The Agent Showing You Houses May Not Be Your Agent
Many people think that if a real estate agent is showing them houses, that means the agent is their agent and looking out for their best interests. This is not the case in Texas, which is why the Texas Real Estate Commission requires that real estate agents go over the Information About Brokerage Services before they start showing you houses. That document explains that there is a difference between the various roles that different types of agents perform in the home buying/selling process.
Click to see entire document
This is one way you can know that you are working with a PRO! If an agent is showing you houses and has never discussed the legally required Information About Brokerage Services and buyer’s representation, then you are working with an Amateur…not a Pro! Is that what you want when dealing with one of your largest financial investments? What else will they refrain from telling you?
About the MLS
Many people misunderstand the purpose of the Multiple Listing Service (MLS). They think it is just a home search tool. It’s true that the MLS is the tool real estate agents use to list homes for sale. It is also the tool that buyer’s agents use to find houses to show to buyers. And it is the source of information for home search websites like Har.com, Realtor.com, Zillow, etc. (The MLS gets those listings first, because it’s the source database for those listings. After a home is listed in the MLS, then the data is sent –sooner or later–to other home search websites. This is why you may find a house for sale on Zillow and then your real estate agent tells you it is no longer available. Zillow doesn’t update as frequently as the MLS.)
What most people do not understand is that the purpose of the MLS is for licensed real estate agents to advertise homes for sale and offer to share their sales commission with member agents who help them obtain a buyer for their listing. It’s the way that member real estate agents get other agents to help them sell a house. That’s why you have to be a paid member with a state license in order to use the MLS. (It is illegal in Texas to pay real estate sales commissions to unlicensed people.)
So when a listing agent puts a house for sale on the MLS, the agent is agreeing up-front to pay other agents a set commission…which may vary depending on whether the agent is a “Buyer’s Agent” or “Subagent.” This is all predetermined before a buyer ever sees a listing through the MLS…and before the first offer for the house is written.
Here’s another thing that most consumers do not know, while we’re talking about sales commissions…
Real estate agents are not (usually) paid employees of the brokerage where they work…they are “straight commission.” They do not receive an hourly or salary paycheck from their brokerage for showing houses to people just for fun. Almost all real estate agents are Independent Contractors who only earn a living by receiving sales commissions for selling homes. Plus, they pay all their own expenses. This is why professional agents are careful with their time and only show houses to clients who are ready, willing, and able to purchase a home. If they waste time showing houses to people who just want to look at houses for fun, then they are not earning their living.
Buyer’s Agent vs Subagent
So by default, a real estate agent who is a member of the MLS is always representing the seller as a Subagent, unless they have a signed Buyer’s Representation Agreement with the buyer to become the Buyer’s Agent.
There are different rules for how a Buyer’s Agent can work with a home buyer vs. how a Subagent can work with a home buyer.
Let me illustrate. In the MLS, there are two versions of a listing’s printout…one that is specifically for buyers:
And one that gives more details to the agent:
In this example, a Subagent would be required to say the listing Days on Market was 228 (which is true for that listing)…but the Buyer’s Agent would be free to say the cumulative days on market for the house was actually 302 days. Plus, the Buyer’s Agent can show their clients the full price history…a Subagent is not allowed to lie, but also cannot volunteer information that damages the seller’s position (because the seller is their client…you will want the same protection when you are a seller).
Notice above that the listing says the Original Price was $499,000, but if you look at the price history, the Buyer’s Agent could show that there was another listing for this house, with another brokerage, which started at $519,000 in April 2018.
Also…look what a Buyer’s Agent could reveal right away regarding “Previous Flooding onto the Property”…
A Subagent does not have to volunteer this information unless specifically asked by the Buyer. So the Buyer could waste time making an offer on the house and then get this information on the Seller’s Disclosure after the fact. But a great Buyer’s Agent should be looking out for you without asking. They have a Fiduciary Duty to look out for your best interests.
Furthermore, a Subagent cannot do a CMA and tell you that the home is overpriced…but as your Buyer’s Agent, I will! I will do everything I can to make sure you know all the pricing details on a home when you decide to make an offer. This is to help prevent you from overpaying for the home.
Please know that Texas is a non-disclose state and only members of the MLS have actual sales data. Tax appraised values are not accurate for market value in Texas! And even Zillow only gives themselves 1-star on their Zestimate’s accuracy (see here). There is a method for doing a proper Comparative Market Analysis for a home that is similar to how a lender’s appraiser is going to determine a home’s value. Hire an experienced agent who knows what they are doing!
Read more: Pricing a Home Correctly
How Can I Make Sure My Agent is On My Side?
As you can see, if you want all the pertinent information available to make the best buying decisions, then it is important that you obtain your own representation with a Buyer’s Agent. Having a Buyer’s Representation Agreement benefits you by:
- Protecting your confidentiality
- Allowing me to provide you with all the information at my disposal, including advice on the price
- Allowing me to negotiate based on your best interests
- Giving you a partner who is loyal to you
And the Seller stills pays the real estate commission, even when you have a dedicated real estate agent. They agree to do that when they agree to let their home be listed on the MLS (see graphic above). So it does not cost you extra to have your own buyer’s representation.
Sheila’s Release Clause
The Buyer’s Representation Agreement is for your protection; it is not meant to “tie” you to me…it’s meant to “tie” me to you. To prove this, and because I’m confident that you will enjoy working with me as your real estate agent, I put a release clause in Para. 17 stating that you can cancel the agreement at any time for any reason. I do not want you to worry about being “stuck” with me! I’m a Five-Star award-winning real estate agent, but if you are not happy with me, then you are free to cancel our agreement.
I only work with Buyers with whom I have a Buyer’s Representation Agreement. This just simplifies things because then I don’t have to worry about whether I’m giving you too much information (or properly representing the Seller). As my client, I can give you my full professional opinion at all times and answer any and all questions that you have.
Once you have a Buyer’s Representation Agreement in place, you should always state that up front to other real estate agents (at open houses) and builder’s sales reps (if touring new home models) because, by law, they need to know that you have representation.
Your Agent Helps Protect You
Remember: My job is not “just” helping you find a house to buy…I’m helping you buy a house. There are over 100 tasks that I perform for you during the purchasing process! I’m looking out for you every step of the way and keeping my eye on the listing agent, the seller or the builder (if applicable), the lender, the inspector, the title company, and so on. I’m on your side because I’m your agent. I consider myself more of a real estate consultant and project manager…not a salesperson. Not only do I help you find a house, I help with price analysis and negotiation, legal paperwork, inspections, repair negotiations, home warranties, compliance inspections, hazard insurance, surveys, appraisals, title commitment, and so on. Buying a home has serious legal consequences! And it is a complicated process that needs an experienced project manager (like me) managing it for you.
Take a look at a sample House Report that I do for my clients. No other agent in the world does this!
Check out p. 27 for the Flood Map info I provide. I’ve got your back!
But I’m Buying From a Home Builder – So I Don’t Need An Agent
A home builder is a seller…so you still need your own representation! Believe me when I tell you, that sales rep sitting at the builder’s model home may be a super-nice guy or gal, but he/she is paid to look out for the builder’s best interest, not yours.
The builder’s sales agent is not going to tell you that there is a landfill or prison a half-mile away from the neighborhood or that the specific schools zoned to the neighborhood are low-performing (notice how they talk about the school district?), or that the neighborhood is struggling to sell homes (and home values are falling). The builder’s agent will not tell you that the last three buyers who bought the same floorplan that you want, paid $30,000 less than the price he or she is showing you now…but I will! What’s more, the sales agent will show you that the house originally listed for $100K more than current list price to make it sound like a great deal. That’s a builder’s “trick.”
Did you know that most home builders require their sales agents to “hang up” their real estate license (go Inactive) to work for the builder? This is so the sales agent doesn’t have to abide by the same rules and ethics that a licensed REALTOR® has to abide by.
And please know that you are not going to save money by not having your own agent. Just like regular home sellers, builders pay the buyer’s agent’s sales commission and they build that cost into their sales price. If you don’t have your own agent, that just means the builder makes more money…it doesn’t mean you get a better price.
And always remember that you still need a home inspector when you buy a new-construction home. The builder’s inspection process is not for your protection…it is just part of their system. In my experience, new homes typically have longer inspection reports (more stuff to fix) than good-condition resale homes because the “kinks” haven’t been worked out yet…by the first owner.
Once you have a Buyer’s Representation Agreement in place, you should always state that up front to builder’s sales agents (if touring new home models) because, by law, they need to know that you have representation.
But I Want To Save Money Working Directly With a Listing Agent
Some inexperienced buyers think they will save money if they skip their own representation and just work directly with the listing agent. Congratulations! You just let the seller pay the listing agent double for NOT representing you.
Before a listing agent can put a home for sale on the MLS, he or she must have a signed listing agreement where the seller has already agreed to pay a set sales commission. As I showed at the beginning of this article, when the listing agent puts the home on MLS, they already agree to pay buyer’s agent’s sales commission. This is the purpose of the MLS!
If you buy without your own agent, then the listing agent gets to keep the entire sales commission…it’s already in the “contract” (listing agreement) between them and the seller. Sales commissions are NOT negotiated when an offer is made on the house…they are agreed to in advance. So don’t make this amateur mistake.