REALTOR with Sign in Yard is Worst Agent to Represent You In a
Purchase! - An Essay
Here is why you
should NEVER call the person with the sign in the yard to "help you" buy the property.
I offer the perfect real-life example. In March 2001, a home was listed for $94,900 and sold for $91,000. (xxx5796) Sadly,
almost twelve years later in December 2012, JPMorgan had to foreclose with a judgment amount of $110,312.58; JPMorgan was the highest "bidder" and bought the home with a sale price of $75,650 which is of dubious integrity; but that's another story. Point being, JPMorgan is now holding a house they "bought"
at the Sheriff Sale for $75,650.
What happens next is almost unbelievable; but JPMorgan decides to sell the property at "dump" pricing;
specifically with a list price of $29,900 and it sold the day it went on the market for the full price to a cash buyer. (xxx3396) For this sale, the agent who represented the Seller also represented the Buyer; we shall call him Agent X.
Just six months later, Agent X lists the property for sale again at a price of $119,900; and after four months of it not selling, the Owner marks the property down to $99,900; a cool $70,000 more than
he paid for it. A little over a month after the markdown, a contract is reached and just over four months after that, the property sells
@ full price for $99,900 with a $3,500 concession paid by the Seller, with FHA financing.
In this example,
the new Buyer of the $99,900 property was represented not by Agent X but by a different agent we will call Agent Y.
There are four vital points to be made here. Let's get the first one out of the way - the Seller made a pot-load of money. There's lots of discussions regarding the morality of this, but it's far from the other points that must, and I mean MUST be made here.
The second point concerns Agent X, the agent with the sign in the
yard. Agent X knew of the prior sale for $29,900 because he represented both Buyer and Seller in
that transaction; in this case JPMorgan and the Buyer who is now the Seller. With that prior knowledge, he undertook the subsequent marketing
effort with the listing @ $119,900 marked down eventually to
$99,900. Agent X, at the direction of the Seller, offered the property on the market for $119,900
knowing full well that this price was $90,000 more than the Seller paid for it.
This leads directly to the third point. In this case, when the property sold for $99,900; it is important that the agent representing the Buyer,
Agent Y, did a little, even minimal, sales research to discover that the Seller just paid $29,900 for the home just fifteen months earlier AND told the Buyer this fact before the Buyer wrote the offer. Maybe Agent Y did, and maybe Agent Y didn't; it's unknown.
Perhaps we should ask the buyer and find out? It would be easy enough to do.
The fourth point, the MOST IMPORTANT POINT,
has to do with disclosure duties of agents involved in a transaction. The agent for the Buyer, Agent Y, owes duties of trust, loyalty, confidentiality, accounting, and disclosure to the Buyer. Doing sales research may fall under disclosure, but it's a gray area. If Agent Y found out the property sold previously for $29,900 and didn't tell their Buyer there would be a big problem. However, if Agent Y didn't bother to find out about the previous sale, there would be nothing to tell their Buyer. (Right? Wrong?
Is ignorance bliss? A discussion for another day and/or settled in court one day.)
that having the same agent represent both buyer and seller in
one transaction is illegal in some states; however it is not
illegal in Indiana. Here's a good read on the issue;
however when evaluated through Buyer's eyes, it doesn't look so
First Agent X scenario is as follows. Buyer meets Agent X and Agent X
DOES NOT DISCLOSE the previous transactions to which he was a
party; specifically the "instant sale" at
$29,900. Suppose Agent X does follow the law(1) and immediately states he would be a limited agent in the transaction.
This is bad for the Buyer because the Buyer didn't know the Seller stood to make a $70,000 profit on a $99,000 house; and Agent X had no duty to disclose it. Furthermore, if the Buyer asked Agent X direct questions about the sales history of the home, the smartest answer Agent X could reply with would be "no comment" which does the Buyer
no good whatsoever! How would you feel if you asked your agent a
direct and extremely important question, and got an
answer of "no comment"??? I know I sure would
question his loyalty and motivations.
But what happens if Agent X talks?
The second scenario for Agent X in which Buyer meets Agent X and he
DOES DISCLOSE the previous transaction without written permission of Seller; Agent X has violated the agreement with the Seller because the
Seller was promised confidentiality.
If Agent X DOES OR DOES NOT DISCLOSE THE SALES HISTORY; Agent X is asking for big trouble either way. THIS IS WHY THE AGENT WITH THE SIGN IN THE YARD IS THE WORST AGENT YOU COULD CHOOSE TO HELP YOU BUY THE HOME!!!
The best scenario for both Buyer and Seller is for Agent X to fully represent the Seller and for Agent Y to fully represent the best interests of the Buyer.
The real-life example illustrated above shows why. The Buyer needs to be assured that Agent Y will DO THEIR HOMEWORK fully and tell their Buyer so that he knows
(never just assume) that Buyers interests are represented fully. The Buyer should always ask their agent for the sales history of the home they are buying - never assume their agent will just find out and disclose on their own.
NEVER ASSUME THE
AGENT WITH THE SIGN IN THE YARD IS THE BEST AGENT TO WORK WITH
IN THE PURCHASE, BECAUSE THE EXACT OPPOSITE COULD VERY LIKELY BE
TRUE! IF BOTH BUYER AND SELLER WORK WITH THE SAME AGENT, IT IS
ABOUT THE SAME THING AS A DIVORCING COUPLE WORKING WITH THE SAME
DIVORCE ATTORNEY. THIS IS NOT IMPOSSIBLE BUT THE CHANCES OF
CONFLICTS OF INTEREST GROW EXPONENTIALLY! IT'S JUST SMARTER TO
USE TWO DIFFERENT ATTORNEYS!
Absolutely have a REALTOR represent your best interests rather
than go without. Here's a small
essay from REALTOR.com on the subject; but take note of the
wording in the paragraph regarding Fiduciary Responsibility,
and ask yourself this: If the agent with the sign in the yard is
already maximizing his expertise for the seller; why would the
agent switch gears and reduce his expertise towards the seller
in order to offer advice to a buyer? To state this starkly; if
the agent is/has offered 100% to the seller to secure the
listing contract; what % will the reduction be in order to offer
advice to a potential buyer? It has to be some number greater
than zero. As a buyer, do you really think that you will
get 100% of the very best advice possible from this agent; or
something less? Why would any buyer want something less
than 100% best efforts from an agent?
Folks, I have been tracking transactions since 1995 and I've seen plenty of these transactions where the buyer and seller are represented by the same agent. The scenario described above is far from an isolated case. It is not illegal, or even unethical for an agent to do this; as long as everything is fully disclosed; you just need to be aware of the agents obligations to you and under the law so that you can make the best decisions for your maximum
self-interest and representation. If you want to see some of the
examples I've tracked over the years like the one I described
here, but you will need to login first. There were so many,
I got tired of tracking them!
I, Steve Freeman, pledge to always deal honestly, with full disclosure, and with integrity with every client or customer that I ever come into contact with. I
am proud to be a REALTOR that is duty-bound to a Code
of Ethics. That's the best I can do.
Essay date: 5/24/2014;
last update 2/26/2015
1 - Indiana Law (IC.25-34.1-10-9.5)
See also "Office
Policy Regarding Agency"