As a real estate licensee, you’ve undoubtedly come across unrepresented buyers. The number of purchasers who act without any representation from buyer’s agents is on the rise.
In times gone by, the seller has paid commission to their listing agent and to the buyer’s agent. With the recent class action lawsuits about commission payments, changes are afoot.
Buyers can now negotiate commissions directly with their buyer’s agent. However, this has led many buyers to decide to go it alone and purchase a property without qualified real estate representation. The main motivation behind this decision is to save money.
But, this can be problematic not only for them but for the listing agents they deal with when purchasing property.
The Complexities of Working with Unrepresented Buyers
Unrepresented buyers may not have a comprehensive knowledge of real estate or the transaction process. As a result, they may overlook critical details in the contract, miss important deadlines, or fail to understand things like contingencies. This can complicate transactions for everyone involved — including you as the listing agent.
Some of the key problems that may arise include:
How to make an offer without having access to the correct forms
One of the main issues is that offers from unrepresented buyers are often on the wrong form, making their offer invalid. For example, if the buyer uses a generic form they have found online, it may not comply with the requirements in their state. This not only jeopardizes their offer but can also create confusion and waste precious time for all parties involved.
As a helpful real estate licensee, you may be tempted to assist unrepresented buyers by providing them with the required forms. But, your forms will have your agency name on them, and this can lead to misunderstandings about representation. You don’t want the buyer to mistakenly believe you are representing them.
Some sellers just don’t want to deal with unrepresented buyers
From a seller’s perspective, dealing with unrepresented buyers can be less than desirable. Some prefer to steer clear of unrepresented buyers because of challenges that may arise, such as complicated financing and often unrealistic expectations or requests for closing costs and repairs. In a competitive market, sellers will often favor offers from well-prepared buyers who understand the process.
The Risks to You, As the Listing Agent or Broker
Beyond the additional paperwork, unrepresented buyers bring with them considerable risks, including: Confusion about the Delineation of Responsibilities
One of the main challenges is that the delineation of responsibilities is unclear when dealing with unrepresented buyers. When a buyer doesn’t have professional representation, they may incorrectly assume that you will advocate for their interests or at least keep you aware of approaching deadlines. This is a common misconception that can create significant confusion. This can lead to lawsuits if the buyer had expectations you would negotiate on their behalf or in some way support them.
Listing Agent Strategy:
You should be very clear with an unrepresented buyer that you are not representing them. Explain the boundaries so there can be no misunderstandings. Ensure the buyer understands they must arrange their own inspection and meet their own deadlines without your reminders or help.
Potential Dual Agency Issues
Dual agency scenarios (or the perception of) can lead to a whole host of issues because of conflicts of interest if the same licensee represents both the seller and the buyer. The same licensee cannot equally represent both buyer and seller and advocate in each party’s best interest.
If it becomes a dual agency situation with different real estate licensees within the same brokerage, this is less of an issue.
Keep this in mind even if you’re not actually acting in a dual agency capacity: if the buyers think you are representing them, it can make you vulnerable to a lawsuit if they feel you didn’t act in their best interest (which of course is impossible to do if you are not representing them!). Even frivolous lawsuits will cost you time away from selling, potential legal fees, and possible damage to your reputation.
Listing Agent Strategy:
Always recommend to unrepresented buyers that they seek independent representation from a qualified real estate professional. Remind them the bulk of the work in closing a transaction tends to fall to the buyers’ side, and without a buyer’s agent, they will be on their own.
Outline the tasks the buyer’s agent will perform on the buyers behalf, all the deadlines the agent will help the buyers adhere to, and how the buyer’s agent can help with inspection and financing milestones — issues the buyer may not have considered. Make it clear to the buyer you will not be reminding them of any tasks to complete or deadlines they must meet..
Legal Repercussions for Listing Agents
An unrepresented buyer may choose to sue you for any number of reasons:
- They may not be aware of the limitations of your role, believing you are responsible for their interests when you’re not.
- Perceived misrepresentation if they feel misinformed about your level of involvement
- Claims of unethical behavior or negligence
- Breach of fiduciary duty if they believed you were acting in a dual agency role
- Failure to disclose important information
Unless the buyer has prior experience purchasing property unrepresented (which most buyers don’t), they may lack a clear understanding (or remembrance) of all the tasks the buyer’s agent performs in the transaction process. This ignorance can lead to frivolous litigation, where they file claims based on misunderstandings or unrealistic expectations.
Regardless of whether you acted improperly or not, lawsuits are costly, time-consuming, and stressful to defend. They can jeopardize your real estate business and your reputation.
Listing Agent Strategy:
Encourage buyers to do their own due diligence and research so they can make an informed decision about the property.
Keep a record of all of your communications with the unrepresented buyer. Ensure they clearly understand and acknowledge that you are not representing them. You might consider getting this in writing and signed, to protect you from future legal claims.
Protect Your Real Estate Business from Unrepresented Buyer Risks
There’s no doubt real estate licensees need to navigate any dealings with unrepresented buyers carefully. By focusing on clear communication and defining your role early on, you can help to avoid a dissatisfied buyer. But, it’s also important to have insurance protection in case you do find yourself facing a lawsuit.
CRES has specialized in real estate E&O insurance for more than 25 years, and has access to more E&O options than just about anyone else (we’re part of one of the largest insurance brokers in the world). CRES E&O will give you Superior Protection at an Exceptional Value.
Real Estate Errors and Omissions insurance can help you defend against a lawsuit if the need arises. Our Real Estate E&O + ClaimPrevent® also gives you access to our team of qualified real estate attorneys Pre-Claim, so you can get answers to your legal and risk-related questions before they escalate into claims. Contact the CRES Real Estate E&O specialists today at 800.880.2747 and our team can tailor a package to suit your real estate business.
