22 Mar Should I Use the Listing Agent to Buy a House
A lot of people use the listing agent to buy a house instead of finding a buyer’s agent to do the searching. You might think I’m here to dissuade you to do so, but as always I like to look at the truth and give it to you straight. So should you use the listing agent to buy a house you find? The answer is: it depends on you and on the situation.
Let’s start with the motive of all parties:
The Listing Agent: The listing agent would love to help you buy the house he is selling because he will be getting more commission. If there was a total of 4% commission, 2.5% to the agent who brings a buyer and 1.5% to the agent who lists the property, the listing agent might now get 2.5% or 3% or maybe even the full 4% instead of his 1.5%.
You (The Buyer): You are most likely more sophisticated than the average buyer since you know how the dynamics of the real estate transaction works. But this sophistication also means that you are not willing to pay “market” value like everyone else. By using the listing agent, you know that the seller will most likely be paying less commission so it will give your offer an edge. You also know that the listing agent will be pushing hard for your offer because of the increased commission. On top of this, things will move quickly. The listing agent will now be incentivized to get off their a$$ and get things done at lightning speed so as to get the deal done before competing offers come in.
The Seller: The seller is looking to get the highest price possible for their house. They keep seeing signs of an extremely hot market (Mar 22 2017 as of writing this) and are hoping for a hot bidding war.
When using the listing agent to buy a house does not work:
The first problem with using the listing agent to buy a house is that most properties are now holding offers. Nobody can bring an offer till a specified date. This creates a bidding war on offer night and drives the price up. It forces people to put their best foot forward to win the house since they are competing against a slew of other buyers.
The problem with offers is that now the listing agent cannot be receiving offers from other agents and also be presenting your offer. They would need to get a manager to handle all offers including yours, the one the listing agent will present. Unless the agent and the manager collude, your listing agent will not have any more information than the other agents other than the chit chat conversations he’s had with everyone so far.
Next, if any agent is lowering their commission from what is stated on the listing in a multiple offer situation, it has to be disclosed to all other agents bringing an offer. Because of this, listing agents always get full commission instead of that special rate they’ve agreed with the seller incase their bring their own client. That means that the seller will not be getting a break on commission if the listing agent brings their own client (you).
This also means that now after weeks of talking and dealing with the sellers, the listing agent will not be the one directing offer night. Instead, the manager or a colleague will take over. This means that after weeks of talking with the seller, discussing strategy and getting to know them, the listing agent is now going to be with another “client” instead of finishing the job and crossing that finish line with their real client. The listing agent has talked with other agents, has come to know the area etc. Who better than to direct offer night. Now the manager who gets throw in at the last minute has to delegate the whole thing. Feels a bit like a betrayal to me. How would you feel if your listing agent “abandoned ship” in the home stretch. Unless your listing agent truly brings the best offer financially, you would be hard pressed to accept it knowing all he is thinking about is doubling his commission.
The only reason, in my opinion, that a listing agent should bring his own client in for offer night is if he has talked to them about the true price it will take to win. If initial conversations reveal that you (the buyer using the listing agent), are not being realistic about the price someone is willing to pay for the house in question, I would not waste time (as the listing agent) and try to have them as a client on offer night. I would look like a sellout to my original clients and nothing would come from it anyways.
Still on the multiple offers front, other agents do not like that the listing agent has their own offer. It puts a bad taste in people’s mouths. Many agents won’t bother bringing an offer if the listing agent has their own offer. Offers fuel the bidding war. If the sellers were expecting 5 offers and an explosive offer night but get just the opposite because people dropped out, they might decide not to take any offer and re-list the property. They will be very skeptical of accepting their listing agent’s offer (your offer) because now the listing agent’s reasoning holds no water. It looks like they are in it for the money.
I hope you are still with me. I know it is a bit tough to read since I keep jumping from one person’s point of view to another.
Using the listing agent also does not work for mediocre offers just as the listing comes out on the market. The sophisticated buyer knows that you need to buy a house within the first few days it is out on the market or else it is gone. We call this a pre-emptive bid or a bully bid. This means that even though the seller has designated a date to review offers, someone comes along and says “I have a really good offer for you right now. Take it or leave it”. These are very effective. But the offer has to be good. Very good. And there can’t be any conditions. It is just the way the game is played in such a hot market (March 2017 as of writing). Just being able to bid on a house before anybody else is a win in some areas.
So what is the problem? Nobody knows what a house is going to sell for. You have some sort of idea, but sellers think they are sitting on a pot of gold because they keep hearing stories in the media. If you come to the listing agent the day the house comes onto the market and give a reasonable offer, there is a big chance that the seller won’t go for it. Why? Even though your offer is very reasonable, there is always that “WHAT IF?!” factor. The sellers will be thinking “Well someone brought me a good offer the day my property came out. They aren’t under pressure to give me their best price. If I got a good offer this early and this easily, there are definitely more people who will be interested. Let’s wait for offer night and see if we can get a moonshot offer.” Don’t expect people to be rational when the media keeps telling detached home owners in Toronto they are sitting on a pot of gold.
The listing agent will try and convince the seller that it is a good deal and they should take it. But do you really think their arguments will be as effective now that they stand to make double the commission? Doubtful. And that is the problem. It is hard to get a “deal” on a property when you deal with the listing agent. Think of it. The listing agent had to convince the sellers to hire him because they are “the best in the business”. Now on day 1 that same person needs to convince the sellers that they should DEFINITELY take the mediocre offer.
And lastly, here are some other logistical problems with only using the listing agent. These might or might not be deal breakers for you:
-You get delayed information from realtor.ca
-You don’t get all the info from realtor.ca (offers? offers date? special instructions?)
-Listing agent might not want to go show you the house. 80% of people without agents are out of sync with prices. If the listing agent doesn’t live close to the property in question, it is a waste of time to show the place.
-You are going to have to schedule and coordinate with many different agents on days when a handful of listings come out (usually monday and tuesday)
When would using a listing agent be a good idea?
I can think of one scenario. When a house has been sitting on the market for a while. At this point, the sellers know that they will not be getting asking price. It is over priced or there is something wrong with the property. Now it is not the most ideal situation because this means that nobody else wanted the house in a market where houses are sold in a day or two. But if it is something you are interested in, then using the listing agent will save the sellers a few thousand dollars.
Other than a crooked real estate agent, I can’t see any other scenario where it is a good idea. And there are many shady real estate agents out there. Check out the CBC report on double ending deals that aired just a few months ago.
As always please reach out with questions or if you are looking to purchase a real estate investment property. You can find me on live chat during most hours at the bottom right corner of the screen. If not, shoot me a text, e-mail or give me a call.
Norman Hill Realty Inc
20 Cachet Woods Court #2