Buying a Condo From the Builder’s “Sales Office” Can be Dangerous.
I was recently working with a buyer (let’s call her “Sue”) who was looking for a one bedroom apartment in the mid-$300,000 range. We had gone out looking at properties two or three times but I hadn’t heard from her in a week, so I followed-up. Sue decided to buy a place directly from a developer in JC so she “didn’t bother to get me involved”. She agreed to buy the property at the full asking price and was already in attorney review.
I had not yet invested much time or effort with this particular customer, so losing the commission on this one transaction was no big deal. It does however illustrate a very good point. By not saying “I’m already working with an agent”, Sue not only cost me my potential commission but she may have hurt herself too.
It’s a basic tenant of real estate that the agent who lists a property for sale (the listing agent) always represents the seller. The agents at the sales office of any new construction building are the listing agents! By going to the sales office without us, Sue had in effect asked the seller’s agent to also represent her. Now the ‘listing agent’ has become a ‘dual agent’ – representing the parties to both sides of the deal.
Let’s look at some of the reasons why you, as a buyer, wouldn’t want the seller’s agent working for you. There are many (like the NY Dept. of State) who believe dual agency is an inherent conflict of interest (although in New Jersey it is perfectly legal and happens all the time.) In situations where an agent serves in a dual capacity in NJ, the agent must disclose it to the customer and still has a ethical obligation to treat both the buyer and the seller fairly. Their first loyalty, however, must be to the seller as they are a fiduciary of the seller. Being a fiduciary is a higher standard than just being fair. When you walk into Toll Bros. or other sales offices, do they disclose that to you? Do they have you sign disclosure documents when you make an offer on one of their units? I wonder.
When Lori and I represent a buyer we are well above-average negotiators. Lori is a lawyer and I am a CPA. We have 40 years of combined real estate experience. Even discounting our negotiating skills, our familarity with the purchase process and with Hoboken/JC real estate practices in general would have given Sue a tremendous advantage in negotiating the purchase price as well as navigating (and solving) the problems that inevitably crop up during attorney review, inspection, securing financing and the all the way up to closing. Sue waived all of that expertise working on her behalf. Is the developer really going to negotiate against themselves to get you a lower price?
As to the compensation, when a unit is sold (by an individual or by a developer) the seller offers a commission (in Hoboken typically 5% to 6%) which is split 50/50 between the listing agent and the agent representing the buyer. If an agent sells his or her own listing (as in this instance), he or she gets both sides of the fee because he doesn’t have to split it with the buyer’s representative. There are no “savings” for Sue by cutting her agent out of the deal.
Finally, Sue asked me to help her look for an apartment, I spent time searching the MLS trying to find appropriate places within her price range and with the amenities she required, I made appointments, collected keys and took her out a few times and then – she said thanks very much but I’ve cut you out of the deal without a second thought. Not very cool.
You know how some entertainers remind you to tip your waiters and waitresses after a show? Well, folks – show some loyalty to the agents that are working hard for you. It’s the right thing to do, and it will benefit YOU in the long run.