Traps are set for buyers and they are called “open houses.”
I wish there were a way to tone down this post, but the title exactly describes what happens to buyers who go to open houses or set up appointments with listing agents. They are ambushed. Normally, listing brokers will share their commission with buyer brokers. However, once a listing broker determines that they are the “procuring cause” for finding a ready, willing and able buyer, the buyer loses her ability to have the seller pay her broker and her ability to negotiate with the broker (e.g., rebates – another post that is coming). With no warning, home buyers are stripped of their right to engage a buyer broker (unless they want to pay the broker out of their own pocket) and negotiate the commission. There are no forms, there are no warnings, there are no disclosures, there are no notices – buyers are simply ambushed.
Listing agents lure buyers over the “line.”
Once buyers cross an imaginary line created at the whim of the listing agent, they lose all their rights and the listing agent will “hog” both sides of the commission (their term, not mine) and strip the buyer of their right to have the seller pay for their broker. If the listing agent feels that the buyer has spent enough time with them and created an “unbroken chain of events” leading up to the sale of the house, they will secretly lay claim to the full commission (a “hogger”) and refuse to share their commission with buyer brokers. Unfortunately, listing agents make this determination subjectively (they are often wrong) and they don’t tell buyers that they are about to cross over this line.
The Realtor forms, practices and procedures are designed to accomplish this unfair result.
Can’t ambush buyers, unless you first ambush sellers
In order to ambush buyers, listing brokers and their trade associations have designed “standard” forms to ambush sellers. The most dire of these forms is the listing contract that omits key negotiating points for sellers. For example, the following contractual elements are missing:
- How much of the commission should be offered to buyer brokers?
- Will the listing broker publish the amount being offered to buyer brokers so that home buyers know how much is being offered to their brokers (or possibly them)?
- Will the commission being offered to buyer brokers also be offered to Do-It-Yourself buyers?
- If the buyer wants their own broker, should the listing broker have the authority to refuse to share the commission? Does the seller authorize the listing broker to even make a procuring cause argument?
By omitting these key negotiating elements, listing brokers think that they owe buyers no warning that buyers are about to lose their right to have the seller pay their broker. However, I would argue that there is a licensing and common law duty to warn buyers. Listing agents go to great lengths to prey upon buyers and get buyers to let their guard down and spend more time at the house and encourage them to cross that imaginary line.
“You can still go find your own buyer agent, however, now you will have to pay for him or her.”
When the buyer announces that they are interested in the house and that they want their own agent to negotiate the transaction, the listing agent will then spring upon the buyer the bad news, “Sorry, but if you go find your own agent, I won’t share my commission with him and you’ll have to pay him out of your own pocket.” If the buyer wants to dispute this position, the decision is often determined later between the brokers. As a result, many buyer brokers won’t even engage a buyer if there is a procuring cause issue challenging the payment of a commission. The Realtors attempt to take away the buyer’s right of redress too.
Buyers have a right to be warned
I believe that listing agents have a duty to warn buyers that they are about to jeopardize their ability to find their own agent and have the seller pay for that service. They have a right to know that if they continue to work with the listing agent that they will sacrifice their ability to negotiate the commission. When listing agents fail to warn buyers, I believe this constitutes “misrepresentation by omission” also known as fraud. Unfortunately, the prevailing practice is not to warn buyers…
What you can do
- Never use a large brokerage firm.
- Never negotiate with a broker or builder (builders are worse) without an attorney.
- Always negotiate the terms and fees of agreements with buyer brokers and listing brokers.
- Never sign the Realtors’ “standard” contracts without an attorney.
I can help
If you have fallen prey to the circumstances described above or you just want to learn how to better “do it yourself” in a real estate transaction, please consider retaining my services to help. I often save clients the costs of my fee and more.