2009 Aug 25th

What Would You Do?

Hypothetical Hoboken Condo Buyer Scenario QuestionMark

I thought it might be fun (and educational) to discuss a possible response from you, the Hoboken condo-buying public, to a pretty common situation that might arise when you’re home hunting in Hoboken. While I sometimes get ideas for blog posts from real life situations, this is a hypothetical that I made up for the sake of this post and bears no relation to any particular “deal” in reality.

Let’s say you’re looking to buy a condo in Hoboken. You’ve found a real estate agent whom you really like and whose expertise you think highly. Your agent has been taking you to see a bunch of properties. In fact, you’ve now spent a few months looking at Hoboken condos on a pretty regular basis. Your agent has been responsive, diligent, informative, and generally helpful to your search process. Overall, you have seen some really nice properties and you’ve been very happy with your agent’s work on your behalf.

Most people refer to a realtor as their ‘agent’. Now, in some parts of the country, a buyer will sign an agreement with an ‘agent’ that creates a true agency relationship. That agreement also obligates the buyer to compensate the agent for his or her services no matter where the buyer finds the property they ultimately buy. In addition, the agreement makes the buyer’s agent an actual legal agent of the buyer. In Hoboken, that is rarely the case.

Most buyers work with someone called an “agent” but that person is just there to help find you a new home and facilitate the deal from finding the property through closing. We call that realtor a “transaction broker” to differentiate them from a true agency role. If you ever sign a New Jersey standard form sales contract, you will see that term. There is no overt or express contractual relationship or legal agency between the buyer and the agent. So let’s say that is the case in our hypothetical scenario. Your agent and you have not signed a buyer’s agency agreement so your ‘agent’ is really a transaction broker.

One day, you are walking down the street, or browsing the web, when you see the condo of your dreams. It’s is for sale by the owner (we call them fsbo’s). Since you’ve got no contractual duty to include or compensate your agent in a transaction regarding this new fsbo property, what do you do? How do you handle it? The possibilities range from:

offering to sign a buyer’s agency agreement right away so that you will compensate your agent and they will represent you from start to finish in your fsbo deal.

informing your agent about the fsbo property you’ve found so your agent can find out if the seller is willing to pay a commission to your agent for bringing a buyer (you) to see the property and to handle the transaction on your behalf.

– you drop your agent like a hot potato and avoid his or her calls, emails and questions and persue the fsbo on your own. When they track you down to ask where you’ve been, you lie and say you no longer have any interest in buying.

Of course, there are many shades of grey in between these three options but you get my gist. I’m curious to hear what you all think is the right / best / moral / ethical/ honest / expedient way to handle this type of situation.

Does it matter what stage you are at of the buying process? What if you’ve found a place together with your agent, have made an offer which was negotiated by your agent, have done a home inspection with your agent, and are still in attorney review on the first property when you come across the fsbo you now wish to buy instead? You certainly have the right to cancel the contract on the first property and buy the second. But does that change your answer?

Remember, situations like this do on occasion arise in Hoboken, I’m posing the question merely because I’m curious to see what you all have to say on the subject and what your experiences in similar situations may have been.

  1. Sam

    I would call my agent and say Ive found something on my own. No need to hide ofcourse, I would have written in my contract, with the agent, I have that right to search on my own and if I buy they would not be compensated.

  2. lori

    Sam – if you don’t have a buyer’s agreement, there IS NO contract. So you don’t have to write anything in – you are always free to search on your own and you are not required to compensate anyone. If you DO have a buyers agreement, to write that in defeats the point of a buyers agency agreement. If that is how you felt, I doubt you would ever sign a buyers agency agreement – which is probably why they are not popular in this part of the world.

  3. wally

    quite honestly as a consumer, I would simply inform my agent that I have found a home on my own. i realize this is unfortunate for the agent, but that is how I would handle it. The beauty of a FSBO is that without an agent, you have room to negotiate and purchase at a lower point. Once a commission is brought into the mix, the seller would be less likely to discuss any type of deal.

  4. Bill

    I think it all depends on how comfortable you are with going through the negotiation and closing process on your own.

    If you have been through the process a few times and are in tune with valuations around time, feel free to go on your own.

    Although that type of buyer probably wouldn’t have taken up as much of the agents time as the one in your example.

  5. Mark

    I was in a similar situation when I was buying a year ago. I called my agent and told her that I’ve found an FSBO property on my own and planed to make an offer. She was quite nice about it and said that if I needed anything further I should contact her. I was planning to send her a gift card to thank her for the help she provided while we were searching together. I realize it’s not exactly the commission she was working for, but this is still a business arrangement to me.

    The deal with the owner never happened, so I called her back and we went on to find me my condo.

  6. just lookin

    I would use the agent I had helping me out. We are under contract (actually closing today) on a condo I found on your website. Ethically, we felt we should use the agent that has been spending so much time with us. Of couse she had been emailing us daily listings, but the condo we found fell out of the parameters that she had been forwarding us. (not her fault at all b/c we gave her the parameters). We’re not professionals and we’ve only owned one other place in the past. Going through the process is stressful enough and I would rather have a professional realtor guide us through through the process. If on the other hand we were experienced ‘flippers’ or have bought and sold properties in the past, it might be a different story. Then we might feel comfortable on our own going through the process. (but in that case I would give the realtor a really nice gift to compensate for her time). It’s too bad there are so many people out there that feel it not ethical to use the person they were working with.

    (on a side note, I have told sooooo many people about this website and most of them have said they would use you or Howard as a realtor b/c of the value they have gained reading these blogs)

  7. Lori

    Just Lookin – that’s very nice of you, thanks. I hope you love your new home. Welcome to Hoboken as a homeowner & taxpayer. Now you’ll have a real incentive to vote!

  8. Lori

    I wonder how many FSBO owners are willing to take a lower price because they are not paying a commission?

  9. Tiger

    I would work with my agent.

    The way I see it, there’s a 4-5% agent commission. Has the owner had an agent, my agent would have gotten 2 – 2.5%. If the owner didn’t wan an agent, that’s fine, but I have one, so my agent gets 2 – 2.5% of the final price.

    Actually I had a somehow similar situation; I bought my condo from a flipper – the agent was part of the team. I found my condo on Craigslist, before it was listed on the MLS. My agent was out of town but still when I called to ask about it I told them that I have the agent, but he’s on vacation.

    The seller tried to cut my agent out, telling me that I will miss out on the condo if I don’t act out immediately. But I insisted, I actually waited a week to make sure my agent shows it to me. He worked with me for over 5 months.

    Saw it, loved it, and 30 days later we closed. The whole thing went as a breeze, plus a few good things happened shortly afterwards. I like to think it’s good karma.

  10. Bill

    “Lori said at August 25th, 2009 at 9:06 am

    I wonder how many FSBO owners are willing to take a lower price because they are not paying a commission?”

    I sold my place FSBO – when judging offers I definitely factored in comission – ie net proceeds to me.

    But that is just one of the factors we weighed.

    We ended up selling to a buyer represented by an agent and I think she earned the commission we paid her.

  11. David

    Drop like a hot potato, and buy the agent a gift certificate to Applebees.

    If I found it myself, it was my time and effort, not hers.

  12. Lori Turoff

    Applebees your favorite restaurant, David?

  13. Randy

    As someone who has worked directly for owners in commercial real-estate, when we look for properties, or when we are advertising properties we rarely sign exclusive. Instead we have a few agents that we have built decent relationships with and tell them the truth, that we are either looking to sell or buy and that if they get us a good offer we would love to work with them and pay a commission. However, we make it clear that’s only if they bring us the offer, we do not discuss or tell them about other offers we are dealing with whether with another broker of FSBO.

    Obviously in the residential market this could be quite different. But, my question is, as a broker what do you think when a customer says this to you. That they would pay a full commission if you found a place for them, but that they are looking on their own too. Do you blow it off, or look for the customer?

  14. A.S.

    Well, it depends how comfortable I am with my agent. Frankly, the agent is doing a job. I don’t owe him or her anything as a potential buyer. In fact, as a businessman, I KNOW the agent would do whatever he had to to make a buck off me.

    As you mentioned above, some states have contracts signed with the agent where you are bound to pay them. These are areas in which the real estate market isn’t nearly that of New York or Hoboken. The agent in those states makes FAR less.

    Anyways, if my agent were such a good agent and spent so much time with me (presumably getting to know what I want), why didn’t SHE find the condo of my dreams?

  15. Lori

    Agents don’t sell fsbos unless the owner is willing to compensate the agent – that’s why they are fsbos.

  16. fsbo4me

    Hypothetical? Sounds like “sour grapes” to me.

    What the buyer may or may not choose to do on their own is their private business. Quite frankly when making a purchase this large, I would have my sole interests in mind.

  17. Lori Turoff

    No – it’s just a matter of common courtesy. We agents know the deal – any buyer can go find something on their own at any time. That’s fine with me. I just try to treat people with a little more respect then that and hope to receive the same. That’s all.

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