This is what’s known in the industry as the “direct” buyer. The direct buyer is a consumer who doesn’t tie himself or herself to a buyer’s agent.
Psychology of a direct buyer
Rather than being represented by a buyer’s agent, direct buyers prefer to work directly with the listing agent. Direct buyers know how to search listings, they attend open houses on their own and when they see a property that suits them, they contact the listing agent.
Many direct buyers may have realized that for them, given their experience, comfort level and knowledge of NYC real estate transactions, they prefer to go it alone.
Direct buyers create a 'dual agency' situation
But, as a seller, you need to understand how a direct buyer will affect you and your listing.
Once a direct buyer presents themselves, this creates a “dual agency” situation, which means the listing agent — your agent — will have to represent both parties’ best interests equally, but only if both parties agree to it.
At the very first sign of a potential dual agency situation, the state requires that the listing agent present the NY State disclosure form to the buyer and seller, informing both of the potential relationship. Then, both parties — the seller and the buyer — must agree to dual agency in writing.
Be aware that dual representation can have consequences — especially for the seller who had the full commitment and representation of the listing agent who is now also representing the buyer. By consenting to a dual agency, the buyer and seller are giving up their right to undivided loyalty. And, more importantly, the agent will not be able to provide the full range of fiduciary duties to the buyer and seller.
What is the commission in 'dual agency?'
Because there is no buyer’s agent, dual agency presents a special scenario since the listing agent/brokerage has the potential to claim all of the commission. But, this is also an opportunity for the seller to negotiate the real estate commission if a dual agency situation arises.
Therefore, as a seller, when deciding on a listing agent and discussing the commission, one question you should ask your agent is:
“What is the commission if a buyer comes direct?”
Depending on how much commission your listing agent is asking (i.e., 6%, 5% or 4%), if there is a direct buyer, the listing agent should pass some of these savings on to you — the seller. How much? It’s negotiable, but at least one percent.
Just make sure you have that question answered up front and it’s in your contract ahead of putting the apartment up for sale.
Ultimately, it’s about the right buyer
The possibility of a direct buyer leads to another scenario a seller should be aware of, which is the listing agent could actually ignore calls from buyers’ agents, since the listing agent knows they could make much more on commission by dealing with a direct buyer.
It’s your responsibility to make sure your agent is representing you for all types of buyers and to find the right buyer — one who has been shopping for an apartment for months, is preapproved for a loan and is working with a bank, if they need financing.
The right buyer is likely to be one of the first people in the door because they have spent time monitoring listings. While you want a buyer who offers the most amount of money, you also want a buyer who is going to get past the board, particularly in the case of a co-op sale.
As a seller, it is incumbent on you to ask the listing broker about how they handle direct buyers. And, if an offer from a direct buyer does come in, you need to know ahead of time how your agent will handle representing both sides of the transaction.
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