-- Be sure and read the true stories at the end --

The topic of "agency" (Seller's Agent vs. Buyer's Agent) is important to you in real estate when you're ready to buy a home because it answers the most basic and fundamental question you should ask your real estate broker: "Who do you represent in this transaction?"

Until that question is answered, you may be left with the impression that all agents who work with buyers actually represent those buyers, and that you have somebody going to bat for you in this transaction. Well, the issue of agency is important because without it, we can never be sure who represents who.

Here's the scenario:

You meet a really nice agent at an open house named Bonnie, and tell her you want to buy a home. Even though Bonnie's house is not right for you, she tells you she can help you find real estate, and has other new homes to show you that fit your needs exactly. You spend an hour or so with Bonnie looking at a half dozen homes and talking about your needs and your wants. During the course of the conversation, you volunteer that you have $200,000 cash to spend and that you will not go over $500,000 purchase price no matter what. Then you find the perfect house. Asking price is $500,000 but you decide to offer $480,000 based on recent sales in the area. During negotiations, the seller asks Bonnie directly how much cash you have and how high will you go? What does Bonnie say?

Here's the answer: Bonnie is NOW acting as a sub-agent to the seller. She has a fiduciary obligation to the seller to disclose to him any information she has that might "promote or protect his interest" in the transaction. Guess what? Bonnie has that information.

The Seller, now having knowledge of your financial position, counters at a full $500,000. He knows you can afford it and that this price falls within your desired range. He also knows that you have seen a number of other homes and that his is the one you want.

Not only that, but Bonnie, being the Seller's agent, has one objective: to get the Seller his asking price. How can she effecively negotiate on your behalf? And what about the next 30 days of the transaction before close of escrow -- will she be able to negotiate in your behalf if any problems arise? What is her incentive to negotiate a lower price for you, knowing her commission will be lower if she does?

Regardless of what eventually happens in this scenario, it can hardly be called an even playing field. So, how can you protect yourself when you're looking at homes for sale?

When you're looking to buy a home, always use your own Buyer's Agent, and not the agent you meet at an open house. Dual Agency, where one Realtor represents both the Buyer and Seller, should be outlawed! It's impossible for the Seller's agent to negotiate the best price for the Buyer -- it's a conflict of interest. A Dual Agent can't give advice to either side if she represents both sides. And a Dual Agent will have to leave the clients out in the cold if adversity arises, such as a dispute. Always use a Buyer's Agent to represent you throughout the intricacies of a transaction.

True Stories:

Story #1. I had been working with someone wanting to buy a house, aggressively going through real estate listings and looking for the perfect condo. One weekend, she walked into an open house and met a real estate agent. The agent told her that the property was not on the MLS, and that only he can sell it to her. He made it sound like a rare opportunity and began to pressure her. But she told him that she already had an agent, and then she called me. Sure enough, we checked the comps and his asking price of $529,000 was a full $43,000 over any other comparable sale! (His objective was to get the Seller's full asking price, not to negotiate a fair price for the Buyer.)

Story #2. A Buyer and I were out on a real estate search, and we found the perfect condo. It was the first one that she absolutely LOVED. The asking price was $422,000. I often coach buyers that, "If you love it, offer full price. If you offer a thousand or two under the asking price, and lose the offer to another Buyer, you'll be very unhappy." But when we checked the comps, it was $18,000 higher than any comparable property. The offer was negotiated down to a fair price. (The Seller didn't care about the comps, he wanted to get the highest price possible to make a down payment on his next home.)

The moral of the stories? A good Buyer's Agent isn't working to get the highest price for the sake of her own commission. She's working to get you the property you want, no matter what, even if it's a real estate investment. When you get the property you love, the Buyer's Agent will reap the rewards in referrals.