Who is the Agent Working for?
When you deal with a listing agent, remember the seller has a contract listing agent to get the best offer for the property. You may decide to have the listing agent represent you and the seller under multiple representation, but know the limitations. You will not know:
- what the seller will accept less than the listed price
- the motivation or personal information about the Buyer or seller
- the price a Buyer should offer (min/max) - advice is lacking
- the terms of any other offer
Being represented by someone other than the listing brokerage could be an advantage to the negotiating power and deal "validity" which should be contemplated when search for a home.
When you are told buying is “free”, remember the commission is paid by the seller which often has the buying agent’s commission included in the price.
When entering buyer representation agreement, there is a “holdover period” which is the time after the contract expires that the agent is eligible to collect the commission if you enter into a agreement to purchase a property after the contact expires. E.g. if you purchase a for sale by owner property within this period, you are obligated to pay the commission.
Home Selection Filtering
The commission offered by the listing brokerage may be more or less than in a buyer representation agreement. Depending on the agent, this could affect which homes you are shown so know your rights; you are entitled to see all available homes regardless of the commission.
Removing Conditions for Multiple Offers: Risks
When a home has multiple offers, it may be and incentive for the seller to accept an offer if the conditions are remove. But, make sure you know the risks involved since it could be costly, especially if you remove a home inspection or mortgage financing clause which be very costly if issues arise.
If you offer more than the market value for a home in order to get it, the mortgage company may not cover the difference and you would be obligated to pay the difference or be sued or lose your deposit for breach of contract if you are unable to purchase the home.
Bogus Multiple Offers
If you are dealing with an unethical agent, you may be told of competing offers from non-existent buyers in order to driving up prices (and commission). This practice is against the code of ethics and can be reported to Real Estate Council of Ontario (the licensing & governing body for real estate professionals), but proving this is difficult.
Comparative Market Analysis
Make sure you get a Comparative Market Analysis (CMA) in writing that explains the specific market value or value range for the home you want to buy including similar comparables (location, size, type, age, upgrades, etc) and know the value differences.
A CMA is more an art than science which means upgrades may be evaluated slightly differently depending on the situation. Bidding wars, location/demand and neighbourhood standards call affect the fair market value of a home, so get as much information as possible before making an offer.
Commission Rates are Negotiable
The price of a home usually includes a commission as part of the sale price. The specific rate is not fixed and can be negotiated with your Real Estate Sale Representative. Keep in mind, this commission is usually split between the listing and buying (co-operating) brokerages, typically 50% / 50%.
Services that advertise low commission such as 1% usually include the only listing portion in the advertisement but often require an addition amount to be paid to the buying brokerage (if applicable). You can choose to offer less to the buying agent (e.g. 1% vs 2.5%), but keep in mind that the buyer would need to pay any difference between what you offer and what the buyer signed he would pay which could be a disadvantage to the “attractiveness” of your home from a buyer/agent point of view. Make sure you know the pros/cons related to the commission you pay.
As with any type of service, there are varying levels of service. Most include services such as putting your home on the local real estate boards MLS system, a yard sign and offer and contract negotiations. Other value added services include professional photographs, marketing materials, virtual tours, advertising, other website promotion, experience, quality service (client attention), following-up with buyer showing, constant updates, warranties, buyer incentives, cleaning services, staging and many other options depending on the agent.
Remember, “you get what you pay for”, a short term gain could equal a long term pain, make sure you know your options.
Sign now, reduce later
Make sure you thoroughly investigate you home value related to you competition. The price you get for your home is based on “Market Value”. Market value is affected by:
- Supply and demand (market conditions)
- Seller motivation (need vs. want to sell)
- Seasonality (lower demand in Winter)
- Mortgage rates
- Condition of property
- Location, location, location (neighbourhood standards)
If you expect a significantly higher price or overvalued than the market value, the agent may agree knowing they will ask you to reduce the price in order to get you to sign a listing agreement. Reducing the price may be inevitable if the property doesn’t sell in a certain time period, but it shouldn’t be the plan from the start. Be open minded and don’t assume a higher listing price is “better”.
Selling + Buying incentives
Some commissions can offer reduced rate if you sell AND buy though a specific brokerage or salesperson or use specific mortgage lender which many limit the home selection or mortgage rate available to you through this package. You may also receive a reduced commission is you are a repeat customer. There are many options, so ask your realtor and know the “fine print” before you make your choice.