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Can you explain why? Why selling agent makes a discount for my buying agent, but not for me? Does he care?
You are confusing two separate concepts...
When a person decides to sell their home and they sign a contract with a realtor to do it the contract contains the selling realtors fee that is traditionally 6%. The selling realtor then agrees to split this commission with the buyers agent, traditionally 50/50 or 3% is retained by the seller's agent and 3% by the buyer's agent. If the buyer does not have an agent then the seller's agent retains the full 6% in the sales contract.
The second concept is the actual negotiation on the sales price of the house. In this case it is perfectly possible (though rather unlikely) that a buyer without representation will be able to get the same price as if they had an agent representing them.
Basically, being an unrepresented buyer does not magically mean that you get an automatic 3% discount on the sale because the seller/listing agent is contractually guaranteed their full fee. When you get into a FSBO situation is where this can change as the seller will not have to pay a commission to the buyers agent.
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All the rest is written about taking care of buyer by buying agent. My experience is opposite: The way he is paid makes him interested in only selling you house as soon as possible, and for maximum price you can take it for. He does not care of price negotiation with seller while it fits your budget, and he is not interested in reveling the house flaws unless they are quite serious. It is pure conflict of interests
As in anything else, there are good agents and bad agents. A good buyers agent will only be representing your interests and won't pressure you into anything. While it does seem there is an inherent conflict of interest a good agents only real interest is serving the needs of their client. If you have an agent that is pressuring you or not listening to your needs then FIRE THEM and get a new agent.
I have bought several houses and sold a couple of them over the years and currently have some rental properties. As "knowledgable" as I am about real estate transactions, I STILL use an agent for every transaction. I am fortunate in that he is an excellent agent that I have known for years, but it's not like he's the only good agent in the business. I can't tell you the number of times he has more then earned his commission in negotiations, last minute SNAFU's at closings, etc. Even beyond that, just having his general advice and knowledgable eyes on properties I am looking at is a huge plus, not to mention his endless contacts. There are very few people who trade or invest in real estate that DON'T have an agent that represents them.
You also have to remember that a lot of people have had their opinions soured on realtors by the countless number of "weekend realtors" that jumped into the business during the boom. These were people that were trying to make a quick buck on the side and worked real estate as a side job. These folks really had no business getting into that game and thankfully the housing slump has pretty much separated the "wheat from the chaff".
This is what I constantly heard from buying agent: we present your interests, we are professionals, you can not get the best price without us, you can not estimate the property price without us. The only problem I do not understand why the agent should present my interests if he's paid 2-3% from the property price. The pricier it's sold, the more you get. The sooner sold, the better too. Until it is the person you share money with like your wife or husband why should I think agent protects my interests? I just see no logic in it. Of course, they will tell you they are on your side to keep you, I just see no reasons why their real actions should match what they tell you, though I clearly understand why they tell.
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Originally Posted by NJGOAT
The selling realtor then agrees to split this commission with the buyers agent, traditionally 50/50 or 3% is retained by the seller's agent and 3% by the buyer's agent. If the buyer does not have an agent then the seller's agent retains the full 6% in the sales contract.
That means selling agent will prefer to sell me for 2% cheaper price than to buyer with agent who he has to pay 3% for, right?
I did not say you get this 3% automatically, but without agent you can gain more if you are good negotiator. That's what I was told by seller agent: acting on your own, you have a chance get it few percent cheaper. For that you should have both time and knowledge of the place. If you visited many houses before, you have an idea over how much this one might cost, more specifically how much you are ready to pay for it. Just tell your price and leave, if it's in their price range to sell, they will call you back. That's how some of my friends bought houses without any agent.
UPDATED:
I have just found the story for people who says "buyer pays no fees":
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I recently made an offer on a house using my own realty agent. At the time we wrote the offer, the listing agent, who when I met at the house the first time told me there hadn’t been any offers in the last several weeks the house had been listed, suddenly advised us that there would be another offer being submitted at the same time mine was. At first I figured this is just “realtor” talk. But to be safe, I wrote a reasonable cash offer with an escalator clause increasing my offer by $1,000 over any other existing competing offer. My offer was declined, the other offer accepted and the listing realtor refused to give us the details. I kept an eye on the county recordings and learned 6 weeks later the house sold for $1,000 less than my offer.
The obvious reason would be coercion on the part of the listing realtor. They actually “bought” the seller into accepting the lower offer, which ultimately netted the seller slightly more than my offer, even though that offer was lower, and saving the listing realtor thousands of dollars in commission because it meant they wouldn’t have to split the commission 50/50.
This is what I constantly heard from buying agent: we present your interests, we are professionals, you can not get the best price without us, you can not estimate the property price without us. The only problem I do not understand why the agent should present my interests if he's paid 2-3% from the property price. The pricier it's sold, the more you get. The sooner sold, the better too. Until it is the person you share money with like your wife or husband why should I think agent protects my interests? I just see no logic in it. Of course, they will tell you they are on your side to keep you, I just see no reasons why their real actions should match what they tell you, though I clearly understand why they tell.
That means selling agent will prefer to sell me for 2% cheaper price than to buyer with agent who he has to pay 3% for, right?
I did not say you get this 3% automatically, but without agent you can gain more if you are good negotiator. That's what I was told by seller agent: acting on your own, you have a chance get it few percent cheaper. For that you should have both time and knowledge of the place. If you visited many houses before, you have an idea over how much this one might cost, more specifically how much you are ready to pay for it. Just tell your price and leave, if it's in their price range to sell, they will call you back. That's how some of my friends bought houses without any agent.
UPDATED:
I have just found the story for people who says "buyer pays no fees":
I can't really justify it to you beyond what was already stated. If you feel you are completely capable of properly structuring an offer with contingencies, determining the actual market price for the home, assembling the proper paperwork, etc. then feel free to have at it.
I can only speak from my own personal experience, as someone who not only owns a home, but rental properties as well that I find the services of a good buyer's agent to absolutely be worth any potential savings I could possibly wrangle out of a seller and their agent doing everything on my own.
Also, realize that the most typical case of this isn't the buyer representing themselves, but actually being represented by the selling agent in something called dual agency. In that regard, you end up with even more of a conflict of interest where you have the same agent representing both sides of the transaction and you can be assured that they will come up with a win-win-win scenario, at least on the surface. In that case, you end up questioning whether or not the "deal" was really a "deal" to the buyer. Most stories of "not using a buyer's agent" floating around online are basically stories of people who used dual agency and feel that everyone won out, of course, those stories don't tell what could have been had the buyer had proper representation.
So again, if you feel you can handle it, then by all means represent yourself and attempt to get the best deal out there. I simply don't share the view that not being represented is a "good choice" for even an experienced person and that not being represented can always net you a better deal. That isn't even touching on the issues that revolve around contingencies and navigating all of the local intricacies and paperwork specifc to that deal. Nor does it address the "information gap" where you really can't get "all" of the information online these days that agents have access to. While an attorney can certainly help draw up and review a contract, they aren't generally going to be doing much more then that, etc.
This is arguably the largest purchase you will ever make, I don't see why anyone wouldn't want their own representation.
This is what I constantly heard from buying agent: we present your interests, we are professionals, you can not get the best price without us, you can not estimate the property price without us. The only problem I do not understand why the agent should present my interests if he's paid 2-3% from the property price. The pricier it's sold, the more you get. The sooner sold, the better too. Until it is the person you share money with like your wife or husband why should I think agent protects my interests? I just see no logic in it. Of course, they will tell you they are on your side to keep you, I just see no reasons why their real actions should match what they tell you, though I clearly understand why they tell.
That means selling agent will prefer to sell me for 2% cheaper price than to buyer with agent who he has to pay 3% for, right?
I did not say you get this 3% automatically, but without agent you can gain more if you are good negotiator. That's what I was told by seller agent: acting on your own, you have a chance get it few percent cheaper. For that you should have both time and knowledge of the place. If you visited many houses before, you have an idea over how much this one might cost, more specifically how much you are ready to pay for it. Just tell your price and leave, if it's in their price range to sell, they will call you back. That's how some of my friends bought houses without any agent.
UPDATED:
I have just found the story for people who says "buyer pays no fees":
Here is why Yury. Let's say I can get you a deal on a house for $450,000. I happen to know that the seller is divorcing and is highly motivated. I think you can get the house for $425,000, but if we really push hard, $400,000.
What's in it for me if I save you $25,000? Well, my share of a $425,000 commission would be something like $7,225. My share of a $400,000 commission would be $6,800.
So for $425, I get you a great deal, and I am quite a bit more certain that the bank appraiser will not kill the deal with a low appraisal. Furthermore, after going through the transaction, you are thrilled with my service because you had no idea the seller was so motivated. So you tell 2 friends over the next 5 years to use me, and I sell their homes or act as their buyers agents. If they both sell or buy for a measly $300,000 each, I net $10,200 in additional commissions, and the chance to give them similar service and get even more deals down the road.
So the reason I get you the better deal and sacrifice the $425 is because I am a greedy Capitalist pig who wants my deal to close without an appraisal issue, and want the $10,200 from your friends and the chance to earn much, much more.
THAT is why a buyer's agent works hard to get you a home for the best deal. It means more money for us in terms of future referrals. And as anyone in sales will tell you, referrals aren't everything, they are the only thing.
Here is why Yury. Let's say I can get you a deal on a house for $450,000. I happen to know that the seller is divorcing and is highly motivated. I think you can get the house for $425,000, but if we really push hard, $400,000.
What's in it for me if I save you $25,000? Well, my share of a $425,000 commission would be something like $7,225. My share of a $400,000 commission would be $6,800.
So for $425, I get you a great deal, and I am quite a bit more certain that the bank appraiser will not kill the deal with a low appraisal. Furthermore, after going through the transaction, you are thrilled with my service because you had no idea the seller was so motivated. So you tell 2 friends over the next 5 years to use me, and I sell their homes or act as their buyers agents. If they both sell or buy for a measly $300,000 each, I net $10,200 in additional commissions, and the chance to give them similar service and get even more deals down the road.
So the reason I get you the better deal and sacrifice the $425 is because I am a greedy Capitalist pig who wants my deal to close without an appraisal issue, and want the $10,200 from your friends and the chance to earn much, much more.
THAT is why a buyer's agent works hard to get you a home for the best deal. It means more money for us in terms of future referrals. And as anyone in sales will tell you, referrals aren't everything, they are the only thing.
i agree with this. there are exceptions to the rule always, but in general, i don't think most realtors will risk their reputations for a few hundred dollars when they know if they impress their client, it will almost certainly lead to at least 1 referral.
I've given my realtor's name to at least 3 close friends, 1 who purchased a house through him, and i've given it to dozens of people on this board, at least 1 of whom purchased from him.
assuming he sold 2 houses closing at $400,000 each (which i know one was far higher than that) - i've made him a small fortune simply because I thought he was a great realtor.
Here is why Yury. Let's say I can get you a deal on a house for $450,000. I happen to know that the seller is divorcing and is highly motivated. I think you can get the house for $425,000, but if we really push hard, $400,000.
What's in it for me if I save you $25,000? Well, my share of a $425,000 commission would be something like $7,225. My share of a $400,000 commission would be $6,800.
So for $425, I get you a great deal, and I am quite a bit more certain that the bank appraiser will not kill the deal with a low appraisal. Furthermore, after going through the transaction, you are thrilled with my service because you had no idea the seller was so motivated. So you tell 2 friends over the next 5 years to use me, and I sell their homes or act as their buyers agents. If they both sell or buy for a measly $300,000 each, I net $10,200 in additional commissions, and the chance to give them similar service and get even more deals down the road.
So the reason I get you the better deal and sacrifice the $425 is because I am a greedy Capitalist pig who wants my deal to close without an appraisal issue, and want the $10,200 from your friends and the chance to earn much, much more.
THAT is why a buyer's agent works hard to get you a home for the best deal. It means more money for us in terms of future referrals. And as anyone in sales will tell you, referrals aren't everything, they are the only thing.
Just to build on what Marc said here which is spot on in terms of why a buyer's agent isn't in the "game" of "tricking" you into paying more...
Have you actually considered the reality of the scenario you are talking about?
Let's take the $450k home above. Marc can get you that house for $400k, that is what you will pay. In exchange here is how the payout breaks down...
Now, let's just assume for a minute that you, on your own are able to get that same $400k, this is what the payout would look like...
Seller's Agent/Broker = $24,000
Seller's Net = $376,000
Ah, but you are savvy and know that the seller's agent/broker can agree to reduce their commission since they aren't paying a buyer's agent. Let's say they are happy at 3.5%...
Seller's Agent/Broker = $14,000
Seller's Net = $386,000
So, now our seller can pocket an additional $10,000, what you want to do is have the seller give you back some of that money in the sale price. How much do you think they will give back? Right now, you are unrepresented and they are in a situation where THEY (seller and their agent) are making more money no matter what, you are now negotiating hard to lower the price further after already lopping a chunk off of their asking price. If they agree to sell at $395k (you now beat Marc by $5k) here is how it ends up...
Seller's Agent/Broker = $13,825
Seller's Net = $381,175
So, it seems like everyone wins. Except, we have to operate under the assumption that you are able to even match Marc's $400k to begin with. How did you know that this house could be had for that amount? The seller and their agent know upfront that you are unrepresented and will be factoring that into their negotiation. Even if you manage to do it for your $5k "savings" you now need to spend a lot more on an attorney upfront which will eat into that amount and you will need to do all of the legwork yourself and make damn sure you have all the ducks in a row.
I could see a situation where a seller and their agent would choose an equal unrepresented offer over a represented one. However, I don't see them negotiating down into the benefit they gain from this and your ability to actually find the "real" price is nowhere near what an agent could do. At the end of the day, your ability to actually get a lower price is pretty unrealistic, though the seller and their agent won't negotiate nearly as hard, because they are making more regardless.
Marc, this is a good point regarding taking care of future referrals, and that's what may drive some buying agents to make their job the best, however I doubt many agents think this way, because it is really not what their client is able to verify after, how can unprofessional buyer can evaluate if the price he finally bought the house for is very good or not good enough? No way for him. That's why real estate agent should not care a much about negotiating too much especially if he sees his client respects and trusts him from very beginning? Sure they provide some discount coz most of houses are listed with the discount in mind, and it's enough to make buyer believe his agent does his job the best. More important for agent is to be polite, informative and express care, I mean social skills seems more important.
NJGOAT, all your calculations are based on assumption that buying agent works in buyer interests only. This is the major difference in our points. If you assume like me opposite, the picture will be quite different: lets say selling agent can sell it for $400k as a lower possible price. My assumption is both agents are not interested in it, they will never let me buy it for $400k, instead they will negotiate it to lets say $425k, and buying agent knows it's in a range of my budget, and he thinks it is enough to 'impress' me, so he persuades me to make a deal. While acting along, selling agent can sell it to me directly for lower price close to $400K as he knows he do not have to share 3% in the case. How do I know $400k is good? I do not know, I'm just saying if I decided to take it for lets say $410K comparing to houses I saw before, I have more chances to make the deal w/o agent than with him, coz selling agent would prefer first option.
The other problem with entering a transaction where you have no buyer's agent but there is a seller's agent is that you create more work for the seller's agent. You are not going to be familiar with all of the paperwork and practices, and so, to make sure the deal still goes through (because he/she wants to get paid), the seller's agent is going to have to review everything more closely, and possibly fill out some of the buyer paperwork for you. Due to this, there is a good chance that the agent is not going to be happy to give up that extra 3%.
The seller agent has no paperwork except a contract that you are serious about buying the house and you sign it and your attorney will take care of the rest and if your attorney doesn't like it, he/she can void it. Agents are pretty much finish once it gets to the attorney there is no work. I brought my first house with agent and later sold it without one and then brought another one with a agent. The truth is with a Agent you don't have to deal with the stress and hassle as the buyers can change there mind and you have to be on top of things. With the agent you basically sit back and let them deal with the whole process. Also the chance of sucess does help if you are the seller. For a buyer I use one only because I was really too stress out due to other circumstances, if not I probably won't use one. I always feel I can get a better price if I deal with it myself. The attorney is really your backbone. I also dont' see why the seller agent won't rather deal with the buyer and and get a bigger share. Is simply "Buy or Not Buy"
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Originally Posted by msulinski
The other problem with entering a transaction where you have no buyer's agent but there is a seller's agent is that you create more work for the seller's agent. You are not going to be familiar with all of the paperwork and practices, and so, to make sure the deal still goes through (because he/she wants to get paid), the seller's agent is going to have to review everything more closely, and possibly fill out some of the buyer paperwork for you. Due to this, there is a good chance that the agent is not going to be happy to give up that extra 3%.
NJGOAT, all your calculations are based on assumption that buying agent works in buyer interests only. This is the major difference in our points. If you assume like me opposite, the picture will be quite different: lets say selling agent can sell it for $400k as a lower possible price. My assumption is both agents are not interested in it, they will never let me buy it for $400k, instead they will negotiate it to lets say $425k, and buying agent knows it's in a range of my budget, and he thinks it is enough to 'impress' me, so he persuades me to make a deal. While acting along, selling agent can sell it to me directly for lower price close to $400K as he knows he do not have to share 3% in the case. How do I know $400k is good? I do not know, I'm just saying if I decided to take it for lets say $410K comparing to houses I saw before, I have more chances to make the deal w/o agent than with him, coz selling agent would prefer first option.
Bingo.
That's the entire issue here and what you failed to realize in the example is that we are not talking significant amounts of money at least to the agents in the grand scheme of things. The most basic answer is that you don't know how much the house is really worth. Also, let's take your example and see what our seller nets...
On a $425k sale when there are two agents, so 6%...$399,500 ($12,750 to seller's agent)
On a $410k sale when there is one agent, so 3.5%...$395,650 ($14,350 to seller's agent)
The actual seller of the house pockets MORE money in the other transaction. So, a seller would take the $425k offer from the represented party and the unrepresented $410k offer would be rejected. That is the second point you aren't grasping, the "discount" one could theoretically achieve, even on a $400k+ sale is not a large amount of money. You aren't getting a house for $15k cheaper because you don't have an agent. The selling agent is legally obligated to present all offers to the seller. Unless the unrepresented $410k offer came with a much more agreeable set of contingencies and a higher probability to close, no seller would even think of taking it regardless of whether or not their agent was trying to "sell them" on that offer to make an extra $1k or so.
This also assumes that the selling agent is willing to discount their commission, which they may or may not do. As was pointed out in another post, often times the seller's agent ends up with more work and representing both sides in a dual agency. They may be willing to cut their commission in that scenario, but they may not choose to do so.
Listen, I'm not arguing that you can't do it, merely saying that the process is very complex and MOST people benefit from having a buyer's agent. Secondly, I am arguing how much of a discount you think you can achieve. This isn't an "I can get $15k off a $425k house" thing, it's an "I can save maybe $5k in an ideal scenario" kind of thing. On top of that, we are talking about a hypothetical $400k+ purchase. Drop that down into the $200k-$250k range and your potential "savings" shrinks to around $2k or so. In exchange (if you were in South Jersey where attorney's aren't traditionally used) you would now need to pay an attorney, or if in North Jersey, pay one more as they now have more work to do. You would need to do all the legwork on everything and make sure all of the ducks are in a row. You're busting your butt to save a couple grand, but if you make one mistake, it can cost you a lot more then that.
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