Many people inherently distrust real estate agents.

Whether it’s because they have had a bad experience in the past or the fact that REALTORS® are salespeople by definition, sometimes the skepticism is earned. Maybe you felt like your agent poo-poo’d your price range or didn’t make you important. Maybe they even acted illegally by treating you different because of your race, religious beliefs, etc. But these situations aren’t as common as a subtle fracture of ethics. In fact, ethical agents can sometimes act unethically and not even be aware of it, yet this is where the buyer or seller loses.

A Gray Area in Ethics: Home Warranties

A very common gray area in ethics: a buyer’s agent writing up a home warranty in a purchase contract. Some brokerages – hyper-vigilant in holding themselves to the highest standard of ethics – do not allow their agents to participate in kickback programs, but plenty do. If your agent writes up home warranties in your offers, ask if she is getting a kickback, and hope she will give you an honest answer.

The question arises, “What’s so wrong with a kickback? I don’t care if my agent gets a $75 check in the mail.” License law requires that whenever an agent receives payment from ANY source, it must be disclosed in writing and the client must agree to it. If your agent doesn’t do this, she is breaking license law. What other laws is she working around that you don’t know about? At this point, I would wonder how serious the agent considers fiduciary responsibility (her duty to handle your information and affairs with loyalty and confidentiality).

For the sake of argument, let’s say your agent discloses the kickback, and writes an offer with the seller paying for the home warranty. No harm done, right? Not necessarily. Whatever the buyer asks of the seller in an offer is negotiable, and in a multiple-offer situation, asking for a home warranty can muddle up your offer. Regardless, any of these thoughts could cross the seller’s mind:

  • “These home warranties are worthless. Obviously we are dealing with an inexperienced buyer or agent. Let’s take advantage of that.”
  • “I’m not paying $500 for a home warranty. If that’s what they want, let’s raise the sales price $500.”
  • “They can have their home warranty, but I’m less likely to do any repairs that the inspection finds. They can use the warranty to fix the leaky toilet, replace the microwave handle, and get the gas fireplace working again. I’m not going to let them double-dip.”

You can see how a buyer asking for a home warranty could affect the negotiation process. That being said, I do not write up home warranties in my offers. A buyer has never asked me to, and if that situation ever arose, I would educate my clients on the potential consequences of doing so and let them decide if asking for a home warranty is worth it.

Other Kick-backs

As a final note, I want to point out that kickback fees are not limited to home warranties. An agent may also get a rebate or even non-financial incentives from their preferred mortgage lender. Recently one of my buyers submitted a strong offer on a Hidden Springs home, and we included the pre-approval letter from a well-respected local lender. When the seller’s agent called to thank me for the offer, she said, “There is one condition, and this is a pretty big deal for the sellers; they want the buyers to get pre-approved through their lender.” I had never heard of such a thing! Furthermore, I knew the sellers were moving out-of-state (it’s hard to keep a secret in Hidden Springs), and was curious why they had an in-state lender that was so important to them. The seller’s agent said she would forward me the lender’s contact info; what she sent me instead (presumably by accident) was a pre-approval letter for herself! It was obvious the agent had her own personal reasons to send the lender business, and it had nothing to do with her sellers. My buyers figured this out right away, and it gave them such a bad taste in their mouth, they decided to withdraw the offer.

What Can You Do?

Unfortunately there’s no easy way to determine if your agent is one you should trust or not. You typically won’t hear or see the conversations they have with other agents. The only thing I can recommend is to pay attention as usually there are red flags. If something doesn’t feel right, it probably isn’t.

Click here for Part II, Is Your Agent Ethical?

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