We know that it is important to find a good buyer’s agent that listens to our needs, will help us negotiate with sellers, and basically guide us through the entire buying process. On the other hand, we are very comfortable sifting through the MLS listings online, have lived in the area already for many years, and can do much of the research ourselves.
So what was our next move? Tired of working of word-of-mouth, we decided to narrow things down a bit another way. Typically a buyer’s agent gets 3% of the sales price of the home, paid by the seller. But in 40 states, it is legal and increasingly common for the buyer’s agent to rebate you back a portion of this commission. In a slowing market, there can be a glut of agents thirsty for your business. Some say agents that are willing to rebate aren’t as good as full-price agents, which may be true on average, but I don’t see how paying full-price guarantees a good agent either.
Instead of haggling with them directly, I decided to try a site called HungryAgents, which is almost like a reverse-auction for buyer’s agents. Here’s the process if you’re a buyer:
- You fill in your desired neighborhood, type of property, price range, and expected time of purchase.
- Agents will send you the percentage of their commission they are willing to rebate you, as well as possibly a short bio. You might just get to see their years of experience, which isn’t too helpful. However, they do not get your e-mail or phone number so they can’t harass you.
- You get to look at the offers, and then choose who you allow to contact you. You are not bound by anything at all. You can interview the agents you like, and go with one of them or just walk away completely.
Here are the results we got after only 24 hours. Up to 58% off – a discount of 1.74% of the sale price. This would amount to $8,700 on a $500,000 home… not too shabby. We’re going to contact the three people who agreed to 50% off and interview each of them one at a time.
Another site is BuySide Realty, which rebates 75% of the commission it receives as the buyer?s agent. However, they only provide the bare minimum of services for their 25%. A BuySide agent will not show you houses or send you pertinent listings. I can’t tell if someone will even be present at closing, it looks like everything is done remotely. This is too DIY for me, but might work for an experienced buyer.
Now I ask for your suggestions: What kind of questions should I ask the Realtors to see which one to go with?
* Rebates are not allowed in Alaska, Iowa, Kansas, Louisiana, Mississippi, Missouri, New Jersey, Oklahoma, and Oregon.
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How flexible is the agent’s schedule? After a long period of inactivity, I called my agent one morning and she showed me a few houses that afternoon. That makes a world of difference when a hot house is just listed and the sellers are moving fast.
I’m sure you know this, but don’t forget even using a ‘buyer’s agent’ suffers from the agency problem. They’re not obligated to get you the best price – on the contrary, they have a financial interest in you paying as much as possible.
Well, I have to say that as much as I love reading this blog this entry has me gnashing my teeth a bit.
As an agent myself I am constantly amazed these days about all the rebate programs, discount brokerages, and other shenanigans that are going on by agents and buyers/sellers to undercut commissions. I can understand sellers being picky, after all, it’s their equity they are using to sell the home, but these programs to cheapen the buyers experience really worry me. I really have yet to see how this benefits consumers. ?Hungry agents? is right, most people have a hard time breaking even in the business, not to mention trying to pay their bills. This type of thing will eventually go the way of the Dodo once all the people who have under cut the market to the bone get undercut themselves and have to work elsewhere. Meanwhile, great agents who really care about their clients and want them to have a great experience are leaving the business as well? but I digress?
As far as what to ask an agent? It really depends on what kind of service you are looking for. If you peruse the rebate path, I really wouldn?t expect the same level of service that you should get with a non-rebated buyers agent. I don’t really think that years of experience or number of transactions closed is really an indicator of an agent?s ability.
In my opinion realtors get paid to communicate. I would ask them how they prefer to communicate and make sure it fits with your picture. Ask them how they typically return calls/email?do they respond instantly, have set times that they respond etc, and make sure it jives with you. Try calling them a few times after you interview with them. If they get back to you in an appropriate way then you have a good match. If not, it will only get worse. As a buyer don’t get stuck in any agency contract that will bind you. Most full service agents that I know will let you walk away at any time because they know that they are working hard to make sure you have a good experience.
A good post. More and more consumers are waking up to the fact that they’re paying for a host of services that they don’t actually want or need. The Realtor industry is geared towards an old business model and an old set of consumer desires…in the olden days people wanted someone to drive them around and help them find their dream home – but many consumers now (like yourself) want to do the legwork themselves.
You’re on the right track. Don’t pay for services that you don’t need. This is especially important for
Great blog.
If you’re willing to do something like BuySide, it sounds to me like you might be better off doing things on your own, and then bringing in a real estate attorney at the end. Of course, the ease of doing this depends on access to the MLS. In our old area, there was pretty much open access to the MLS listings on the buyers side via the internet. In our new area, the available information is much sketchier, so it wouldn’t be nearly as easy without an agent.
Hello! We used a buyer’s agent when we bought a house two years ago. It was a fantastic decision; he’d been doing this a long time and was even an appraiser before he turned to the brokering side of things, so his “this is worth the money, this isn’t; offer them this” perspective was especially valuable. He absolutely also showed us all the houses we wanted to see. I don’t know where you’re located, but we’re in the NY tri-state area, and I’d be happy to refer you if you’re around here.
As for this buyer’s rebate stuff…you know, I’d see the draw if you were the seller, trying to cut down on the money that would be coming out of your pocket. But as the buyer, you aren’t paying any of this commission anyway, so why try to scrimp? I’d say find the agent you gel best with, hire him, and consider his or her service the best money you never spent. A good buyer’s agent will more than make up for the small commission rebate with, say, the advice that he’d give you on how much to offer on the house, and things like that.
After purchasing our house in the town in which we were living, I deeply regretted using a buyer’s agent. The agent was a nice person who was not an idiot, but useless (at least not worth money). My wife and I actually identified the house and then contacted our agent to show it to us. We bought in 2004 in a hot market. We were willing to pay full price but some repairs needed to be made. The negotiation process was maddening because our agent basically would try to sell us on the seller’s latest offer! I was the one who formulated our written responses and strategy for counter offers. I felt like I was negotiating agents two agents (I swear I’m not a jerk!). In the end, our agent wasn’t needed. After agreeing to terms the only thing you need is a closing attorney. There is so much information out there to clue you in on what’s important and what isn’t, the only thing you need an agent for is if you know nothing about the area.
So questions? How about, ‘why do I need an agent to buy a house?’ If the answer sounds like an unenlightened sales pitch then reconsider.
I recently bought a house. I had a wonderful experience with the agent. He happened to be a friend of the family, but I chose him for another reason entirely. He answered the following question properly.
What should I offer for this property?
There are so many ways an agent would have to mess this up by overstating the market conditions or the property’s woth etc, but basically he said, as little as you can get him to agree to.
There was no specific price given, he showed me the comps, told me the house was owned by a real-estate company and they are probably looking to get rid of it fast, told me it had been on the market for 9 months, and the price the agency paid. So, he said offer as low as you feel comfortable doing don’t worry about insulting him he knows how the game is played. Just try to pay as little as possible. That is the sign of a buyer’s agent.
Why use a buyer’s agent? Someone who’s dependent on a fraction of the sale price does have no incentive to get that price down.
A friend of mine (not in this country) did the following: she offered the buyer’s agent 50% of the difference between the asking price and the selling price. This was highly unconventional, but the agent went with it – and was obliged to work for her money.
But my question remains: what does a buyer’s agent offer that you cannot do yourself, with the help of an attorney? And is that worth thousands of dollars? I am not from this country, so I seriously do not understand.
Yinna is right to some degree. However without a buyers agent you get no rebate unless you ask the sellers agent to represent you as well and ask for them to drop the commission all together. This worked for me in San Diego 5 years ago. Agents do not care what price you pay only that you buy or sell. Plus or minus $20k in asking price is small peanuts to them. Sellers have a number they are willing to go to. Usually about 5% under asking price. Offer 10% under and negotiate up from there. Eliminate the half of the 6% commission and you are over half way to the last 5%. Just my 2%.
If you’re in moving to new city with a new market I think a good buyer’s agent is indispensable. I found this to be true when I last moved for a new job. With a little information about where you’ll work, price range, and needs, the agent can quickly weed through the mire to find and line up many houses to tour in a short time frame. We had 1 weekend to find a house and got it done. He was left to take care of all the details for us while we focused on moving.
If you’ve bought a house before and want to move across town to a neighborhood you know, I can see where a buyer’s agent is a luxury.
Great info on the hungry agents by the way!
Yinna: Why use a buyer’s agent?
Well, I can say that when I bought my first house a few months ago, I had no idea how any of the whole process worked. Sure, I’d read stuff online, but it was mainly a high-level overview. I wouldn’t try to buy without an agent, since with such a large and important purchase, I didn’t want anything to go wrong.
Now, whenever I go for my second home purchase, I’ll most likely forgo the buyer’s agent (and likely forgo the seller’s agent for my old house as well).
I echo the comments on doing without agents. You said in a previous post you’d be taking your time. That should give you plenty of opportunity to get familiar with the area and market. Sellers will pass the savings on to you if you’re working without an agent.
Lawyers do all the work at closing anyway. They will gladly explain how the process works and can be hired for around $500. No, I’m not a lawyer.
Sorry to return, but this got me thinking. How is the rebate determined? And how is the realtor’s commission defined? An agent doesn’t just walk with 3%, you know.
Is the rebate gross of the total commission, i.e. a percentage of the standard 3% as you’ve calculated? Or could the rebate be a percentage of the net commission the agent actually receives after expenses and the brokerage share is taken?
And how are taxes affected? Is this considered income?
I also wonder if, in the states that don’t allow rebates, there is a way to negotiate a reduced commission, say 1.5%, and write that 1.5% off the price when the offer is presented?
Have you looked into Redfin? I think they may offer an even higher rebate percentage. Not sure what part of CA you’re looking at, but Redfin works in the San Francisco area.
Sorry, they’re also in LA, OC, and SD.
?well? I agree with some of the above. I can only speak for where I am licensed (De and Pa), but some of the above is incorrect or doesn’t make sense for an agent to run a business those ways:
As for buyers agency, it is wholly incorrect to say that a buyers agent is not obligated to negotiate completely on your behalf. If you can prove that the agent was trying to inflate the home price for a benefit of increasing their commission, you have strong legal recourse. Secondly, if you do not sign a buyers agency contract ( many still refuse) the agent IS legally bound to represent the seller and looks out for their needs. Many people who wont sign into buyers agency incorrectly think they are benefiting.
If you are buying a home you should make sure the agent gives you or you ask for a neighborhood CMA, you will be able to tell right away if you are paying a fair price.
Agents depend on word of mouth that they did a great job and got you a great price on your home to stay in business. So lets look at the numbers from a agents perspective: lets say a home is on the market for 100k at a 3% commission. The agent talks the buyer into paying 110k, netting himself a whopping additional $300. The buyer finds out later that he over paid and never recommends the realtor. Now lets say for the same situation a different realtor negotiates on your behalf and gets the seller to accept 95K, netting himself $150 less than he could have had he not negotiated strongly. You are happy with the service and go tell 5 friends who each end up getting the agent similar commissions. Who do you think will stay in the business?
As far as cost goes. Remember that the cost of a buyers agent is traditionally paid by the seller. USING A BUYERS COSTS YOU NOTHING!! But can cost a lot if you don’t properly complete the transaction.
Now am I saying that everyone should use an agent to buy or sell?? NO! there are a lot of reasons not to. if you?re selling a home and don’t care when it sells go FSBO, ie you have time to spare. But if you need to sell your home on a timeline an agent will get it done faster! Also remember that as computer savvy as many of us are, that that is not the case for everyone. And not everyone has the time or ability to do all of the research themselves. As for the DIYers, should you get some of the commission? Maybe, but realize that you aren?t going to get the same level of service. If you OK with that then everyone is happy. There will always be a need for a need for full service brokerage, however, it just may not be the right avenue for everyone. Understanding why is the key! Just saying that agents are out to get you is incorrect. as an educated consumer you will understand what choices you are making, why, and what is a fair price to pay. Would you go to a discount doctor to save on your surgery bill?
Cheers
Remember that in the real estate market, you don’t exactly have the choice to “only pay for the services you need”. The seller’s agent typically charges the seller 6%, and then splits it with the buyer’s agent (if there is one). If there is no buyer’s agent (or if it is the same firm), they get to keep the whole 6%. The only way you (as a buyer) can get some of that money back is to use an agent who rebates a portion of it to you.
I don’t know what type of questions to as a buyers agent, but we sold our house, using an MLS listing agent – I think they charged us $400 – every realtor we talked to tried to convince us that it would never sell that way… the day the listing went into the MLS (at (9:00am), we had an offer at 10:00 (after the guy came to take a look).
It’s about time the Realtor scam came to an end – a listing agent really has NO work other than listing the house in the MLS and waiting for another agent to bring buyers…
BTW, make sure you ask for a home inspection – Even on a brand new home, we had a 30 item punch list.
Regards!
sip
Since you are not in a hurry to buy and you are smart enough to do your own due dilligence, then I say skip the agent and use an attorney (simple fee based). Going to open houses is easy and fun…and its not like things are selling really fast anymore so you don’t need up to the minute info on new listings. You can sign up to Zip realty for free and get access to the MLS from them. Zillow shows the previous sales, etc and you can even get loan info on the current owners if you go to some bubble blogs and ask kindly for someone with access to dig up the details. I use Lexis and can tell you that it is amazing what you find out when you search loan docs etc…good luck.
You might like this link. It talks about rules for REA
http://bigpicture.typepad.com/comments/2007/03/rules_for_real_.html
– Pankaj
Honestly, I Would be REALLY Careful going a discount realtor route. You get what you pay for, and that is not what you want for such an IMPORTANT purchase.
The reason we got 2 great deals on the the homes we have bought is because seller’s realtors were HORRID both times. Surprise surprise they were discount realtors that offered to take a 1% commission instead of the 3%. Both of them. I can spot them a mile away now just looking at houses, which ones are the discount realtors. But I love it when we sniff them out because it means you get a bargain on the price of the house usually. (As long as your realtor is willing to do their job too which is what ours did both times – she was the one that brought all the papers for the sellers to sign, etc, because their realtor was never anywhere to be found anyway – might as well not of had one).
On the buyer side it may not be so important. At least there is no contract up front and is easy to switch realtors if you are unhappy. I will give you that.
A good realtor will help negotiate his/her commission to help you get in a house anyway. Even if they don’t generally offer discounts up front.
Good Luck though!
I just have to comment on Eric’s claim that using a buyer’s agent costs you nothing.
This isn’t true. All intermediaries and middlemen have to get paid, and that money has to come from somewhere. That 3% of the deal, in effect, increases what the seller has to charge in order to get the desired number of dollars into his pocket.
That’s why rebates make sense – you’re paying an inflated price, but part of that increased price ends up back in your pocket.
I think most of the readers are forgetting how astute you are, and may not be realizing that you of all people would’ve weighed the costs and advantages/disadvantages of using a buyer’s agent vs. finding a place yourself. So, to respond to your question, here are some factors i think you should consider:
1. Based on your hands on personality, you’ll definitely want someone who is OPEN to doing things your way. You don’t want someone to be offended when you ask them to do something they’re not necessarily accustomed to doing.
2. Ask them process-oriented questions, eg. – what’s their process for making an offer on a house? What’s involved in the closing process? How long should the settlement take, and what makes it take longer?
3. How many buys/sells has the agent transacted in the last year. See if you can get them to give you a referral from a recent buyer.
4. “How will you find the ‘right house’ for me?”
5. Be sure to let them know you’re in no hurry to make a selection. If that seems to be a problem for the agent, that agent would probably only be a problem for you.
I think the main point is to make sure you feel comfortable with how responsive the agent is to your questions and concerns. Last thing you want to do is enter in to close on a contract feeling like you paid someone $8,000 for absolutely nothing! Their responsiveness to the questions you ask will be a great indication to their aggressiveness in looking for the right place for you.
If you’re looking for a place in the East Bay, i’d love to recommend the agent i used to sell my condo in Oakland recently. I think you saw her YouTube advertisement a couple weeks ago.
Keep in mind, the better agents (those who receive many referrals and how have excellent good ideas and techniques) may not be listed at a site called HungryAgents.com. Best of luck!
I just bought a house last week and we negotiated 12.5% of whatever amount the buyer’s agent recieves from the sale. According to my purchase price, this should come close to around $1200
The agent was actually smart. I used Upromise to find her/him and then agent said that she/he has to pay Upromise 20% and UPromise will turn around and pay me only 10 to 11%, so we negotiated to 12.5%.
Now I know I could have negotiated even more. :)She only showed us 3 houses and made the sale.
It’s worth checking out the chapter in Freakonomics on realtors.
Essentially, it is a fading industry. Realtors for ages have counted on the fact that people couldn’t get the information they needed due to their inability to access the MLS. Now that the info is out in the open, realtors aren’t nearly as valuable.
Realtors incentives are horribly aligned as well… It is not in their best interest to negotiate prices down. Freakonomics shows that Realtors spend much more time and effort when buying and selling their own homes than when they represent others.
An inspection is important. Negotiate for the things you want done/fixed.
I’ll be curious to see what you discover about title insurance when you get around to researching that. Everyone in the industry agrees that is the biggest crock there is. I think you can buy it separately, but I didn’t really do the research on it.
I just moved to chicago and was house hunting. The 2 agents I used were amost useless . The first agent was totally clueless….as in…he was not updated and HATED zillow.com when I mentioned the price of some homes we saw to him on zillow. He had no idea that the next door suburb had higher taxes etc….just totally clueless. (plus he was impatient and showed irritation towards my 2 year old)
The 2nd agent we used started out good…but after the sale was almost done…she stopped coming for the general inspection and termite inspection etc and stopped picking up phone calls. I got mad and sounded her off. She apologized. I even told her that I might be using her to buy another investment property 6 months down…..
Oh yeah, here is a tip for u guys….if your inspection does not include termite inspection or if they want a lot more for termite inspection…..just call the ORKIN man….they do it for FREE 🙂
how can you get 58% off from the 3% commission that the buyer’s agent gets? The agent gets only 1.5% while the other 1.5% is taken away by the brokerage co. he’s representing.
att:
assume that the company recieves $10. You get $5 which is 50%.
And the remaining $5 is then split 50-50. or however they wish.
Nony-mouse reminded me; besides the normal house inspection of roof, foundation, leaks, attic, electrical, plumbing, heat/cool system, quality, appliances, etc, and pests, termites; you should also consider having Radon testing done too. (especially if your unit is 1st floor, or if new house has useable basement.)
Here’s a related idea (a little off topic, though): you can determine how to make your bid based on the profile of the selling agent. This technique can work if you are not working with a buyer’s agent and works better in high-priced areas.
Here’s the idea (and I wonder if it will be shot down by some of the realtors): if the selling agent works for ReMax or is extremely prolific, you can assume that the agent will get a pretty big cut of the commission, far larger than the typical newbie agent gets who must split it 50/50 with their broker. This bigger cut means that, in your offer for the house, you can shave off a couple of points that the agent would normally get. The selling agent will not be ecstatic, but on a 500K$ house, you can easily shave 2% off the commission (and therefore, the price of the house.)
Thanks for all the comments, lots of things to ponder.
Just wanted to ask. How many of you got any of you closing costs paid by the seller, a one year home warranty, Advice regarding a home inspection, or a longer builgers warraty. I am a Realtor and I love to negociate. If you deal directly with a listing agnt you will not know all you can ask for. I get me clients the best price and terms. I have held off closings on new construction and exsiting homes mant times because the seller didn’t have everything done. It is not an easy task to keep everyone straight in the transaction. One deal, the closing attorney did the title work on the wrong lot in the wrong sudivision and my buyers almost bought the wrong house. Also listing agnets intiminate buyers and convinc and when and how the market has appreciatede them that the seller will only do this or that but when you have a buyers agent they do not pull that crap because they know the buyers agent has already done the research on the property. Everything has a paper trail. Buying a home without a buyers agent is like going to court without an attorney.
Thank you
“But in 40 states, it is legal and increasingly common for the buyer’s agent to rebate you back a portion of this commission.”
Is California among these 40 states? The realtor we met with for the first time yesterday said it wasn’t.
I was taken back a bit when she wanted us to sign a “Preferred Buyer Authorization to Locate Property” which I believe “locks” us in to only working with her so I didn’t sign it. I asked what I could do to void that agreement if I found another realtor that I wanted to work with and she wouldn’t answer me and instead just asked me back why I would ever want to. I’d love to hear anyone’s input on this.
Troy – I’d run, not walk, away from that broker 🙂 I’m pretty sure rebates are allowed in CA. Some agents really hate it though!
I have to say after being in this business for only 2 years, I really can not get over the gull of people who lie and waste your time and think you should just drop what you are doing to go show homes even though you will not sign an agreement. Do you think it is okay to use several agents and waste thier time. If you want to be so picky. You should go to different agencies and interview different agents not use them all. We are not making an hourly wage here. We only get paid when a house is sold. It seems like people don’t get this. Buyers and sellers also lie constantly. If you don’t want to work with an agent anymore have the class to let them know. I know I am sick of feeling used and wasting my gas and time
Found some good info here:
http://www.fsboprimer.com/buyersagents2.html
It is illegal for a non licensed person to receive a commission, but of course there are ways around that. As a buyer, you have to decide what you want out of the transaction. If you want a professional agent to get you the best deal possible and guide you through the process, that’s one thing. If you are just looking to see who will give you the most money, that’s entirely different.
First of all, as the buyer you are not paying the commission – the seller is. At most you will be responsible for a couple hundred dollars in the way of a transaction fee.
Let’s look at Hungry Agents – do you think there might be a reason those agents have no business? The top tier agents always have clients and those are the ones you need to work with if you want the best deal possible. An agent who is doing business every day will have the experience, the skills and the insider knowledge to find you the best deal. The amount of money a great agent can save you in the negotiations, concessions and possible future legal ramifications can far outweigh the couple thousand in commission you are trying and get out of them.
Ask anybody who has ended up party to a lawsuit involving the sale of a house and didn’t have a good agent doing their job, how much it would have been worth to have a true professional on their side during the transaction.
If you are looking at long term money goals, shopping for an agent who has no business and is just desperate to get a deal closed so they can pay their own mortgage could be very detrimental to your future bottom line. That’s in contrast to the professional who has your best interests at heart and isn’t afraid to fight for their client and make sure the deal is right.
To some degree, Steve is right. One can be penny-wise and pound-foolish when selecting a buyer’s agent solely on the amount of a rebate. However, striking a balance between an experience buyer’s agent and a fair rebate is attainable. A buyer wants a buyer’s agent who will go to bat for them on the numerous issues that inevitably come up during a real estate transaction.
Anybody who tells you the buyer isn’t paying the commission is lying to you and is probably a real estate agent. Anybody who tells you they are a real estate agent because they love people and want to help them is lying to you. They became real estate agents because the six months course is a deal compared to education requirements for other professions. This profession, more than any other, is based on greed and the big fat commissions they want are directly related to how much they can get you to spend. They don’t really care if you can’t really afford the property and will end up in foreclosure. They just want you to purchase the property through them and it is in THEIR best interests if you purchase it at the highest price possible. I’ve even had an agent tell me, “You don’t want to insult the seller.” Thay are collectively directly complicit in the mortgage crisis.
P.S. It takes 3 minutes to fill out a pre-formatted purchase offer.
SpendSmart – While the barriers to entry are low, you failed to mention the education that comes from good ole fashioned experience; this can stack the cards in the buyer’s favor.
Perhaps, your experience with agents has been void of this type of education.
I’m finding that most people are completely ignorant about realtor commission rebates/refunds – whatever you want to call them, they save homebuyers thousands of dollars!
People either:
1. Don’t understand how realtors get paid,
2. Think refunds are illegal,
or 3. Rebates sound too good to be true.
Knowing what I know after 29-years in the real estate business, I absolutely would not do business with any realtor who didn’t offer a commission refund!