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If the buyer agent tells you that it’s Free to use their service –they are misleading you—nobody does anything for free. If that’s the case, ask the “Buyer broker” what they charge if you want to put an offer in on a ”for sale by owner” home that is NOT listed on MLS and seller does not offer a “buyers fee” --- I guarantee it will not be free----The buyer broker is being paid, either….
1. by you directly for assisting them with the sale (read your agreement)
2. by the seller, in terms of a commission or % of the sale
Consider the two scenarios:
Buyer I
Seller is offering a house for 180000
Private party buyer (no buyer agent) offers the seller 175000
If the seller accepts the offer it’s a done deal---Buyer spends 175000, and seller made 175000 and everyone is happy
Buyer II
Seller is offering the same house for 180000
(The Eaxct same Buyer as above ) but is represented with a buyer agent (buyer agent receives 2-3% of the sale price) The buyer offers 175000.
If the seller accepts the offer it a done deal ---Buyer spends 175000 and seller made 175,000….But wait….The Seller must pay the 2.5% agents fee( 4,375 in this case) which reduces the total to 170,625 to the seller--- for the exact same transaction.
If you were the seller, which buyer would you want?
In order for the seller to make the same 175,000 in Scenario II that they did in Scenario I they would have to sell the house for about 179,500 ( minus 2.5% 4,500) to end up with the same 175000 at the end of the transaction. If the Buyer's cost is 179,500 they will either be over paying for the same house, or will lose the house that they really wanted
So, who comes out ahead?
The Buyer?...No…the buyer spent the exact same amount in both scenarios.
The Seller?...No…the seller actually loses money in Scenario II
The Buyers Agent?...Ah-Ha!!...the only real winner is the “buyer’s agent”—to the tune of $4,200.00!!—Is having an agent give you aride, & walking beside you through a house worth it—just to get you the same deal that you could have gotten on your own?
If an agent spent 5 hours with you (which is very unlikely) that’s a rate $900.00/hour—Do you make $900.00/ hour? By comparison, A Good real estate attorney might cost $75-150 /hour and take less than an hour to draft a offer to purchase.
Wouldn’t you really rather have an extra $4,500 to negotiate with?
In the end you are at an disadvantage by using a Buyers Agent, Unfortunately, too many first time buyers get clouded by the Buyer Agent telling them "it's free" or "it doesn't cost YOU anything" Buyer Agents are good at doing one thing and one thing only plantinging F.U.D. in the mind of the Buyer:
F ear
U ncertainty
D oubt
IN THE END....Using a Buyer Agent can cost you more to purchase the home (to cover the buyers agent costs)
Lessen the strength of your offer
diminish your negotiating power
automatically put your offer behind the exact same offer but (w/o a buyer agent).
Next Steps:
Cancel your Buyers agreement
Locate a good and reasonably priced a real estate attorney
Contact sellers and their agents for showings yourself
Find the house of your dreams.
If a seller is using a full service broker—write the "No Buyer Agent Savings" into your offer—Ask for a 2.4% discount in your final offer--or ask for the selling agent to reduce their fee to close the transaction quicker.
The flaw in your scenarios is that the great majority of houses for sale are not FSBO. They are MLS listings. And in those cases, the Seller loses nothing by the Buyer having their own agent represent them. This is because the Seller's agreed commission to the listing agent is going to be somewhere between 4% and 6% depending on local market conditions. Where I am currently house-hunting, commission rates to the seller are commonly 6%.
Of that 6%, commonly 2.something percent is slated to go TO THE AGENT WHO BRINGS THE BUYER. Whether that agent is acting on behalf of the buyer (Buyer Agent) or the seller (Broker's agent) does not matter. At times the commission may be specified as 2.5% if the agent bringing the buyer is working on behalf of the Seller, and 2% if the agent bringing the buyer is a Buyer Agent. But most often the commission rate is the same no matter whose behalf the agent is working on. The remainder of the total commission percentage goes to the office of the realtor who took the listing.
In any case, the amount of commission that will be deducted from the Seller's proceeds at time of sale is going to be the full 6% (or whatever the agreed commission rate is).
Your last paragraph:
"If a seller is using a full service broker—write the "No Buyer Agent Savings" into your offer—Ask for a 2.4% discount in your final offer--or ask for the selling agent to reduce their fee to close the transaction quicker."
is confusing. In other words if you are making an offer for $500,000 you would ask for an additional $12,000 off that figure (making your actual offer $488,000)? Why not just offer $488,000 if that is all you are willing to pay?
If the seller is represented by a full service firm and the house sells at full asking price and no other agent is involved:
The buyer Pays 500000
Seller gets 470000
agent get 30000
Let's say the Sellers "sell threshold" (after commission) is 470,000 (in other words he won't take less than that-after commissions are paid)
a Buyer (w/o an agent) offers 490,000 and requires the agent to take only 3%--The buyer and the seller both win
Buyer gets the house for 490,000
Agent gets 14,700 (same as if there were another agent on the "buying side")
Sellers gets 475,300 5,300 more than selling at full asking price and full commission to the listing broker.
If the seller is represented by a full service firm and the house sells at full asking price and no other agent is involved:
The buyer Pays 500000
Seller gets 470000
agent get 30000
Let's say the Sellers "sell threshold" (after commission) is 470,000 (in other words he won't take less than that-after commissions are paid)
a Buyer (w/o an agent) offers 490,000 and requires the agent to take only 3%--The buyer and the seller both win
Buyer gets the house for 490,000
Agent gets 14,700 (same as if there were another agent on the "buying side")
Sellers gets 475,300 5,300 more than selling at full asking price and full commission to the listing broker.
The problem with this senario is this. Who's representing the buyer here? You don't think the buyer needs someone working in their best interest along with the seller? A seller's agent who becomes a dual agent, by law, has to make sure that they work in the best interest for both seller AND buyer.
Concerning your logic in the original post. How do you think that the FSBO seller got his price in the first place? Since the majority of homes sold are listed, they want just as much as the listed homes. Why doesn't the seller just ask less for their home because they aren't listed? I believe that FSBOs are listed for more because the people selling them don't want to admit that the reason the home prices are what they are is because the commission is built in to the averages. So they want to profit on what realtors do. If I bought a FSBO without representation, how do I know my earnest money (down payment) is secure? How will I get it back if I don't like what I find in an inspection? What rights do I have with an inspection when I use a contract bought at Office Depot? There is a reason that realtors are paid the percent they charge....They're worth it in ways a buyer and seller hopefully will never see.
1) Do you normally find 2 comparable houses (one FSBO and one listed with a real estate company) that are priced the same? I've noticed that most FSBO's are usually priced way above market value. In fact that's the reason alot of people go FSBO is because they think their house is worth more than what the agent they interviewed told them it was worth. I know there's also a few FSBO's out there that are incredibly underpriced. In that case, you and every investor and every realtor is ready to jump on it! Rarely do I see a FSBO priced at market value.
2) When you find a FSBO that you like, how do you know if it's priced correctly or if it's overpriced? If it's overpriced, and you offer the FSBO's asking price less commission have you made a great deal or have you paid too much (even though no commission was paid)? On the other hand, if a buyer used a buyer's agent on an underpriced FSBO and ended up paying the buyer's agent to represent him in the transaction and handle the paperwork, has he really lost money? I think not. Depending on how underpriced the FSBO was, (and maybe the Buyer's Agent was able to negotiate a price lower than the asking price), then the buyer still came out way ahead.
3) Are you (the buyer) experienced in negotiating and handling real estate transactions and know how to make sure the contract C'sYB?
The ol' who pays the commission, the seller or the buyer, has long been debated and it depends on how you look at the whole thing. Bottom line, realtors bring value to both sides of the transaction which saves most buyers and sellers money. Yes it is the seller who physically pays the commission, but a person can debate, as RJHQQ99 has, that the buyer theoretically does. I personally feel that it's a moot point and that in actuality it's probably both the buyer and the seller that foot the bill. But in the end, a smart agent will save their client a bagful of money.
to your first question--In my scenarios-we're not talking about two different properties --it's the same property with two different approches to selling it.
in your second question--again--my scenarios-we're not talking about two different properties --it's the same property with two different approches to selling it-the buyer needs to do their homework regardless of if they are working with an agent or not--no agent is going to "tell" a buyer at what price to buy at--rather they will provide information to thye buyer and they will make up their own mind---All of the information that is available to the agent (recent home sale prices, locations, house sizes, bedrooms etc) is available to the buyer through various resources---so I don't buy the fact that an agent is the "only" place to get market information.
in your third question-- for the price of $14,000, I, as a direct buyer can get 70 hours of a high priced real estate attorney ($200/hr)--Do you think that 70 hours would cover the paperwork and closing?
To RICK--
I agree that Home prices are artificially inflated because of the commission piece--and I think FSBO sellers know that and price accordingly hoping to cash in on the 6% margin.
As for your other points please see response to q3 from gretchen (above)
to your first question--In my scenarios-we're not talking about two different properties --it's the same property with two different approches to selling it.
???? So, since we're talking about the same property, then we're not talking about a Buyer's option of how to buy, but a Seller's option of how to sell? Is that right? I hope so, because a buyer and a seller would be in big legal trouble if the seller had his home listed with a realtor (at the correct market price, I might add) and a buyer offered to buy his home less the commission and cut the realtor out of the deal.
I guess I should reread your posts, because this isn't making sense. The seller obviously wouldn't be any further ahead; the buyer would be, but only because he doesn't think the realtor should be paid for his time, marketing expense, and expertise! The only reason the buyer found the house in the first place is because of the realtor's marketing. The only reason he knows it's priced right is because a realtor who knows the market value of homes in the area helped the seller price it correctly. And if the buyer is working with a buyer's agent, he's getting to look at alot of comparable houses and is getting additional insight into the intricacies of price differences, and he's probably going to be able to negotiate a better price. I'm confused!
in most transactions if the "Listing agent will list the propert and get 6% if the property sells on it's own (w/o any other agents).
If another agent is involved... there is a split (not ususally 50-50) but for the sake of argument and discussion let's just agree that the "selling agent" gets 3% and the buying agent gets 3%---OK?
Now...let's try this again
--Seller has a full service agent (6%-if no other agents are involved-right?--) Seller agrees to sell his home for 500K to a buyer UNREPRESENTED by an agent.
The buyer agrees to purchase the house for 500K this is how the money shakes out:
Same situation as above but this time the same buyer offers the seller $490,000 and asks the sellers agent to reduce her commission from 6% to 3%(since there was no "buyer agent") and to get the deal done quickly--- here's how the money shakes out:
Buyer pays $490,000
Agent recieves 3% of 490,000 =$14,700
Seller nets 575,300
So in the above situation, who comes out ahead?
The buyer paid 10K LESS in 2nd scenario. A good thing right?
The Seller made 5,300 MORE in the 2nd scenario--Also a good thing right? so what's the problem?
It's called "cutting out the middle man" and it is the way that markets are driven----I know real estate agents don't want to hear that or admit that their value has diminishes as information becomes more readily available and buyers become more educated---but its a fact.
Unfortunately most sellers aren't going to reduce their selling price if they sell right to the buyer, at least from what I have heard. This is acknowledged in the original post - the buyer buys at $175k regardless of whether or not a realtor is used. In your most recent post, all you did was show that an unrepresented buyer must be skilled in negotiating, and a smart seller should realize that the original commission rate set was probably based on the fact the agent expected to split it with a buyer's agent.
So as a buyer, if the seller is going to sell at $X price regardless of whether or not a commission has to be paid, I'm going to use a realtor to do the paperwork, etc., and make the seller pay commission. Of course the realtor isn't working for free...but I'm going to negotiate the best price possible on the house so I pay what I am comfortable paying. The seller is the one that is paying the fee...but ideally, working with a realtor has helped the house sell faster, which saves the seller money and balances things out. Everyone wins. Using a realtor is not a free service, but it should make the process smooth and timely for everyone involved. Time = money.
The only times I think realtors may be unnecessary are if both the buyer and seller are very comfortable and experienced with handling real estate transactions, and if the seller is in no rush to sell.
I have no love for salespeople of any kind. But the fact that you think a realtor spends no more than 5 hours with the client makes me think you may have never bought or sold a home. From my own personal experience, and from what I have heard from friends and relatives, the realtor puts in a lot more time than that. When I bought my first home, there were complications and the realtor put in many, many hours over the course of several weeks to get things straightened out. Also in real estate, a realtor has to deal with the risk of working with a client for a period of time, putting in a lot of time and energy...and if a sale doesn't occur, he or she gets paid nothing.
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The only reason the buyer found the house in the first place is because of the realtor's marketing. The only reason he knows it's priced right is because a realtor who knows the market value of homes in the area helped the seller price it correctly. And if the buyer is working with a buyer's agent, he's getting to look at alot of comparable houses and is getting additional insight into the intricacies of price differences, and he's probably going to be able to negotiate a better price. I'm confused!
