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Subject:
Benefits to the buyer of hiring a real estate agent
Category: Business and Money Asked by: whysdom6-ga List Price: $15.00 |
Posted:
01 Jul 2005 05:28 PDT
Expires: 31 Jul 2005 05:28 PDT Question ID: 539055 |
Should I hire a real estate agent to assist me with the purchase of a new home in an area with which I am very familiar? If possible, I would prefer to use the 1/2 commission normally provided to the buying agent by the seller as bargaining chip to reduce the purchase price of the home by another 3%. Is this a feasible tactic? One agent told me that a full commission (6%) would be paid regardless if I, as a buyer, have an agent or not. She said if I do not have an agent, the selling agent would get the full commission. Is this true? Bottom line, I don't understand why an agent should get thousands of dollars when I have performed months of personal research on the area and home in which I want to buy. Is there a way for me to benefit from this money that is typically allocated to the buying agent? Please advise. |
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Subject:
Re: Benefits to the buyer of hiring a real estate agent
Answered By: hagan-ga on 01 Jul 2005 06:59 PDT Rated: |
Hello, whysdom6. Your question has both a legal component, and a "human factors" component, and the analysis of each is important. Let's start with the legal side. On the legal side, the full commission is going to be due and payable to the seller's agent at the time of sale NO MATTER WHAT. Here's why. When a house is listed for sale with a real estate agent, that document -- the listing agreement -- sets forth the commission to be paid for the sale of the house. As you know, typically a commission is 6%. Some agents will list for less, but the "standard" is 6%. That amount is set by the agreement between the seller and his agent, and is not dependent on how the property gets sold. For example, if a seller lists his property with an agent and agrees to a 6% commission, and the agent lists the house, the seller has to pay the full commission EVEN IF THE SELLER IS THE ONE WHO FINDS THE BUYER. Let's say Sam the seller lists his property with Ron the Realtor. Then Sam's sister Sue says, Sam, sell me the house. Sam does. Ron the Realtor is owed his full commission at the time of sale. So if you go yourself direct to Sam, and without any involvement by an agent on your side, say directly to Sam, "I want to buy your house," Sam is still going to be stuck paying the entire commission to his own listing agent. See, for example: http://www.realtor.com/Basics/Sell/ListAdvert/Agreement.asp?poe=realtor http://www.edmontonbbb.org/tips/ct2428.htm http://www.suntimes.com/classified/homes/homebuyingfaq1.html http://www.kansaslawyers.com/buyingselling.html "In general, the real estate commission is built into the total purchase price of a home as a percentage fee that is agreed to by the seller and listing agent prior to execution of the listing agreement." http://www.ired.com/buymyself/agency/970324.htm "Usually listings are "exclusive." If the Seller sells the house to his own brother without the agent's help, the Seller owes the agent a commission! If a Seller has a possible prospect, he should exclude that prospect by name in the listing contract." http://www.wwlaw.com/legal.htm HOWEVER. All is not lost. Remember that all of the foregoing discusses the legal obligations and rights of seller and agent. And as a strictly legal matter, the seller is going to be on the hook for the full commission regardless. BUT. We are dealing with human beings. Just because somebody may have an enforceable "right" to something, that doesn't mean that he will insist upon it in every case. Just about ANYTHING can be negotiated. The seller's agent does not get paid at all, anything, bupkis, unless the house sells. If he is persuaded that the difference between getting a sale and not getting a sale is the 3% that he might have to pay aanother agent anyway, there is a good chance that he will agree to reduce his commission in order to make the sale. Put yourself in the agent's shoes. Are you going to turn down a sale, and insist on your "rights" to the full 6%, if you truly believe that it's the difference between getting 3% and getting nothing? No. That would be foolish. Here's where you come in. It is going to be up to you -- your own negotiating skills -- to convince the seller and his representative that you WILL NOT BUY THE HOUSE unless the price comes down by the necessary 3%. And you DO NOT do this up front. Remember that the asking price of the house is not the actual bottom-line can't-take-less selling price. There is going to be negotiation up front about the price of the house itself. This is NOT when you talk about commissions. Jumping right to the issue of the commission is going to turn off the seller's agent before he is "invested" in the idea of a sale. You have to make the seller's agent ANTICIPATE a sale. EXPECT a sale. Expectations are KEY in negotiation. That's why you don't just jump straight to your bottom line. You have to build anticipation and expectations. You have to make the seller's agent start counting the money in his head. Until he does that, it's all just blue-sky and he won't have a problem saying No. But once he's spending the money in his head -- once the deal is all but done -- THAT'S when you give him the one, last thing that has to happen before the sale closes. It's just that one last thing. That's all. He has to agree to accept FROM YOU, RIGHT NOW, the same thing that he will have to accept DOWN THE ROAD, LATER, if another buyer comes in with his own agent. Money now, or the same money later. His choice. None of this is to guaranteee that he would accept it, even if you do your part perfectly. Some people don't act in their own best interest, and you can't make them. But if you set it up right, you should be able to negotiate that last three percent. Here's the caveat, though. BE VERY SURE that you know what you're doing before you decide to go in alone. Real estate brokers and agents don't just get paid for finding houses and showing them. Anybody can do that. The reason brokers and agents have to be licensed is that they ALSO know how to protect buyers and sellers legally. They understand mortgages, contracts, contingencies, inspections, chain of title, title insurance, escrow, and a host of other details that have to be done RIGHT. This is the single largest investment most people ever make. It CAN GET SCREWED UP. If you are comfortable with the details of financing, contracts, contingencies, escrow, and title insurance -- and if you are going to have the time to deal with them -- then you can probably do this yourself. Of course, another option is to find houses FSBO -- For Sale By Owner. In that case, you can BOTH save the commission. I hope this was helpful. Good luck! |
whysdom6-ga
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This is an exceptional answer. It is very comprehensive, in that, it covers every uncertainty and concern I have on the topic and it has helped me make a very important decision. In addition, it is extremely well written...cery clear and concise. Use of caps for emphasis proced very effective. Thank you very much. |
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Subject:
Re: Benefits to the buyer of hiring a real estate agent
From: research_help-ga on 01 Jul 2005 07:34 PDT |
I think you need to be very careful and cautious about following the advice given in the official answer. Hagan-ga may not fully understand the dynamics of the real estate market. Hagan-ga assumes this is a one time deal with a money hungry selling agent. Most likely, this is an agent who has many deals going and relationships with other agents. The selling agent will not be desperate to make a deal with you (unless for some reason the house is undesirable, but then why would you want it?). The agent will be willing to wait it out for a better deal. Also, consider that this selling agent has to keep up good relationships with other agents for the sake of future deals that are his/her livelihood. He/she would much rather have another agent take the 3% than have the buyer pocket it. And lastly, in most areas of the country, this is a seller's market. Buyers have to compete to get a desirable house and will usually have to settle for the terms set by the seller. In very few markets can a buyer currently dictate any terms. |
Subject:
Re: Benefits to the buyer of hiring a real estate agent
From: whysdom6-ga on 01 Jul 2005 09:22 PDT |
Thank you for your thoughts, research_help-ga, however I think Hagan-ga hit it right on. Below are my thoughts on the three primary points you made. First, you must understand that the selling agent will not get 6% of any house I decide to buy. If I hire an agent it will not be the selling agent. Thus, you must assume the selling agent realizes his/her commission ceiling is 3% if they sell the home to me with or without an agent. It has been my experience that most sales people, regardless of the industry, are money hungry. There is nothing wrong with this- it is what makes them successful sales people. Most would rather close a deal today with a potential client with whom they have invested time and effort rather than taking their chances on tomorrow. This is not desperation, rather a clear understanding of return on investment. By turning down my offer, the selling agent would not necessarily be holding out for a better deal...the next buyer will likely have their own agent and they would only get 3% in that scenario as well. Your point about maintaining relationships with other sellers is a valid one, but I think you overestimate the impact of such an action. As a community, do other agents really care if a selling agent makes 3% or 6%? Since I have NOT committed to a buying agent, I wouldn't be taking money away from any particular individual. Thus, there would not be any personal conflict as a result of this action. The only impact I see here is if collectively agents frown on such an action because they don't want this negotiating tactic to become a trend, thus overall reducing their collective earning potential. I doubt the agent would give up a sell based on this improbable risk....not because he/she is desperate, but because they are in business. I think your point about the sellers market is flawed. First, at this stage of the negotiation, the seller has gotten what he/she wants. The final step is between the selling agent and the buyer. In fact, I think the seller would be frustrated that their agent would not close the deal for no other apparent reason than to protect the future of the agent community (see point above) Again, I think Hagan-ga provided an exceptional answer with a wise caveat. Nonetheless, I appreciate your time and comment. Thank you. |
Subject:
Re: Benefits to the buyer of hiring a real estate agent
From: research_help-ga on 01 Jul 2005 10:48 PDT |
Whysdom6 - I am glad that you appreciate my comment. Your response, however, makes it clear that you should consult with a buying agent. I am very familiar with the real estate market and your points show that you may not be as familiar with how things work in this industry. I am not interested in debating my points back and forth, but I suggest you speak to someone knowledgable before proceeding which I believe will show you that my comments are indeed correct. |
Subject:
Re: Benefits to the buyer of hiring a real estate agent
From: wordsmth-ga on 01 Jul 2005 13:11 PDT |
Couple of points we're overlooking here. First, I'm not a real estate agent; I'm a real estate investor so I occasionally use agents, but generally I don't...and I enjoy the 6% I save. However, agents can perform some very useful services for the 6% total (much less the 3% for the buyer's agent we're talking about here). There's a lot of paperwork involved in making the deal work, and your agent can well be worth the 3%. Who pays what closing costs? If there's a problem, is the price reduced, or money put into escrow? Lots of dollars-and-cents issues where an agent can save you 3% or more. So, if you resent the 3%, you shouldn't. And remember: It's the seller who's signed a listing agreement with his/her agent, not you. The seller has promised the agent 6%. Unless you somehow prevail on the agent and seller to reopen their listing contract and reduce that figure to 3% (won't happen!), 6% is still going to go to the agent(s). What you're really, in fact, asking is that the agent collect the 6%, then hand half of that over to you. As a practical matter, that won't happen. If you want to reduce the price by 3%, there are a whole bunch of ways to do that, too, other than trying to get the agent to cut his/her commission in half. Hagan-ga's negotiating strategy is OK (make 'em think they've got the sale, then at the last minute, after they've already mentally spent the money, ask for concessions). But it tends to be more effective when used on the seller (who really has often spent the money, and is far more emotionally invested int he sale) than on the agent. Hagan-ga's advice regarding FSBOs is only partially correct. Sure, you "save" the 6% commission. But, trust me, the owner intends to pocket some or all of the difference. He's not selling the house as a FSBO to do YOU a favor and save YOU the 6%. He's doing it to try to pocket the 6% himself. Nothing wrong with that, but just understand his motivation. His life would be simpler if he listed with an agent; he's willing to try to sell the house himself in order to recoup some or all of that 6%. |
Subject:
Re: Benefits to the buyer of hiring a real estate agent
From: whysdom6-ga on 05 Jul 2005 09:26 PDT |
Wise thoughts, wordsmith, thank you. |
Subject:
Re: Benefits to the buyer of hiring a real estate agent
From: kdr-ga on 06 Jul 2005 19:18 PDT |
Your original observations are correct, but I don't think you should make it your issue: Once listed on the MLS the seller has planned for a 6% commission in their price. If approached by a buying agent, the buying agent will get the 3% like you said. If approached by you just lower your price by 3% and explain your justification for the lower price and make is the sellers issue. You get what you want a 3% reduction. After that it's between the seller and their agent. The seller agent will probably get their 6%. The seller may negotiate a 3% reduction but not usually. If you really want to save money, focus on for sale by owner properties, or real estate companies like "HelpUSell" or "Assist2Sell". You can also wait out the contract between the seller and their agent. But the bottom line is that real estate agents are battling this every day. So, don't make it your issue. Offer a price. Deduct your 3%. It is a reasonable thing to do given your local knowledge. |
Subject:
Re: Benefits to the buyer of hiring a real estate agent
From: kevinrob-ga on 16 Nov 2005 06:58 PST |
Well you could try a free For Sale By Owner site just to see if your getting any showings for your home. I listed my home with a <a href="http://www.ownerbuyerdirect.com">Cincinnati For Sale By Owner service</a> and they provided marketing materials to me (for a small fee). But the marketing tools (flyers, postcards, magazine exposure, etc.) were the same tools real estate agents offer. They even presented me with a closing gift that was a multimedia presentation of photos and virtual tours of my home. |
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