Deciding to buy a home is a massive step for any individual or couple. This is particularly the case in New York.
Although people continue to be amazed by New York’s high property prices, the market remains extremely competitive thru peaks and troths. Because finding the right home for your budget and needs can be a real challenge due to limited inventory, you need every advantage possible. That’s why many buyers choose to work with an exclusive agent. While there’s a lot that a licensed buyer’s agent can do for you, there’s the dual agency we need to address before covering the benefits.
When you meet a real estate agent, you may like him or her very much. After all, an agent is a salesperson, and some are very likable and good at their job. However, there may be a situation in which your agent is a dual agent.
A dual agency may sound fun and exciting, like something from a James Bond novel. The reality can create confusion. Therefore, it is essential to understand the concept since in New York City you may very well run into this situation.
A seller’s agent
You are likely already familiar with a seller’s agent, which is also called the listing agent. Someone looking to sell his or her apartment engages an agent in marketing the property. The agent performs services for the seller, such as advising the price to set, and how to best market the property whether with staging, etc. This person takes pictures/videos, advertises the unit, holds open houses – in short, markets the property to drum up interest to sell it for the highest price possible and collect the commission.
This agent’s fiduciary duty is to the seller. These include the duty of reasonable care, undivided loyalty, confidentiality, full disclosure, obedience (obey promptly and efficiently to all lawful instructions from the principal), reasonable care and diligence, and duty to account (account for all money or property belonging to the principal that is entrusted to the agent). The National Association of Realtors (NAR) spells these out. The concept is straightforward, and there should be no confusion. If you are a buyer, when you are dealing with a seller’s agent, you should not expect him or her to protect your interest.
A buyer’s agent
This is an agent brought on by the purchaser, as the name suggests, and represents his/her interests. The buyer’s agent negotiates the price on behalf of his/her client, along with other terms, such as the inclusion of furnishings. This agent owes the fiduciary duties we previously mentioned to his/her client, the buyer.
There are specific duties a buyer’s agent should perform when dealing with the seller. These include exercising reasonable skill and care, deal honestly fairly and in good faith, disclose all facts that “materially” affects the buyer’s ability/willingness to perform in the contract to acquire the property.
An exclusive buyer’s agent goes even further. The National Association of Exclusive Buyer Agents (NAEBA) do not take any listings or represent sellers. Members pledge to follow the NAEBA Code of Ethics, which mirror the fiduciary duties we laid out previously. The agent owes his/her duty of loyalty unconditionally to the buyer. You can feel confident sharing information since a buyer’s agent can only use it for your benefit.
A buyer and seller do not have direct contact with a broker’s agent. This person is hired by either the seller’s or the buyer’s agent for assistance. The broker’s agent, who comes from outside the respective agent’s company, helps the seller’s or buyer’s agent to find a property to either sell or buy, respectively.
Things can get more complicated, however. If the listing agent is the same person that shows you the apartment, this creates a dual agency situation. This agent cannot provide the same fiduciary duties to either the seller or buyer as someone that only represents one side.
In New York, the agent must explain the existence of a dual agency to both parties, and that this means he or she is acting for both parties. Care should be taken to demonstrate how this affects each party. Additionally, both the buyer and seller must sign an agency disclosure form. The agent also should explain the potential impact of representing both sides. In New York State, this includes both the buyer and seller giving up the right of undivided loyalty, one of the most “fundamental fiduciary duties” that an agent owes, according to the NAR. This requires the agent to act solely in the best interests of his/her client, even if this is not his/her self-interest.
Real estate agents work for a broker/company, who may designate a separate agent for the seller and buyer. Each designated agent represents his/her client’s interest, but, like any case where there is a dual agency, he/she cannot provide the same fiduciary duty. The designated agent should inform the client he/she cannot provide undivided loyalty.
Keep in mind; you have a dual agency even if the two agents are from the same brokerage.
The downside to using a dual agent
As explained by the New York State Office of General Counsel, “dual agency arises when a real estate broker or salesperson represents adverse parties (e.g., a buyer and seller) in the same transaction.” Why is this a problem? As the Office of General Counsel also explains, dual agency means a purchaser is “giving up their right to the agent’s undivided loyalty.” Because dual agency eliminates all of the benefits of working with an exclusive buyer’s agent, it’s a situation you should avoid.
How standard is the issue of dual agency? It’s common enough that the New York State Office of General Counsel continues to warn buyers about the problems associated with it. One reason it remains an issue is there are plenty of scenarios where it can subtly arise. While many consumers assume that an agent with a New York City real estate license and established track record will always act as an exclusive agent, that’s not the case.
The agent is essentially serving two clients, which many believe is an impossible task. The buyer and seller cannot confidently share information since the agent owes neither a duty of loyalty.
There could be distinct disadvantages for the buyer. The dual agent has an incentive to close the deal. After all, he or she is paid double the commission, so the agent may downplay specific facts that could have given you pause. Regarding the price, the dual agent may defend the list price. Remember, the agent helped the seller determine this price, and may honestly believe it is close to the fair market price. By contrast, an exclusive buyer’s agent advises on the right apartment and price to pay based on a comparable market analysis.
An agent has a listing and wishes to show it to a prospective buyer that he/she also represents. The apartment is listed for $1 million, but the agent cannot adequately advise the buyer or seller since he/she serves both sides. The buyer cannot feel confident he/she is receiving the proper advice on the price to offer, and the seller cannot feel good that he/she is obtaining the best price. Of course, there are other matters besides price, and neither can feel right about the advice on these issues, either. Remember, there is no duty of loyalty, which requires the agent to put the client’s interest ahead of his/her own.
We have described the disservice done to buyers and sellers with everything done legally. There may be unscrupulous agents that do not handle things above board. For instance, the agent may play favorites, choosing to favor the buyer or seller. Worse, the agent could pick sides, personally be benefitting from the situation, depending on the day.
It’s Worth Finding an Exclusive Buyers Agent?
Although it may require extra homework, buying a home in New York is a huge decision. Since this decision is going to continue to have an impact on your daily life, the last thing you want is to get dragged down the wrong path.
Not only will an exclusive buyer’s agent protect your best interests, but they’ll also make the entire buying process much more manageable. Because this type of agent is committed to your best interests, they won’t waste your time on properties that completely miss the mark regarding your budget or needs.
Instead, they will do things like find properties, compare them, assess their real value and then only present the most compelling choices to you. Another area where an actual buyer’s agent brings a lot of value is when the time comes to negotiate. Working with an agent that you know you can trust means you won’t have to live with a constant cloud of stress.
In addition to everything else that a buyer’s agent can do for you, they’ll also be there when you need them. So whether it’s a pressing matter or a question that you need to be answered, you can count on clear communication that will keep you informed at all times.
You know the perils when there is a dual agency. Although it may be a challenging situation to avoid in New York City, since there are several well-established brokerages, you do not have to enter into the arrangement. For a buyer, you can use an exclusive buyer’s agent, and any information you tell him or her can only be used to help you.