There are several issues which arise in this situation.
The problem is commonplace. A property is listed “out in the country” by a rural based agent. It might be a cottage, ski chalet or hobby farm. In any event, it appeals to someone in the City, a full three hours’ drive from the property.
Actually, the prospective purchaser is trolling the internet including realtor.ca for listings. Then, we have one! So, how should this be handled?
In this situation, the interested party calls the listing agent directly to arrange a showing. Some don’t ask, but those who have been stung do ask: “are you working with an Agent?” Truthfully, some will admit that they are, others will simply lie, view the property and only then, if they like the place will they come clean with their real estate agent relationship.
The Honest Buyer
This buyer will immediately disclose the relationship with their own Buyer’s Agent. They will want to view the property with the Listing Agent, and should there be an Offer it will go through their own Buyer’s Agent to the Listing Agent.
There’s something of a problem here. The Listing Agent is doing all the work!
Ordinarily, there is a commission on a transaction to be paid by the Seller, one half stays with the Listing Agent and the other half goes to the Buyer’s Agent.
In our example, with the Listing Agent doing more than half of the work, the Listing Agent should have more than half of the overall commission or compensation.
There are some compensation alternatives:
- The Listing Agent could be paid by the Buyer’s Agent for the showing, no matter if there should be an Offer or not (set amount or hourly rate),
- The Listing Agent could be paid by the Buyer’s Agent for the showing, should there be an Offer (set amount, hourly rate or contingency commission percentage),
- The Buyer’s Agent could pay a Referral fee, usually 25% of the Buyer’s portion of the commission,
- The Listing Agent could withhold a portion of the Buyer’s Agent’s commission (again, usually 25%),
- The Buyer’s Agent could forward the entire matter to the Listing Agent, placing the Listing Agent in a multiple representation situation (here, the Listing Agent pays a 25% referral fee to the Buyer’s Agent, based upon the Buyer’s one-half).
Now, we have the Listing Agent acting for both sides in the deal. That means “no best interests” and “no negotiating”. The agent becomes a courier taking messages back and forth, and not preferring one party over the other. That’s somewhat unfair to the Seller who selected the Listing Agent on account of their superior negotiating skills.
If we wish to eliminate the multiple representation issues altogether, then the Listing Agent cannot be on the Buyer’s payroll, meaning no referral fees in either direction.
For the Listing Agent to be a Listing Agent and stay strictly with the Seller, then the compensation, should be negotiated upfront. This is for the “Buyer showing”. The compensation should be adjusted, so that the apportionment is now:
Listing Agent 50%, plus 25% of 50% or 62.5%
Buyer Agent 50%, less 25% of 50%, or 37.5%
Those are the two rates. Now, the Listing Agent can show the property with impunity. A schedule to this effect could be placed on the MLS Listing.
Implied Agency Risk
Even though we have resolved the compensation issue, we still have a potential problem. The Listing Agent must only provide facts and information. There can never, ever be a response which could be construed in any way as advice or recommendations. The FACTS and ONLY the FACTS!
Each time a response calls for advice, suggestions, recommendations or opinion, the Listing Agent MUST say:
“you will have to ask that question of your own Buyer’s Agent, since I am representing the Seller, I cannot respond”.
Brian Madigan LL.B., Broker