A real estate question

Factual Questions
1

I’m googling as you read this, and we will consult our realtor and lawyer too. Just hoping for answers from you as well.

We put an offer on a house. In doing so, we signed a realtor representation agreement with language to the effect that he is our realtor for the sale of this house (if we don’t buy the house, we don’t need a realtor right now).

The offer was refused (long story short). Turns out the seller’s realtor agreement was about to expire. We believe that’s why we couldn’t come to an agreement - he wanted to wait until the listing expired then go private (to avoid paying the commission, of course). Our realtor was furious and told us his realtor even more so, understandably.

It’s now almost a week later and sure enough, we found a brand new new ad for the house on a buy/sell forum - asking price less than our highest offer (but more than he would have gotten after paying commissions).

What do we do now?

Can we deal with him directly, or are we obligated to use our realtor (the language is “for the sale of this particular property”). More widely, what if we had the usual realtor agreement then found a private sale on our own? Do we have to pay our realtor’s commission?

We are in Ontario, Canada if that matters.

2

Depends, I imagine, on the wording of your agreement with the realtor. Read the fine print. If he covers you in any situation where you would buy the house (or any house he shows you), then I suppose you are stuck with him and his agreement no matter what is going on at the other end of the sales agreement. I imagine this includes paying him his commission - which is logical, he hooked you up with this house, you cannot simply say thanks for the intro now get lost unless your agreement allows it… I have trouble imagining the boilerplate agreement does not cover this situation. So, should you buy the house, he can come after you for his commission. Also, should you use him or not, if you buy the house and the seller declines to pay commissions (and has no agreement to) then you are on the hook to pay his commission on top of the selling price.

So I assume the price is lower for everyone else except you, since you would have to pay your agent. All you save is the seller’s agent’s commission. But then, the seller hasn’t marked it down by the full commission, so you probably don’t save very much.

3

IANAL, but I would be very wary of this. Even the original listing agent might argue that you were shown the house while it was under contract. A friend of mine sold his house a couple years ago. He got an agent who proved pretty useless and dropped her and went to a private sale outfit that for a small flat fee helped you sell on your own. He did, but to a person who had never seen the house before.

4

I certainly do not want to cheat in any sense of the word. Of course I also do not want to pay a commission if I don’t have to. I am just confused about using a realtor with a private sale, esp. were we did most of the work.

The only reason we engaged our realtor is: We are looking to move quite far from where we are. We found this place ourselves, as well as a few others - before ever meeting our realtor. We planned a trip to the area and needed someone to set up visits to each. A friend hooked us up with this guy - and he made the arrangements for us. We saw each of the places we wanted to, and one more thrown in. (side note: he did no research on the places we wanted to see and could answer no questions. The additional place he showed us was nothing like what we wanted - we never spoke to him beforehand, so how could he know what we were looking for?)

This may seem to be branching into IMHO territory. The factual question I have is based on this: If my realtor (buyer) works with your realtor (seller), each gets a commission that comes out of the final asking price - in other words the seller pays both commissions. If my realtor (buyer) works directly with you, who pays my realtor. It must be me. This makes sense on one hand, but also doesn’t.

Here’s why it doesn’t make sense (probably because I’m missing something). Forget the details of this purchase. Let’s say the deal was this:

Us: “Mr. Realtor, please find us some houses to consider, then help us with the offer/negotiations when we pick one.”

Realtor: “On it. And don’t worry about paying me. The seller does that.”

Under that arrangement (my understanding of the “typical case”) my realtor will likely never bring us to private sales knowing we won’t want to be the ones who pay his commission. But as a buyer, I wanna see those houses too.

Which leads me to the question: if I then find a private sale myself, am I obliged to pay out of my pocket the commission? If so, then that’s weird. If you do your job I don’t pay you (the seller does), but if I do that part of your job, I pay you (the seller doesn’t).

Our situation doesn’t exactly fit this typical case, but close enough. We found the listing before meeting the realtor and asked him to facilitate viewing and negotiation (language parsing aside). We then found a private listing (he didn’t) that happens to be the same place. Even if the language said, “you’re our guy until April” and even if the private listing was some other place, it feels weird to pay him - just as it would in the typical case.

Do you see my confusion, and is there a way to clear it up?

5

Your agent sounds a lot like the agents we have dealt with in the past, we did all the leg work, did all the research, they felt compelled to add one or two that were no where in the realm of what we wanted so that it seemed like they were working for their money.

Not sure if things are different in Canada and they are probably even different in the US since the last time we bought a house 16 yrs ago.

But from my experience, most of the private sellers do not want you to use an agent for the very reason you mentioned, they do not want to pay the commission and don’t figure you want to either (that is why they are listing the house lower, but can make more).

If you had found a private home for sale without the agent, then I know you obviously would be in the clear.

And yes, if you used an agent even on a private sale, you would be expected to pay their commission as the whole point of selling privately is to avoid paying the 5-7% (or whatever the local market bears) and just using a closing attorney to handle things.

I think whether you have to pay the agent on the sale of this particular house depends greatly on your contract. Was there a time frame? My guess is that they try to put in language so that someone cannot do what you are asking about. That is, find a house that is at the end of the listing time, and once the listing expires, both parties work it out and make the deal without using the agents. Really, I doubt you could use the fact that your agent did not really do anything for you.

I am guessing you are either bound to the agent through some date, or if it is just for that house, maybe bound indefinitely to that agent for that property.

It is possible you could buy the house and hope the agent never found out, but if they did, they could possibly sue you for breach of contract.

Definitely want to check with someone with direct knowledge of the industry and the area.

6

You’re right. I’ve just re-re-read the fine print again. I think the root of my confusion is for most of the language regarding commissions it says things like “the listing agent pays the buyer’s agent, if there is a gap in the listing broker’s payment the buyer makes up the diff… etc.” i.e. it appears to apply only if there is an agent for the seller. We’ve bought/sold before and there was never such a gap.

What I caught on re-reading is further language, “…if there is no payment from a listing agent, the buyer pays” which I did not consider to mean “if there IS no listing agent”. I see now: “even if you find your own damned private deal, buyer still pays the commission” And because we tied the agreement to this address, we’re on the hook if we buy this address (there is a time frame specified too: April - risky to wait until then)

We’re not going there. I have no interest in walking through a shady deal.

7

The risk of doing an “end-around” on you real estate agent is that if the deal goes bad, and you wind up in a court of law, this breech of contract can (and will) be used against you … if the agent did nothing, you’d have a good case; but it sounds like he did something and now he’s entitled to his commission … he did arrange for you to see the inside of the place and I’m sure that was of critical importance to your decision to buy the place …

That being said … I would encourage you to negotiate with your agent, he’s only expecting the buyer’s half of the commissions, perhaps chew him down a little … remember, your agent has overhead; insurance, bonding, license, etc.; I’m sure you noticed he’s not driving a Ferrari, so don’t expect him to ignore any “shady deals” going forward …

8

I would think if there’s a way for someone clever to try and weasel out of a commission payment, the real estate business has thought of it too - and put a clause in the contract to prevent it. They’re not as dumb as they look. So yes, you have committed to using the agent to buy this house, and to paying his commission one way or another. So your choices are simple - buy the house and pay the commission; don’t buy a house; or buy some other house and don’t pay a commission since you suggest the fine print says it only applies to this house; or wait until May.

I’m curious whether the seller’s contract (or buyer’s) also includes a clause to the effect that once we’ve shown you a house, connected buyer and seller, you can’t simply wait out the contract(s) and buy it privately, for a certain amount of time. Otherwise, where’s the incentive in really trying in the last month. Of course, IANAL perhaps the seller’s agent could now sue for breach of good faith, if the seller deliberately turned down offers after contracting with an agent - simply to make the same sale privately. If such a lawsuit did happen (probably not, not good for business to sue customers) then would that tie up the closing of a sale?

9

Standard listing agreements certainly do have language that is intended to prevent what the OP describes. The listing agreement extends beyond the end date for any buyers who looked at or inquired about the house while it was listed with a broker. So, the seller would have to pay a commission if the property is bought by anyone who looked at it while it was listed with a broker. Whether or not the OP, as a buyer, would be on the hook for any commission is difficult to say, because commissions are typically paid by sellers.

Any listing agent who is on the ball will notice that a house he had listed sells… and will take a look at the buyer’s name. It wouldn’t surprise me if brokers offices didn’t do this routinely for six months after a listing expires.

10

So it is unlikely, then, the seller will even deal with us. Unless he privately listed after even that additional period. What a mess.

11

To the seller, it should come down to his net proceeds. So, all other things being equal, he would sell for less if he doesn’t have to pay a commission.

But in reality, all things are not equal. If he has to keep it for months, paying taxes, insurance and interest, it’s costing him money to hold it. If you really like the property, you can approach him and see what happens. You never know what sellers might do as they weigh prices with contingencies and waiting periods. Just be wary if he acts squirrely about the real estate agents and brokers.

I would not try to participate in anything shady. Perhaps you could include language in your purchase offer along the lines of “This offer is made contingent to the buyer paying no commissions to any real estate agents or brokers. If any commissions result as a consequence of this transaction, all commissions are to be paid by the seller.” IANAL, so you might want to check with one to see how you protect yourself.

12

It’s a minor mess but you can still negotiate around it. The seller doesn’t want to pay a commission but what he may not realize is that no buyer’s agent will pay any attention to the property now. All the people who made offers before are going to disappear. People willing to deal with quirky, difficult direct sellers are also the same people who want to drive a hard bargain. His best offers are probably behind him.

So, you can offer him less for the house to offset the commission you owe your agent. You would pay the agent in cash. This might not work if your funds are tight after accounting for the down payment. Alternatively, he can agree to pay your agent your fee. Whether he owes his agent money for the sale is between him and his agent.

13

I hope not. If the contract with his realtor was about to run out, I’d conclude that the house was not a hot property. If he thought he could save money by selling to you privately by running out the offer, he is being unethical, and I wouldn’t trust him as a seller. Who knows what surprises await you.
The rights of the realtors matter to, but I’d avoid dealing with this person for purely selfish reasons.

14

I concur. If he’s willing to screw over people he hired to help him sell the house then why wouldn’t he screw you over.

As for the legal part IANAL but I would be surprised if his contract with his realtor and your with your realtor did not have language in it protecting them from this scenario.

15

You could just pay the 3% yourself.

16

You had put an offer on the house at $ x. If you were willing to own at $x, presumably you still are. Wouldn’t the easiest thing be to tell your agent to get it done for you at net $x to you? Make clear to the agent that at $x plus a penny you walk, and you do not plan to purchase any other house through that agent. Since the $ask is <$x, there is presumably some money to be made by your agent. Maybe not as much as (s)he would have made otherwise, but more than zero. Agent now can choose to make an easy -$x less $ask, (probably also less taxes/fees over x-less–ask, if seller is nitpicky), or actually work for his/her money and negotiate with the seller to where the agent nets more $$$, or do neither and make nothing.

17

Update for the curious: after considering your input, plus advice from our professionals, we have agreed that we are on the hook. I’ve had a conversation with our buying agent. He expressed an ethical conundrum - should he proceed under these circumstances. We agreed that he will give the seller’s agent a courtesy call, then let the seller and his agent work it out. We will then engage or not as if this was a clean private deal, and we will pay our agent his commission if the deal closes.

Thanks to everyone for your comments. I found them all very helpful.

I’ll update again if there are any other interesting developments.

18

I assume too, where a sale involves a private seller (“not goin’ to pay no steenkin’ commission!”) then it’s probably in the buyer’s agent contract that the buyer must pay his agent if the seller won’t.

Just out of curiosity - what was the commission? I seem to recall in Ontario it’s 7% of the first $100,000 and 5% after that, split 50-50 buyer-seller agents, who then split their take 50-50 with their agency (i.e. Century 21, ReMax).

Plus as others point out, if the property didn’t sell for 6 months either it’s a dud, or the selling agent was pretty useless. (Or the asking price was too high… supposedly thanks to rising interest rates, prices are coming down a bit…)

19

In our buyer’s agreement it’s 2.5%. In our selller’s agreement it’s 5%:, split 50/50 buyer/seller - unless our seller also represents the buyer then it’s 4%, all to our agent.

The area we are moving to is a pretty slow market - and the property is on the outskirts, so slower yet. Also, I believe the seller is indeed asking too much, esp. for what needs to be done to the house.

However, the location and certain features of the property fit some unique needs we have - so we are willing to pay what he’s asking (family situation, perhaps another thread…)