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?
What do listings mean when they say “direct buyers only”?
Direct buyers only, or DBO, when included in a real estate listing, means exactly what it says. Sellers are only willing to entertain the inquiries of the actual buyers interested in the property, without the involvement of real estate brokers.
The most common reason for opting to deal with direct buyers only is to eliminate having to pay a broker’s commission. In the Philippines, brokers’ commissions can range from 3 percent to as much as 6 percent of the property’s selling price.
This often comes into play during negotiations, where buyers asking price, thus reducing the seller’s revenue from the sale. In the Philippines, sellers are responsible for paying the broker’s commission, even though it was the buyer who hired the broker. This is not favorable to them, particularly when they have their own brokers to pay commission to. (Although sometimes, the two brokers may agree to split the commission between them. This is not an uncommon practice in the Philippines.
While it does not happen often, some sellers opt to list their properties as DBO to balance out the possibility of losing out during negotiations. But there are risks to this arrangement.
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.
Of course there are trustworthy sellers who list their properties as DBO 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.
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