Q&A: What Does ‘Direct Buyers Only’ Mean in Real Estate?

Last Updated on March 4, 2019 by Lamudi

The phrase “direct buyers only” means exactly what it says and there are many reasons why some real estate listings might include it

There is arguably no purchase more complicated than a purchase involving real estate. There are many factors to consider, from location and size, to property type and price, to name just a few. On top of that, there are also number of legal and financial documents to sort out.

For this reason, most buyers prefer to seek the assistance of a licensed real estate broker, who can help make the process of purchasing a house easier. Although using a broker is usually a good idea, some sellers prefer to limit their involvement with third parties and work with buyers directly.

In this edition of Q&A, we will discuss the term “direct buyers only,” why some sellers include this phrase when advertising their property, and does this mean that using a broker is prohibited?

Q: What do listings mean when they say “direct buyers only”?

A: When the phrase “Direct buyers only,” or DBO, appears in a real estate listing, it signifies precisely what it says. Without the participation of real estate brokers, sellers will only respond to inquiries from prospective purchasers who are actually interested in the property.

Advantages of DBO transactions

Dealing exclusively with direct buyers is chosen most frequently to avoid paying a broker’s commission. Broker commissions in the Philippines can range from 3 to 6 percent of the selling price of the property.

This frequently comes up during negotiations when buyers raise their asking price, lowering the seller’s profit on the sale. Although the buyer engaged the broker, in the Philippines, sellers are still liable for paying the broker’s commission in the Philippines. They do not benefit from this, mainly because they must pay commissions to their own brokers. (However, it is common in the Philippines for the two brokers to agree to divide the commission between them.)

DBO Disadvantages

Although it is rare, some sellers choose to offer their homes as DBOs in order to counteract the chance of losing out during negotiations. But this arrangement carries some dangers.

According to Jake Loria, a licensed real estate broker and founder of Calonge-Loria Investments, real estate brokers and agents exist to help facilitate the efficient sale of a property. Apart from making sure that the buying process goes smoothly, brokers can ensure that the seller’s properties are marketed effectively and that they are connected to the right leads. Brokers can also help ensure that properties are competitively priced.

Sellers who opt to forgo the services of a real estate broker and simply do a DBO transaction run the risk of losing time and money. “Even worse, they might get scammed”, says Loria. “The role of a broker is to screen all potential buyers and validate if all the offers to buy are authentic. This takes time and effort to carry out. Unless a seller has all the time in the world, it’s more profitable for him to use the services of a broker.”

Buyers are also at risk when they buy directly. First-time buyers have little to no knowledge of how to conduct proper due diligence on the property they are interested in. They are often unclear about how to verify the veracity of all documents related to the property (title, taxes, and contracts, etc.). This is especially important in the Philippines, where counterfeit titles and fraudulent documents are unfortunately still prevalent. Loria states that “first-time buyers will waste a terrible amount of time doing all the legwork to accomplish half-baked due diligence.”

Another disadvantage of properties listed as DBO is that it can be a way for some unscrupulous sellers to gain an upper hand in the negotiations. With the absence of an intermediary, some sellers can unreasonably raise the price beyond fair market value and hide certain obligations in the hope of passing them on to the buyer.

What to Remember When Entering DBO Transactions

Of course, some trustworthy sellers list their properties as DBOs not to scam unsuspecting buyers but rather would simply prefer to exclude the broker in the transaction in order to save some money. Furthermore, there is no need for buyers to avoid properties being marketed as DBO altogether; they must simply be wary of the risks involved. Hence, doing their due diligence is extremely important.

Lastly, both parties must realize that in many ways, foregoing the services of a real estate broker and choosing the DBO route just to save money is akin to a patient self-medicating: it may lead to a positive outcome, but there is also a possibility that it will not.

For more tips on the Philippine real estate market, check out other related journals on Lamudi here.

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