I just listed house today where sellers will have to bring money to the closing. Guess what they didn't have an agent and they bought from developer 2 years ago.

I have a client now I am now working with, who was trying to do that.....but what these people don't understand is they need somone to mange their side of the transaction....for them..who is going to do that....and write the contract...etc...these are the same people who, if asked to do their job for "free" would go crazy..

Very true, Faina, gotta love twitter for sending me here. Buyers definately need representation in new home construction.

AWESOME post, Faina!  I think you've given some great points that many people outside of real estate might not consider when they think about going it alone.  

This scares me for the Buyer!  Thank you for pointing some things out for them.  In the long run, the money is nothing compared to the benefit of representation for the entire transaction!

Good writing, Faina!     

I heard that same reasoning the other day from a guy that did not want a buyers agent. Oh well go ahead and go it alone.

In our market, there is big downside with regard to risk on the buyers part.  They are not going to save anything and in some instances lose money beacause of a lack of representation.

What everyone needs to understand is that what you as the agent working for a broker - and the Seller have arranged contractually IS between YOU and the SELLER.  It truly is NONE OF THE BUYER'S BUSINESS, and has NOTHING WHATSOEVER to do with the price of the home. 

How DARE the Buyer dictate to you that you shave half of your commission and still end up doing the lion's share of the work, whether you represent this person or not.

The only thing they're trying to do is save the commission. They would risk everything, possibly legal action to tell others i did it without the service of one of those "greedy" realtors. But in the end if it goes south they will try to contact one of us to get them out of this mess.

A buyer representing themselves on new home purchases or with a smart listing agent is like a Lamb going to . . . . . .

In reality there is no way a buyer is every truly unrepresented.  If as listing agents we want the deal to get to closing we have to manage the buyers side of the transaction as well.  In my world if someone wants to be "unrepresented" then they should be prepared to put up an escrow deposit that makes them understand that if they don't get to closing then it has consequences on their pockets!

I've been seeing this a lot too. I've had two potential buyers in the past few months ask me, "What will you do for me if I buy from you?" The 5 paragraph answer about all the ways that I save them time, money and headache by representing them does not register.  They only want to hear, "Oh, I'll rebate x% of my commission".  But they won't hear it from me; all they will get unfortunately is professional representation and a home warranty. 

I don't understand why someone who is getting a valuable service for "free" would be hesitant to take advantage of it. Statistics prove that those who go alone in buying end up paying more in the long run and encounter more problems in the selling process.

I understand FSBOs who hope to get more; I feel bad for bhbbs (buy homse by buyer). They are losing in so many ways.

Regards,

Claudia Field
Baird & Warner
Barrington, IL

2 tv shows and some surfing on the net and Johnny the buyer thinks he's Donald trump! SOOO sick of this.   

Without an agent in the picture, everyone thinks they are the one that is going to pocket the "savings"... and so that money needs to get counted several times... and never does. 

Well written, thanks Faina!

I make it very clear to buyers who want to do this, and i have come across it about 5 time is the past year. "Representation and Compensation are two completely non-related things". Procuring cause is what entitles commissions, AND Commissions are only paid to MLS brokers. Now, since the buyer found my listing through my marketing efforts, I have procuring cause, hence no commissions for them. Now hey need to decide if they still want the house. It doesnt matter to me, I already have a home, and if they want this home, cahnces are someone else (who has an agent) will too. So, I say: represent yourself if you like, or find an agent, and negotiate your best offer on the home. 

What I have found is that buyers that search on there own and want to haggle buyers commissions, typically lose out on the best homes. They find this out too! 

You also can include all the unrepresented buyers who got great financing 'advice' from the listing agent, seller or the builder. I know more than one who is now either losing their home or lamenting the adjustable rate they signed on for when they bought from the builders 'preferred' financing supplier and got a 'discount' for doing so. Naturally as a Real Estate Agent I do not persuade my clients to use on lender over another, but (especially with first timers) I give them good educations up front so they know what they are really getting into.

Sonja -it doesn't surprise me. It's not an equal march between the new home builders and unrepresented buyers, of only they understood it.

Konnie -the view of these buyers is that the contract and negotiation could be done by an attorney. The only value they see in the buyers agent is driving them to see houses.

Missy - i am beginning to love Twitter -thanks to you in great measure. 

I really like that explanation by Shawn Hartmann

I have explained the bit about the multiple contracts involved. In fact, I have a little drawing I do to show how the 3 contracts at play intersect. I will have to practice that Procuring Cause argument a bit so I can use it when I next have this conversation.

Thanks sarah!

I actually run across a lot of lawyers in the area I work. Typically fresh out of law school. They seem to understand the part about who the contracts are between, but they invariably want to rep them selves. I once had a lawyer buyer and lawyer seller in the same transaction, that was funny! I kept the commissions :). 

Sarah - there are buyers some who would like to purchase homes without representation. What seems to be "new" in the case I described, is that they ask the buyers agent part of the commission to be "credited" to the seller.

Kim - the money could also be an issue as well. If the buyer is not represented, what they think they may be saving, could turn out not to be savings at all.  Unfortunately, when these words come from a real estate agent, chances are they could be perceived by the buyer as self-serving.

Isn't this good for the real estate market in general.  If buyers are overpaying because a house may not be worth as much as they believe it is, wouldn't that increase the comps for similar houses and therefor help the market?

The other line I use when a buyer want to rep himself is: "OK that sounds great, I'm kind of curious, have you ever done this before?". They alway say no. I just Say OK. Then I say lets meet at my office to discuss this. They never want to meet up.

By the way, if you make it your policy to never show properties to unreped buyers, you will save yourself a lot of headaches. think about it. If you dont show them your listing, how will they know if they want to buy it. they think they want to buy it because they saw the photos online, but  the haven't been inside. Next time you get a sign call, ask if they are represented. If they say no, ask why not, if they say they are trying to save the commission, Say thats great, recommend they find a discount broker to help them out, or let them know they will need to sign a one time showing agreement with you to see it. This Should be standard practice in our industry.

Those buyer's who consider themselves real estate savvy because of all the information on the internet shouldn't completely disregard being represented.  I have a potential client I am in negotiations with.  He has proposed paying me a flat rate fee to represent him to write up the offer, attend the inspection and see through to closing.  He already knows the house he wants to put an offer on.  Since it is a million plus, I agree, it is hard to justify him paying me the full 3% when I am not doing alot of leg work.  I know some people think he is not paying me, but rather the seller is, but essentially in my eyes, he is paying in the long run since he will be the one paying the interest on the homes mortgage (where the commission is wrapped in.)  Long story short, I can respect his decision to seek a lower negotiated price by taking out the buyer's agent commission but I mostly respect him still seeing the value of being represented.  Hopefully he decides to work with me.

Shawn, you said that "Commissions are only paid to MLS brokers."  is that true, does the law prohibit homeowners from paying commissions to anyone other than MLS brokers?

Russ - everyone has a choice to not have representation. The unfortunate part is that many buyers do not completely realize what they give up.

Steven -my point exactly. Thanks for your comment. 

Jackie & Jerry - I understand how you feel. Not all listing agents would agree to such an arrangement. I would, because I don't want to give up any opportunity for my seller clients. That may not be a smart business strategy for everyone:) 

Faina,

Congratulations on a terrific blog and feature!

This is the result of companies like Redfin who basically leach off of the full service brokerages to carry the water FOR THEM.  A lot of this comes back to Len Harley's basic premise that we must educate buyers and sellers that FINDING THE HOME is the easy part.  Until that aspect of real estate transactions are understood, this sort of nonsense will persist.  

Ashley Berg **Seattle's Green Realtor** ....Please dont take this wrong, but, The seller is paying the commissions. The value of the home is determined by the market. :)

By the way, how does this "savvy" buyer know about the 3% comp. Is that advertised somewhere by your MLS to the public? 

I think it is OK credit back to the buyer, it is a personal decision. Or if he is paying a flat fee, ask for it up front and non-refundable. That way if the negotiations fail, you didnt completely waste your time.

bayou- no laws prohibit sellers from paying anybody. But the MLS broker comp is for paying brokers, brokers can credit back or elect to do whatever they please with it. 

Every dollar paid to a broker/agent is a dollar well spent.

We manage the transation from start to finish. For buyers, we negotiate better terms and conditions than a layperson could for themselves. We are familiar with the neighbohoods, values, pitfalls. We do a visual inspection of each property with a "trained eye". We review documents, disclosures, GFE's, title report, etc. We schedule/attend inspections, interpret issues, request repairs, schedule repairs, sometimes negotiate on repairs with contractors, we confirm repairs and certifications, pest work. We coordinate with the lender, title company, appraiser, contractors, etc. You know that ole saying-- goes something like "a person who represents himself in court has a fool for a client". Same principle applies.

Great post. Thanks for covering it! 

Shawn- I am still on the fence on who I think is essentially paying the commission, the buyer or the seller.  I have had many discussions with my colleagues and get arguments on both sides of the coin.  As for how the buyer knew about the 3%, he initially contacted me about selling his home and we discussed the commission rates.  Thanks for the heads up about him paying up front and having it be non-refundable.  I certainly don't want to waste my time. I have done enough of that the past few months with the mortgage industry tightening their reigns and promises by lenders the client is approved.

Ashley,

But the seller agrees to pay a commission long before a buyer knows about the home being for sale.

So, lets say the home was listed for $1. would the buyer want to reduce 3 cents off your commission? The point is the value of the home is determined by the market. The buyer should make an offer based on value, not based on a commission that has been negotiated long before he knew he was interested in buying the home. The seller already agreed to pay a commission to agents before anything happened.By the way, why didnt he just go to the listing agent, could it be because the listing agent said "NO"?

It is up to you as an agent to determine whether you give some of that commission back.

I just say NO, its simple to do.. 

I have been the inspector for several buyers "going it alone."  All, seemed to count on everyone involved to pick up the slack for the missing representation---including me.  It made inspections longer and I found myself continually having to duck questions I would likely only know the answer to if I was a Realtor.  I cringe when I ask them who their agent is and they say they don't have one or are using the seller's agent.  Kind of like both divorcing parties using the same lawyer---not a good idea.  I always encourage them to "get representation."

Awesome response Charles.

Real estate agents are going to jump all over this with comments but the public needs to understand if they go into a real estate transaction without representation it's similar to going to a Doctor (Surgeon) who contracts with a hospital to use their operating room for a fee and telling the Doctor I want the money he/she pays the hospital for said room to go to me (patient) and lets do the surgery in the parking lot.

Great analogy Carmeron!  I'll remember that!

Great analogy Carmeron!  I'll remember that!

LOL Cameron!!!!! What a great analogy! I will have to remember that one.

 Great Post!

Susan

Great article, lots of very good points made but do we think we can change human nature to save a few bucks?

There seems alot of this going around lately, the selling agent giving part of the commission to the buyer. It's a technique that sounds good to the buyer, but the buyer has way more important stuff than to worry about saving part of a commission. Most sellers are savvy enough to know that a completed transaction is a slim possibility. Any offer I had with buyers of this nature would have all kinds of safeguards to protect my seller.

Found this post on Google and thought it provided good insight. As a consumer, I can see how buyers go into this situation thinking that its much easier to handle alone and there is a potential cost savings. I know I initially did while in the process of looking for my most recent home, but soon realized that my wife and I were behind the proverbial eight ball in taking on such a task, especially when we first started in our search and viewing homes FSBO. Some people in this world are just a tad odd..We eventually obtained the services of a realtor, and it made the process much easier in terms of all the logistics. In terms of negotiating, we unfortunately didn't get much feedback from our realtor (of course an isolated issue in regards to the realtor we used) and it made the process a bit more stressful, but in the end I'm sure it was a lot less hectic than it would have been if we represented ourselves.

I think the biggest issue (as the one comment mentioned) is that consumers watch TV shows and then hit websites like Zillow, Trulia, and Realtor.com to evaluate what the price of the house should be (especially based on recent sales and comparables) and then do the "well, they sold their house for this much and ours is nicer" process. The other issue is that consumers think they may have a better understanding of the process once they've gone through it before and often feel the realtor's time is just taking them from home to home and filling out a contract. I know I followed these very same steps and thought I was indeed knowledgeable on the subject matter and figured all I needed to continue was a run-of-the-mill real estate attorney to represent us legally and in our best interests. I'll never know how it would have all played out if we did it on our own, but I can tell you I slept a lot better the night after I signed all the paperwork at closing.

I do have to say that my understanding of the process from selling/buying in 2000 to 2007 was much increased due to the amount of resources available on the Internet. Many consumers are coming into the process with far more knowledge of most of the steps (whether real or imagined) and find themselves to be more informed consumers. I'm sure that could be both a good thing and/or a bad thing for realtors.

I wouldn't ever go into buying a house without representation, especially since it costs me nothing in terms of a commission. As for selling my current home in a few years without representation, I'm not sure (I'm sure that will ruffle some feathers). Then again, I said I was never moving again :) Sorry for the long comment! 

not an equal match to the seller, with representation

That's the key point.  Someone going through this process once in awhile or for the first time vs someone who does it professional and knows exactly what to expect and how to protect the seller's interest. 

I also liked what Chicago Buyer said, "Some people in this world are just a tad odd.."  Better to have the agents do the negotiating because often the buyer and the sellers clash. 

good blog man peope want to take on the job but a good reltor can save you time and money

Wow, this is scary.  I haven't heard of this yet.  However is there much difference with an agent who represents both parties? 

Chicago Buyer -thank you so much for bringing in your perspective. Hearing from my non-agent readers and making it a 2-way conversation with consumers is extremely important.  Real estate blogs (where the conversation is often between agents) to consumers may  appear self serving. So again, many thanks for sharing your views and experiences.

I agree that it's difficult to sort out what Internet can and can't do for real estate buyers and sellers. Consider this blog as an example. Its objective is to get as much information as possible to consumers and especially those in the greater Princeton NJ market. I publish prices of properties sold, tips, opinions, and my experiences as an agent. Does it give my readers an advantage? I certainly hope so. When they call me, our search could be much more focused and productive. Plus, it gives them a definite view if I am an agent for them. Does this blog, or any web site, substitute the human intelligence, required in a particular transaction?  I don't believe so. 

After my last move, I said the exact same same -"I am not moving again":) So we are on the same page. Subscribe to my blog(shameless plug), and you could be better prepared, if you change your mind.  

Robert - my post assumes that the buyer has legal representation and therefore their legal rights would be protected. it's all the other issues that I am worried about and ultimately that their "savings" could really turn into a loss.

Lenn - you said "A buyer representing themselves on new home purchases or with a smart listing agent is like a Lamb going to . . . . . ." It's a very apt metaphor and certainly illustrates the points succinctly.. 

Cindy - when i say that the buyer is  unrepresented I mean it -that no one is looking out for their best interests. Even if they hired someone to "do" the transaction steps, it does not insure that the transaction or some steps in it are in their best interest. And that's the danger, IMO.

Lisa -you say "that answer about all the ways that I save them time, money and headache by representing them does not register". this is very interesting. The only explanation, I can think of, is that in consumer's mind, it does not equate to their potential "savings".

Claudia -the idea that these type of buyers have is that they are in fact benefiting from the part of the buyer's agent commission. Their view is that if the seller had to only pay for the listing agent, the buyers offer would be perceived as higher by the amount of the "saved" commission. I am sorry if it's too confusing in explanation. As I said in the post, this could perhaps work,if everything else was there in place for such buyers, which there is not.

Greg - you are definitely making a point. Everything sure looks easy on TV +it only takes half an hour:)

Lane - if the agents were totally eliminated from any transaction, I wonder if the prices of homes would be less. Somehow, I don't think so. I didn't happen in  the travel industry, and there were only talking about small $.

Audrey- thanks for reading and commenting. 

Shawn -thanks for contributing your experience to this discussion and engaging other commenter's opinions as well. You have an interesting approach and obviously have had experience dealing with such transactions.

There is another issue that needs to be considered. If a listing agent had received a call from such a buyer, they would have to consider if not agreeing to this buyer's request , they are somehow jeopardizing their client -the seller.

every listing I take, the seller gest a variable rate. Its 6%- and 5% if the buyer comes to me without an agent.

Now, when the buyer comes to me to aks for commission I let them know that the seller has a pre-ngotiated commission that gives him a discount for "un-reped" buyers. I ask them to make an offer, aware that the seller may choose to lower the price based on this.

KEY POINT: The seller has a contract with me, the buyer does not know the terms of the contract or what the commission reduction is.

If they tell me that I'm paying out 3% according the mls, I'll tell them they are not an MLS broker. If they were, I'd gladly pay it out. 

Jason -you are bringing up an excellent point. When i said in the post that the buyers liberty was not at stake, I realized on further reflection, may be not entirely correct. Your point is very important -very bad decisions, leading to foreclosures or worse could be a result of not having representation, not having adequate representation, or disregarding the advice of their their agent.  

Cari -you pretty much summed it up in a great way. The problem is that the agents would wholeheartedly agree, while the consumers just don't see it this way. I can't blame them, either. We all perceive value differently. Your quote " "a person who represents himself in court has a fool for a client" illustrates the point well.

Too often buyers fail to realize the srvices a Professional Realtor offer to them are FREE. To not have representation in this day and age is like skydiving without a parachute!

Ruthmarie - I can't blame consumers, Redfin or anyone else for their views -they are a perception of the value they see in the services provided, and they are entitled to them. I am not 100% hopeful that the "education" will help either. Coming from the real estate industry this education is perceived by consumers as totally self serving. And there lies the $64,000 question. How do you someone (adult age) who doesn't want to be protected? May be the answer is - it's their prerogative to be injured, as long as no one else is injured in the process. But is this possible?

Bayou - you are raising an excellent point and I very much appreciate it. You ask: "Isn't this good for the real estate market in general.  If buyers are overpaying because a house may not be worth as much as they believe it is, wouldn't that increase the comps for similar houses and therefor help the market?

Unfortunately "overpaying" for the house will not help the housing market. The next buyer who comes along, if they have competent representation, would be told that perhaps the house was "not worth" what the previous buyer had paid. The "worth" of the house is not necessarily the last selling price and that's why it is not available on the Internet.. Thank you for contributing to this discussion.

Faina- That is what the buyer wants you to believe!

Actually, As the sellers rep, you would be doing your best to get the buyer to make an offer. I ALWAYS keep the buyer focused on the house itself, and do not focus on the commission. Simply oput, the buyer has to determine whether they want the home (or just the commission). They get to negotiate with the seller, not me.

You have to be VERY careful with all this not to offend any party. But it can be easily done. Remember most buyers commit to a home before they write an offer, They have been search and putting energy and time into it. They likely do not want to lose the home over a commission that they have no entitlement to. And chances are, if they want the home someone else will want it to. I'll happily payout another broker :)! 

Charles -thank you so much for adding a perspective from the Inspector's point of view. You have probably seen endless transactions fail during the inspection phase. I have seen buyers ask Inspectors about how they should proceed. You are very smart to see the potential danger in that and giving your customers the advise you do: " Kind of like both divorcing parties using the same lawyer---not a good idea.  I always encourage them to "get representation."

KEY POINTS WHEN FACED WITH THIS SITUATION:

1. Always ask the buyer "where they got the idea about negotiating commissions"

2. Then say "Sorry, i dont do that"

3. Then say "Are you interested in owning this awesome home?" 

If you do this with a face to face conversation, especially with a husband and wife, you'll watch them look at eachother and usually one will say  to the other "I told you so"  

Carmeron -your analogy made me really laugh (in a good way). Unfortunately, many of these analogies fall on the deaf Consumers' ears. They usually don't need convincing of the value of the operating room, but many see no value-added of an agent. If the consumers see buyer's agent as the one who drives them to the house and points out "this is the Living room, this is the kitchen", they do not perceive it  as great value.  

Remember guys, our sellers hired us because we have skill in negotiations. If we cant even negotiate our  own commissions, with an un-repped buyer, it may be time to look in the mirror.  And ask our selves, are we really worth these commissions? Please do nt take this the wrong way, I consider it tough love.

Connie, Susan - I am glad you liked Carmero's analogy. I enjoyed it too. 

Richard - I stopped my "human behavior change" attempts with my teenage kids:) The change , in particular for real estate consumers, could come from enhanced understanding, or sometimes , unfortunately from a personal bad experience. Of course, there are those who are never convinced.

Nice job, Faina... Get us all thinking,

We as Agents and Brokers are enabling this behavior by not saying NO!

NO to overpriced listings...This buyer strategy works best when the property is overpriced, too many days on market, and we are desperate to sell it to save face with the seller!

NO to the very notion that we do not earn what we are paid.  Our real estate network / marketing system, created by REALTORS, is the most efficient in the world.  It is a well oiled machine that cost billions to establish and will cost billions more to keep going into the future.  Mr. Internet did not create and pay for it.  It was created and paid for by those who came before us and we MUST preserve and pay for it now for those who follow us.  The parasites of our GREAT system are causing enough harm already.

NO to people who say they will do their share of the work when we know that our duty to our seller client requires us to get the job done even if Mr. smart-a$$ buyer does not have a clue.  This should already have been explained to your sellers when entering into the listing.  The TOTAL commission is for getting the job done.  The choice to offer compensation to cooperating REALTORS through the MLS is a joint decision at the time of listing.  It is the brokers decision whether to compensate anyone else.

Buyer agreements and showing agreements will help you determine very quickly if this is someone's intention when they call on a property.

Please Just say NO to destroying this GREAT system that no one seems to think much about.

BTW... I just read on the Internet how to power your entire home with Hydrogen...

Have a GREAT day!  Thank You!

Chrystina - I found Chicago Buyer"s comments interesting and valuable.

Leo -I appreciate your comment. 

I think there is definitely a change coming in the real estate industry, and now more than ever, traditional realtors are having to really define their value proposition.

I agree with you all. I like the Chicago Buyer comments as well.  Everyone here is absolutely correct.  Don't negogiate your commission, show the value of your services, your not a cab driver(gas is $3.50 per gallon)

When buyers insist they can do it on their own. Let them. One less headache for you. We don't have to do business with everyone.

I hope that lots of consumers see this.  A good REALTOR really does add so much value to the transaction.  We sell real estate every day and we know what the possible pit-falls can be, especially in our local markets (which can and do vary).  I think part of the problem is that buyers really don't have any idea what happens "behind the scenes".  They see us showing the property, making up the offer, maybe some phone calls to them between contract and closing and then they see us pick up this big commission check at closing.  There is just so, so much that is done on a daily basis that the clients have no idea about.  We do it that way because that's our job... making the transaction as worry free and stress free as possible.  We don't involve them in the day to day problems (bumps in the road) that we solve or avoid completely.  The other thing is that lots of consumers don't really understand that the big commission check is like a pie and everyone gets a piece (the franchise, the broker, the tax man, the office help, the magazine, the MLS, the NAR, state and local boards, the local gas station, etc.)  We are in business for ourselves and there is overhead.  Anyway... off on a tangent.  Bottom line is that it is well worth what is paid in commission by either buyer or seller to have a professional REALTOR handling things for them.  Research your agent, get references, hire a GOOD one and let them handle the rest.  I'd be willing to bet that you will make money / save money doing it this way.  We haven't been around all this time for nothing!    

James Hlubek, Broker/Trainer - ERA Beach Ball Realty Pensacola, Florida

Very well stated. The interesting thing here is the KEY word "NO". Its easy to say.

Why is it that the consumer wants this anyway? You don't hear about a car sales and a consumer saying "I'll buy this if you cut your commission on the sale" do ya? They negotiate with the dealership, not the salesman. 

The industry is what we make it! Its your choice. 

Here is the thinking of some buyers.

The realtor who works with you to buy only wants to get you to spend more, close on a easier house, talk you down from your demands.  The selling realtor only works for the seller (and the buying realtor kinda does too).  (this is the perception of some)

When the buyer approaches the listing agent, their relationship only goes as far as this one property, if it falls thru the realtor goes from 6% to 0.  There is no next house or second chance.  Now the realtor works 100% to pleasing the buyer, the buyer is back in control.  I think asking for a % of the commision off upfront is rude and probably counterproductive.

Jacki and Jerry Shafer, how DARE they ask for this?  Your attitude is very repulsive to today's bottom feeders, even if you don't say it to their face, people can smell this emotion.  You can have your beliefs and opinions, but when you ask how the person with the $$$ DARES to ask for something, you might have cost yourself a client.  FYI.

Buyers can always run an ad in the newspaper or online or something to the effect "I'm a buyer looking for a