Since I think the residential real estate market is bottoming out, and my family will soon need more space anyway, I recently began shopping for houses. Based on my reference post on this subject it won’t surprise people to learn that I have a low opinion of the real estate marketing cartel (a.k.a. “Realtors”).
Following my own advice I did not enlist a “buyer’s agent.” Instead I did my own searches through listings and, when I wanted to see a house, I contacted the seller’s agent directly and drove myself to the appointment.
Overall my experience with these “Realtors” continues to be dismal. Of the dozen or so licensed listing agents with whom I have interacted in the last few weeks at best only three struck me as professional and ethical. Many were incompetent, lacking basic knowledge of the houses they were contractually and ethically obligated to sell. Some were more interested in selling themselves to me than in selling the particular property they listed and in which I had expressed interest. And of course many, on learning I wasn’t being “represented” as a buyer, tried to convince me that I should let them be my “buyer’s agent.” After all, they explained, their “services” as my representative wouldn’t cost me a penny.
This argument, by licensed professionals, is not only unethical but should also be illegal: Traditional buyer’s agents are not free. They collect a substantial fee from the sellers of any house purchased by their client — usually 2.5%-3.5% of the selling price. This is known as a “co-op commission.” On a $1MM house a buyer’s agent expects to walk away with about $30k. As I asked some of these Realtors, “What could you possibly do as my representative that would be worth $30k?” It became a rhetorical question.
At best they run the same computer searches I do and contact the same listing agents I do. If I didn’t have a car I could probably get the listing agents to drive me to their showings. In fact, I consider it detrimental to have a house shown by someone other than the owner or listing agent. After all, a buyer’s agent typically doesn’t know any more about the house than I do from reading the listing, requesting copies of the floor plan, or walking through it. At least when the listing agent is showing it there is a presumption that they have studied the property and are prepared to answer questions that might be asked by a buyer. And when they don’t know the answer (as happens ridiculously often) at least I’m one person closer to the answer.
As I mentioned in my previous post, a buyer’s agent doesn’t even fully represent the interests of the buyer. I want to find a house that most closely matches my objectives at the best possible price. A buyer’s agent wants me to buy a house with as little work on their part as possible. Their interest is in getting me to make a purchase producing the biggest buyer’s co-op, so not only would they prefer I pay as much as possible, but they would also prefer I didn’t see houses with reduced commissions.
So there are already plenty of principled reasons to avoid buyer agents. But the money is the biggest: When I submit an offer on a house and make it clear that I am waiving the “buyer co-op,” it’s like adding 3% to my bid. Some Realtors may quibble that they contract with sellers for a fixed commission rate, and if the buyer doesn’t present a licensed agent to claim it then they get to keep the full commission for themselves. Hopefully neither sellers nor courts will countenance such an anticompetitive gambit. Though if push comes to shove, I can confirm that there is no shortage of licensed Realtors eager to list my old house. It won’t be hard to find one who will agree to be my buyer’s representative at settlement and refund their commission to me.
[Update: How to access MLS if you’re not a Realtor. Several comments note that only Realtors have access to the MLS, and without that you can’t effectively do your own searches. The reality is that you can get full access to listings with one more step: In addition to trulia.com and homefinder.com, most real estate agency web sites allow you to run searches against the entire MLS. None of them reliably come back with the complete MLS listing, but they will tell you which agency has the listing. I have found that if you then go to that agency’s web site and search for the property they will provide the complete listing information, including contact info for the listing agent and often other details.]
I’m interested if you are able to get that 3% back. Do let me know what you end up doing – I have long been considering the same thing.
Welcome to the world of licensed professionals. In these industries, Racketeering and anti-trust laws don’t apply. In addition, Realtors are unique in the fact that no formal higher education is required to obtain a license, other than passing the idiot real estate exam.
Unfortunately in many areas the public MLS does NOT have all the information on the property; wherever I have looked at housing their is additional agent only information – in some area, you (the public) cannot even see addresses without realtor access to the full MLS info.
I would love to negotiate directly with the seller and use an attorney to close ($600 instead of 6%), but then you are limited to only privately advertised sales.
Very true. A buyers agent does one thing. It ties you into a contract with one agent. All agents have access to the same MLS. It makes no sense to have a buyers agent. There are a few added features with one. However nothing outweighs getting the best price. What a buyers agent does is to remove other agents from the picture. So you could have 15 agents looking for that house for you at once. You could have a buyers agent that ties you into only one agent and you HAVE TO PAY HIS COMMISSION even if another agent finds you a house. So potentially you may have three commissions involved.
The key is the MLS. Which you have no access to. The most comprehensive database of homes for sale. Also for comparisons of home prices. Remember. They are trying to get the highest home price they can. Because commissions are based on the sales price of the home. If you don’t think with all the underhanded sales tactics used. Like you see on the internet these days. Like buy now or miss out on a home. Prices are low. Slanted articles from people that represent the industry or who’s best interest is derived from advertising. What I am leading to is a jaked MLS where commissions rule. It is in there best interest to make sure home prices stay high. Either by those slanted news articles. Things that say the median price of a home is 172k a figure used over 4 years ago. If they are taking in the entire country in that figure which they are. It is not area specific. Another thing is the tax credit. Which they will never never tell a buyer that is is only a deduction off of the gross and not the net. That is there prime feeding market. The very naive first time home buyer. Because no one with any sense buys in a declining market. You could be in negative equity before a half year is up. You never see that information anywhere.
I have a ontrary view on this. Once we were looking at a nice-enough waterfront house when our “buyer’s agent” pointed out that she thought the stucco finish was EVIS – the kind that can cause huge problems. Turned out she was right and saved us a lot of time and potential heartache (if an inspector didn’t point it out, etc.). It’s true that the buyer is paying half the commission in most cases, but I don’t mind that if I am looking in an unfamiliar area or neighborhood. The other point one made was that there are many, many customers with whom they work for weeks on end, who buy nothing and the agent gets no income from that. Can’t do that with any other service that I know of.
An additional tool: when you find a house you like a lot, use Google Maps (or a competitor) to find it, then use Satellite View to determine if there is anything on the other side of that line of trees that might bother you. Once we looked at a house on 5 acres that seemed a good buy, but from the satellite image saw a cluster of small-footprint housing about 100-150 yds. away through those trees. Turned out it was a bankrupt student housing townhouse complex. We figured there’s a good chance the squatters or ocupants might be tempted to do some midnight shopping at their neighbor’s well-stocked pantries.
You make some very valid points regarding buyers agents but I think your post is a bit one-sided. Some aspects of using a real estate agent you may not have considered are: how do you know whether a property is valued correctly? You may easily overpay for the house you end up buying which will eat up any savings you had by not using a real estate agent. Similarly, if the process of buying a home requires negotiations, are you prepared and confident that you can strike a fair deal? Experience real estate agents can help you in this area as well. Also, not all properties are listed on the MLS. Some of off MLS or are being prepared before being listed on the MLS. An experienced real estate agent sometimes knows about these properties. Real estate agents also have much more information available to them than just the MLS, which buy the way includes information that is not public and which you will never find on a public website. Finally, have you considered a fixed-fee price structure for a buyers agent? Sure they still are motivated for the quick sale, but most agents depend heavily on repeat business so they do have some motivation to find you a house that best suits your requirements.
While I agree that a buyer, with the help of a good real estate attorney), can successfully purchase a home without the use of a real estate agent, it’s not as easy and cheap as it looks. I am not in the real estate business by the way.
Sounds good Rick. However I find if I do all this myself I can get a better deal. Why depend on someone else. Some make a living as a buyers agent if you truly have your customer in mind. If that is what you are trying to accomplish. If you have an honest bent.
I am a realtor and I specialize as a buyer’s agent. I give all of my clients a buyer’s incentive rebate upto 50% of any commission I earn assuming the buyer’s lender will approve. Not all real estate agents are shady. Some of them are, of course, as in any industry. I like to think I help my clients wade thru the typical bs and help them thru the contracts, counter offers, inspection, etc. For any buyer out there, it isn’t rocket science, but its nice to have someone in the business that can bring a solid background in the area you are looking to buy. If you do it on your own, ask the listing agent to cut the commission, which normally goes to the buyer’s agent, so you can use this money to pay for your closing costs, etc. There are limits on the amount of money you can make at closing, but its an excellent way to save money on the process of buying real estate and securing a mortgage. I do agree on one thing, the current real estate marketplace is fleecing both buyer’s and seller’s and pushes prices up 5-6% based on commissions.
I used to be a Realtor, however I do agree that often the buyer’s agent does very little for their split – other than bringing the buyer to the seller of course. Although as nice as it sounds for you to “waive the buyers co-op’ fee as you put it, it’s really not anything you have control over. Waive all you want. The seller has contracted a fee with their listing broker and the broker generally agrees to the fee splitting according to their office policies. The selling broker is still going to get whatever fee their contract states whether they were to split it with the buyers’ agents or not unless they worked out some kind of a deal with the brokerage to lower the fee for a better offer. However that kind of shady dealings is generally a good way to get your brokerage sued by a buyers broker and lose your brokerage license forever. Any brokers out there remember the term “treble damages?” So do all the offering you want and definitely “trust” the sellers agent when they are showing you all the problems with the house and its history. I bet they will tell you all the things wrong with it before you even walk in the door. A GOOD buyers agent is working for the buyer and will do comps, searches for past problems, neighborhood problems, as well as try to get you the best price possible. In the end, 2-3% off a negotiated $10-50K-100K off a price isn’t as much as you would like to think especially if you give a good referral to a dozen other folks about what your agent did for you.
Some people are the do-it-yourself kind who do their own taxes, remodel their own homes, write their own wills, tend to their own medical needs, and handle their own real estate transactions. Realtors provide a service for people who want that service. Some agents are better than others. The good ones save you the time of looking at lots of properties that don’t match your needs and can provide information not easily available to the public to help you strike a better deal. They could save you more on the purchase price of the home than their commission. And that’s a gift that keeps on giving, since taxes and insurance and the mortgage are affected by the price of the home. Not everyone needs the service of a Realtor or is willing to pay for it. Those who don’t see the value in representation by a real estate agent are free to shop and negotiate as best they can on their own.
What always strikes me as odd is that people keep whining about a tiny 2.5% commission, when they leave 15% tips at restaurants all day long without blinking.
A buyer’s agent is a critical part of the purchase process. Most buyers are no match in a transaction against an experienced Listing Agent. There are a thousand ways you can get screwed over in a Real Estate Purchase, and if you do not have serious real estate experience, you will lose. In fact, historically, the job of buyer’s agent did not always exist. It responded to the very need of lay people that did not have the knowledge required to deal on an equal footing with a professional negotiator on the seller’s side. Yes the commission comes out of the proceeds of the house BUT the fee is not added on to the market price of the house. The market comparables used to determine value of the home you’re buying already include the 5 to 6% commission in the sales figures.
The average agent sells 3/5 homes a YEAR. When you take out the broker split, and business expenses, they are lucky to get 50% of that 30k before-tax income. Assuming she sells all 1M dollar homes, and that the commisison is a high 3% your agent’s before-tax pay is between 45k and 75k/year. From the agent’s perspective this is $22.5 and $37.5 per hour. That’s peanuts.
Would you believe there are plenty of agents that give us bad names?
You are wrong to use the seller’s agent. They have a a fiduciary obligation to the Seller by contract to work in the Seller’s best interests. If you have them write your offer, who do you think will get the better treatment? And the agent will receive all the commission that the Seller has agreed to pay the broker…usually 6% but it cannot be set by state law.
So, DO find a Buyer’s agent who has an ABR (nationally accredited buyers’ rep) designation, PLUS a CRS (certified residential specialist). If they have even more credentials than those, all the better. Fewer than 2% of the nation’s agents will have, and those are the pros.
Does a buyer’s agent do anything for you? Heck yes, from protecting you and guiding the transaction past a myriad of pratfalls, by being diliegent to ensure you get the right inspections and terms, and a lot more you wouldn’t understand.
From your point of view, and I can appreciate how you arrived at it, you could say that while YOU are not paying the Buyer’s commission (it is actually a share of the listing office’s commission), you could figure YOU paid the commission because you got a mortgage to cover the cost of the deal and the Seller is just passing on your mortgage money to his listing broker.
Hope you find the perfect house, but with your perspective, I fear nothing will satisfy you. Regretful.