Why You Can’t Trust Real Estate Agents When Buying A House

by Mike Holman

Most prospective house hunters or sellers think they have a “good” agent. Either it’s someone who they previously worked with or perhaps a referral from a friend or a co-worker. One of the big reasons for having confidence in their agent is a belief that the agent is “on their side” and “honest” etc etc. I would suggest however that by a certain point in the process, your agent is your enemy and you are negotiating against them more than the other party. This post deals with the buy side of the house buying game. The next post will deal with the sell side.

In the beginning: happy friends

When a house buyer first signs up with an agent, things are usually pretty rosy, the agent assures the person that they can find an appropriate house for a price you can afford and everything will be great. The agent has “lots” of experience and knows the area inside out. At this stage of the game, you and your agent are mostly on the same page. You want to buy a house and they want you to buy a house. Your agent will most certainly want to get the process over with sooner rather than later, but that’s usually the case with the buyer as well.

During the search: uneasy allies

Agents know that they need to spend a fair bit of time with a buyer, especially ones who want to look at a lot of houses. After a while however it’s not worth it for an agent to continue a long search especially if their contract is running out. This is the time when the agent will start trying to convince the buyer to lower their standards and raise their prices. Sometimes this is educational if the buyer has unrealistic expectation, but mainly this is to speed up the process so the agent can get paid. I should point out however that real agents are normally quite useful during the search since they often know more than you do about the general real estate and can get you access to private showings. The other big benefit is their access to sale price information for similar houses.

Related – How to win a house bidding war

Thinking about putting in an offer?  Trust no one!

The point when the buyer submits a offer on a house is a time when a lot of house buyers, particularly first timers feel out of their element and defer to their agent for advice. This is the worst thing you can do. Your agent gets paid when the deal gets done and only when it gets done.

This is a time when knowledge of the real estate market should be a big help in determining how much negotiation should be done. As well, if the buyer is not in a hurry to buy then that sets up a great negotiation opportunity. However if there is one thing that real estate agents don’t like it’s clients who negotiate hard – why? Because the only way to negotiate properly in a deal is to be able to walk away if the price you want isn’t met. The way an agent sees this type of situation is that if a deal falls through, they have to spend a lot more time looking at houses with you before they get paid.

Things that your agent might say (and you should ignore) when you are about to put in a bid are:

  • “Don’t bid too low or you will offend the sellers”. This is garbage – if the sellers can’t handle a low ball bid then they are unrealistic. And what exactly is a bid that is “too low”? I’m not saying put in an unrealistic bid, but don’t be afraid to start low and work your way up.  It’s important to know the market so that you don’t have to rely on the asking price or your agent to tell you the proper market value of the house.
  • “Don’t bid too low or you might offend the selling agent and might I have to work with them in the future”. This stunning example of gall and self-interest was actually told to Mr. Cheap. I don’t think this one needs any further comments. 🙂
  • “You should get a bid in quickly before someone else puts a bid in”. This is a favourite of my agent – create a sense of false urgency, get the deal in motion and get it done ASAP. Sometimes this is good advice, but other times – such as when the house has been sitting on the market for a month or longer then it’s just not appropriate.
  • “Someone else is looking at the house later today and they are really interested”. This lie usually originates with the selling agent, but smart buying agents are usually more than willing to play along because it will increase the chances of their buyer putting in an offer in that day.

Negotiation – don’t listen to a word your agent has to say.

At this point you are potentially pretty close to buying a house. You want to buy the house at the lowest price, the seller wants to sell the house to you at the highest price and your agent wants you to buy the house and doesn’t care at all what price you pay because they just want the deal done right now. Since paying a higher price will get the deal done quicker, a lot of agents will encourage you to bid higher which basically means that you are negotiating against them as well as the seller.

Things that your agent might say (and you should ignore) when you are negotiating are:

  • “Meet them halfway or in the middle”. This sounds quite reasonable at first- if the asking price of a house is $500,000 and you bid $460,000 and they come back with $490,000 then isn’t splitting the difference at $475,000 quite reasonable? Not if you can get the house for $470,000 or $465k,000 The fact is that the asking price of the house and your first bid are very arbitrary numbers and splitting the difference between the two might end up in a price that is not market value.
  • “Are you willing to lose this house for $2,000?” (or $5,000, $8,000) This is a tough one – on the one hand it seems silly to not buy a house and be only a half of a percent away from a deal, but on the other hand shouldn’t your agent be asking this question to the seller? Ie – “We are going to walk, do you really want to lose this deal for $2,000?”
  • “Are you willing to lose this house for $12 a month?”  This is part two of the previous point which is applied if you don’t bite on the first attempt. It’s also a more useful gambit if the “separation” is a bit greater. If you and the seller are $12,000 apart, that sounds pretty significant, but what if you are only $75 a month apart (for 25 years) or even better what if you are only $63/month apart (over 40 years). That doesn’t sound like much (even if it is).

Conclusion

The more you educate yourself about the real estate market you are looking in and how real estate agents operate, the better off you will be when buying a house. Real estate agents are quite useful because they can get you access to houses for sale and will often drive you around to look at them plus they have access to the sale price of other houses. Whatever you do, never forget that they get paid when the deal gets done and only then. They don’t get paid for showing you more houses or walking away from close deals.

Tune in tomorrow when we take a look at the trustworthiness of real estate agents when selling a house.

Take a look at another perspective on real estate agents that Mr. Cheap wrote.

Do you have any good “lines” that you were told when buying a house?

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{ 19 comments… read them below or add one }

1 Rm

My realtor has told me almost everything being said here so it is real

2 Jeff

Wow! A lot of people beat up on this guy for writing what he felt was simple advice for people to watch out for–nothing more. If it happens occasionally, it is worth writing about and warning people to be wary of these points. Why so defensive?

I have seen exactly this kind of behavior and witnessed real estate reps get all bound up when I refuse their “advice”, which was obviously in the other party’s favor. They were not acting as fiduciaries–just greedy sales people. They also get very defensive if I give them a critical review rather than use my feedback to improve their service. That is a great indicator to steer clear of those types of reps.

In Rich’s much earlier post, he states that there is no agency agreement without money changing hands. That sounds reasonable but, in a real estate transaction, no money changes hands until the deal is done. That is probably true for the buyer and real estate rep. In that case, this article at least lets you know what to use a buying “agent” for and sets realistic expectations.

But does that mean that the “fiduciary duty” language in the seller’s contract is invalid and is there only to appease the client? That seems a question worth asking. If that is the case, it is inherently deceptive. If the language is valid then I would argue that the misalignment of incentives between the client and agent encourage unethical behavior on the part of the agent, who would have a fiduciary duty to work for the best interests of his or her client. But that is why we have fiduciary rules in the first place–to encourage agents to operate on behalf of their clients’ best interests. Still, not all of them do and it is worthwhile to write about, and be aware of these pitfalls, whether they are true for you or not. These issues do occur and are therefore worth noting.

3 CP

It seems like everyone is getting defensive and ignoring the fact that the buyer’s agent incentive (paycheck) is completely tied up in the price of the house and faster sale. And while good agents ignore the short term gain, knowing that sales, and better paychecks, will come with a job done well, far too many agents are just human and looking out for the immediate payout. There needs to be a way to distance the buyer’s agent from the incentive of a higher price and faster sale. I don’t know if it is the solution, but Flat-Fee agents are an option.

4 Rico

if you want to laugh your rear ends off check this out have you ever been out bided by the same agent who showed you a property.i have I found a house in my neaborhood got with a agent told them to put a bid in for me asking price was 16.500 I bid 15000 when I lost and the people moved in they got a running there mouth in my area keep in mind I know everyone in that neaborhood they went bragging how there sister helped them out bid this sucker being me lol and her sister worked for guess who same agency. so now I’m like the hell with them agents now I know why we now have bandit signs we buy houses on every corner id rather buy a house from one of them which I have and everything went awesome then a shady real-estate agent any day of the week. ever sense that happened to me I been looking at all houses them agencies be buying you will notice they be picking up houses nice ones for under 10.000 well buyers like me are left fighting for the scraps they post on sites like Zillow etc I wish there were some kind of law preventing them from owning the market

5 amy

I have had nothing but horrible experiences with realtors,and feel that this article is spot on.

6 Great Article

So true, all real estate agents are annoying.

7 Mary

Clearly, the ones with long comments, and against the article are involved in real estate. I am trying to buy a house, and I experience exactly these constant lies from my agent. Whenever I use my judgment, I can feel his pressure on my so-called lack of experience in the business, and his insistence to explain to him why I do not like the houses I see. I am determined and I set the rules of the game.
I have a philosophy: You have the money, you set the rules no matter what others tell you what to do. If not, no problem. There are other houses as well.

8 Rick N.

This is humorous.

9 HomeBuyer

my experience this year with several realtors mirrors your article. your article is spot on with all my experiences. i definitely felt i was also negotiating with my agents. i also caught them more than once lying to me. i found out about conflicts of interest with ppl my realtor would refer me to. i expected to be working with someone on my side, helping me with what to do, highly recommended contacts, and sound advice. that has not been the case with any of them. when it came down to the tough negotiating part, i was on my own. it has been an awful experience and as a result i will no longer ever trust a real estate agent. i highly recommend every buyer or seller heed this advice here in this posted article. i admit an agent is needed, but from now on i will get a separate appraisal. i will find my own independent specialists for everything i need or want to close including financing.

10 Michelle

Wow. This was my exact experience today. My agent said ALL of these things as she was trying to pressure me to raise my offer. I feel so stupid!!!

11 Harry Schultze

In my experience with dealing with real estate agents the author is spot-on. It can be even worse than this! Remember these are the people who brought you the artificial real estate bubble that ended in the country nearly going into a depression.
Real estate agents tend to be unscrupulous in the extreme. Example: where are certificates of occupancy are required before a purchaser of a property can lawfully live on that promises, real estate agents often remove the certificates of occupancy just so they can get their Commission. This is a very popular practice in Macomb County Michigan where I live. A buyer may spend x amount on a house but then have to put an extra 30 or $40,000 into that house in order to bring it up to all of the Myriad of codes that are required by the city. Many real estate agents will not even help you to find houses if the price of said house is lower than they wish to get in their Commission. That is a common problem in the inner cities no one wants to work on people buying and selling these houses because the percentage just isn’t thick enough for these greedy individuals!
Just remember you’re dealing with people who have their own best interests at heart and they are extremely greedy, all they care about is the money.

12 DD

Realtors are scumbags. Anyone defending realtors on this post is an actual realtor. I’ve been screwed by realtors when selling property and when searching for property. They are by far one of the most crooked professions that exists.

During the foreclosure period I dealt with numerous agents. The majority I ran into are extremely unethical. Good property they were buying themselves or giving the bids to their friends. In the meantime they would try to trap you on garbage and make you feel guilty. I absolutely despise realtors with a passion.

I hope the market crashes and they get what they deserve.

13 smac45

“Don’t bid too low or you will offend the sellers”. This is garbage – if the sellers can’t handle a low ball bid then they are unrealistic.

It seems that many sellers do not know how to negotiate and yes some of them are insulted by a low offer. We have offered 5% under asking price (based on comps sold nearby, cash, no contingencies) only to be stonewalled. The seller and listing agent can’t even be bothered to counter on paper but they do try to delay us verbally because they think other offers are coming in. And our agent will not fight for us. She texts. We have to insist she get on the phone and call the listing agent. We’re paying her thousands of dollars for this kind of service? The whole process stinks.

14 Maggy Cotherman

Of course the other agents are going to jump down Mr Cheap’s neck. They are agents. My observation is that they value each other more than their clients. No matter what they say, if they are not negociating for you, they are negociating against you. Before putting on a bid take a thorough look at the home. Then go to the county to see what they value the house at. My buyers agent simply would not respond to the fact that the sellers were trying to force a sale price of 150% more than the house was worth. He even told me not to stay at my own inspection. They can be monsters and you have to protect yourself. I cannot speak to every agent, of course, but they got into it for the money, and when the deal closes they are gone. Mine actually disappeared right after the contract was signed. When I asked for disclosures on the house, he falsely told me his father had died and never got them for me. When I told him I was coming to the inspection, he told me I could not stay since he had somewhere else to be. When it came time to negociate fixes he again disappeared with me waiting for the inspection period to end without a cap to the sellers deliberations. And when I capped it he went behind my back and cancelled the transaction. Then he had me sign an unconditional disapproval/termination on one day telling me he would distribute them the next when he considered himself released. So I had to distribute the cancellation paperwork myself to get the sellers signatures and make sure they got to the title company so I could get my earnest money back. And the listing agent who refused to talk to me, relisted the house without submitting the seller signed cancellation paperwork to the title company. I had to tell her she was breaking the law by listing a home that was technically still in my name. That forced her to get the signatures and get the paperwork to the title company so that I would received my earnest money. They have a club and YOU are not a member. Like I said, monsters. If you are not diligent, your ass is going to be in a sling and your buyers agent is not going to care. The online agent reviews have to be falsified, cause this is outrageous behavior. Another agent told me a historic house was not, she told me not to come to the inspection, and never gave me any signed paperwork and continually tried to negociate a price above my loan amount. Another took 3 times to the parking lot to get into her car before she could arrive at the car with her purse in hand, then she told me a house that was in a flood plain when it was not. PROTECT YOURSELF.

15 Maggy Cotherman

I have dealt with 7 agents, including brokers and agents from the other side of the transaction, so far and they all acted inethically, every last one of them. But if one is terribly bad within a office, you can expect the others will not be much better since they have to accept each other to work together. One office may have different acceptable standards of conduct (no matter how illegal) than another, but so far I have not found even one that doesn’t behave atrociously.

16 Nichole

Perhaps there are some generalizations in this particular blog entry, but I personally have dealt with two buyer’s agents fitting the description given here. Those of you who are offended by this article, good for you. Maybe you happen to be a good trustworthy buyer’s agent, but your awareness does not mean that unscrupulous realtors don’t exist. Indeed they do. Do your research first and ask for references in anything dealing with character.

17 JIM WHEELER

TO ALL A REALTORS WORK HARD FOR YOU IMAGINE DIAGNOSING A CONDICTION ON YOUR BODY WITHOUT A DOCTOR YOU CANT BUY OR SELL WITHOUT A REALTOR

18 Yahkema

Agents are not to concerned with doing the right thing they basically only care about their pay day. I have had two agents and they basically just sat with me at the sales rep desk and offered no guidence and when I asked for information I did not get it but they say I did not give them a chance to help me what bullshit. That is why I am forced to waste time going through sales agents because they are mostly lazy. And I believe some agents make under the table deals with the sales agent againt their clients.

19 Dan

Real estate agents are a cancer in the system. The sooner we can get rid of them the better. Only problem is what will those unskilled leeches in fancy clothing do to make money? Well I’m sure they’ll find another way to steal it!

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