in fact seen it and are aware of the disclosure document. It is very important that you read this disclosure document to better understand it and all that is involved in "Agency". In this way you will be able to determine what type of agency relationship will work best for you. The problem is, in an open house you are seldom given this disclosure when you walk into the open house and you may end up sharing personal information with the agent before you even see it.
Single Agency - Generally, buyers agents (who represent Buyers) are operating in a single agency capacity as a buyer’s agent and seller’s agents (who represent Sellers) are operating in a single agency capacity as a listing agent or the "selling" agent - they're the ones doing the selling and hosting open houses. Agents who represent clients under single agency owe a "fiduciary responsibility" to their client. Agents are not allowed to share confidential information with the other party or the other party’s representative/agent. Single agency agents are bound to use care and due diligence while performing their duties, disclose all material facts and above all be honest. Buyer’s agents and the Buyer sometimes sign a buyer’s brokerage agreement, which lays out the duties and obligations of the agent. Both listing agents and buyer’s agents owe their clients loyalty, confidentiality, accountability and honesty.
Now in Alberta Common Law, every agent that works in a brokerage (the same real estate firm as the listing agent) works for the Seller and are known as the "selling agents." Most often at Open Houses you'll find the listing agent hosting it, or sometimes another agent from their office - a selling agent. (In common law, agents legally cannot host an open house if they don't represent the seller.) So you can see, the agent in an open house legally represents the seller to get the Seller the very best price, terms and conditions and are trying to find out everything possible about you as a buyer which they legally must share it with their Seller and then use this information to negotiate AGAINST you. You are going to be treated as a "customer" and have no representation at all.
As a Buyer, you are far better off to find your own agent to contract with before you share ANY information with an agent in an open house so that you clearly establish a single agency relationship with your own agent who will advocate on your behalf to get YOU the best price terms and conditions. If you go to an open house without an agent, ask lots of questions, but don't share ANY information with the agent if you are in the least interested in the house.
Transaction Brokerage - Now it is possible to that the agent you contract with as a Buyer is licensed by the same broker as the listing agent of the house you want to place an offer on. This situation creates a conflict of interest. These agents could work at separate offices and be strangers to each other, but since they are licensed by the same brokerage firm, they are still operating with the conflict of interest if one agent represents the Buyer and the other represents the Seller. When first representing a new client an agent probably entered into a single agency relationship with their buyer. However, when the buyer chooses a home listed by that agent’s brokerage firm, the agent’s relationship with the Buyer changes. Not all single agents make a point of informing their Buyer of the change at the appropriate time but legally they must and their behaviour should change dramatically. Their role changes to that of a "transaction broker." They are no longer advocating FOR you, but are only helping you and the Seller come to a mutually acceptable agreement. The listing agent must also inform their Seller of the newly changed agency relationship and their behaviour must dramatically change as well. They too, are no longer advocating FOR their Seller but are only helping them come to a mutually acceptable agreement with you - the Buyer. Neither agent can offer advice nor opinions to either party without getting permission from the opposing client FIRST. Remember, transparency is key. Transaction brokerage must be agreed to in writing by both the Buyer and the Seller - prior to any "negotiating" taking place. If either party does not agree to the change in representative capacity, one will be asked to find other representation by another agent from another brokerage.
Now back to the open house: It is POSSIBLE that the agent COULD ask the Seller (for whom they are working to get the best price and terms) to be allowed to change their capacity to that of transaction broker and advocate for neither the Seller nor the Buyer and only work to find a mutually acceptable common ground. It's possible, but the legal risks to the agent multiply. It is possible, but I'm not sure how likely. I know I never have changed representative capacity when working an open house. I ALWAYS represent the Seller.
I remember how foolish I was when I bought my first home. I too went into an open house and used the agent that was hosting it to write up my offer. Looking back on it, I can clearly see that I didn't get the very best deal I could have. In fact, I know I didn't. They weren't acting much different than an order taker in writing up my offer. They gave me all the forms and the recent sales but I had to figure out a good price to offer and whether or not to have a home inspection or even a financing condition. The only advice I got was, "Press hard. You're making 3 copies." I didn't know buying a home was any different than buying a car. I didn't know I could contract with my very own professional negotiator that would work strictly on my behalf: Someone that knew the contract inside out, house values in that neighbourhood or even why I shouldn't buy that home.
Times have changed and I now know differently. I now just don't understand how Buyers and Sellers so easily fall into tranaction brokerage and not have their very own advocate working solely on their behalf. Not hiring your own Buyer agent prior to writng up a Purchase Contract on a home, would be akin to hiring your wife's divorce lawyer to "represent" you in the proceedings!
Why don't buyers hire their own agent?
In almost all but the rarest cases, the Buyer's agent is fully paid for through the transaction: The Seller has already agreed to pay a certain amount of money to the listing agent. Then if there's another agent involved in the tranaction (which is usually the case), they require their agent to share that with the buyer's agent. Now if you think about it, the Buyer is the one paying the Seller. So aren't they, in reality, paying both the Seller's agent AND the Buyer's agent? And they have absolutely no say in how much their own agent is being paid! Except of course, if the Buyer has a written agreement with their own agent -- then they'll know EXACTLY how much their agent is getting paid and even have the ability to negotiate a rebate if the agent's compensation being offered by the Seller is more than the Buyer finds acceptable.
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