Special offer

Why do I need a buyers agent? I can find the house myself!

By
Real Estate Agent with Keller Williams NY Realty - 120 Bloomingdale Road #101, White Plains NY 10605

Real estate agentThis is a question that was put to me recently in an email.  In fact I get variations on this question often on my web site “just ask me” area.

Why do I need a buyers agent when I can run around to open houses and find the property myself?

Implicit in this question is the thought that they will somehow save a big fat 3% by dealing directly with the listing agent.  And why not?  It sounds like a great way to save money.  After all – the only thing agents do is open doors and fill out a few forms.  The listing agent should be thrilled to just sell the home, surely he/she can afford to fork over the other side’s commission to seal the deal!

Where to even begin on this one – except to say -not so fast!

The commission offered the buyer is determined by a contract between the seller and the listing agent:

1.  The agreement is between the listing agent and the seller. You do not know the details.  What on earth makes anyone think the buyers agent is being offered 3%?  Coops (the commission offered to the buyers agent by the seller) are all over the map around here.  As a buyer, you have no idea what the seller offered to pay the buyers agent.  That is between the seller and the listing agent.

2. Why would a seller give away the buyers agents commission to an unrepresented buyer?   They certainly don’t have to- nor should they.  Once again – the agreement as to what would happen if the agent “double-ended” the transaction is between the seller and their agent.  Once again – the contract is between the seller and the listing agent.  The buyer has nothing to do with it.

3. Even if the buyer is treated as a “customer” (more on this in a moment)  – working with both buyer and seller is not the least bit trivial – it is a lot of extra work and there is a great deal of added liability involved.  Therefore, even if the seller were willing to give away the entire buyers portion of the commission, few – if any listing agents would be willing to take on the work and liability probono.

The above are obvious reasons why the commission is not a very valid “negotiating tool” for buyers who think going in unrepresented will save them a bundle.  It won’t.  At the end of the day, you are saving a few hundred while risking six to seven figures in the biggest financial transaction of your life.

A buyers agent is more than a door-opener:

Do buyers agents offer any intrinsic value?  Yes they do – and here are just a few good reasons to use a buyers agent.
4. From a logistical point of view – trying to find houses through open houses and on Trulia or Zillow is not all the practical.  Chances are buyers will miss a good deal of current inventory because open houses aren’t given on each home that is for sale every week – or even every month.  The decision to hold or not to hold open houses depends on the listing agent and the seller. Much of the information on the internet is outdated creating further frustration.  Calling every listing agent in town requesting showings isn’t a very practical alternative either.  Working with a buyers agent will give you the most complete access to the current inventory  of homes in your price range.

5. This brings me to my next point – it really is in the buyers best interest to have representation.   A buyers agent knows the market better than a buyer does.  They are generally local agents who are in and out of homes all the time.  They know the condition and what they sold for.  Putting in an offer that makes sense is key to securing the home that you want.  A buyers agent has that extra knowledge of the market that a buyer really couldn’t have because the buyer doesn’t eat, drink and breathe real estate every day of the week.

6. Since we know what we are selling and can help you find the right fit.  For example – there are cooperatives that have very difficult boards.  If I have a client with a slightly higher debt to income ratio – I know that there are some complexes that just won’t fly.  Buyers working on their own haven’t a clue.   This can get them into a world of hurt, and cause them to waste time on money on a transaction that falls apart at the last minute.  Another example – A buyer sees a great neighborhood with a lot of green open space – what they don’t know is that a developer has just bought that property and soon your great natural view will be  replaced by rows of McMansions after clear -cutting the woods of course.

7. Negotiations…when you negotiate the purchase of a home, you are generally negotiating with the listing agent.  The listing agent is a pro that negotiates terms for sellers all the time.  They aren’t mean or cruel people – BUT their fiduciary obligation is to the seller.  They are obliged to secure the best price and terms for the seller.  For the average buyer this David going up against Goliath.

8. In New York, the attorney’s take over the process once “a meeting of the minds” has been reached.  However, agents are still very much in the picture and guide the process along. Inspections, lending and other pitfalls. I’m not going to prolong this post much further except to say that things can come up during both processes.  Things like – the home might need a new roof in five years.  What will that cost?  Agents have lists of qualified  contractors at their fingertips that can help clear up weather this is a deal killer or just a minor hiccup.  Issues like this need to be resolved quickly and with as little fanfare as possible.  Buyers flailing about on their own can end up being their own worst enemies  when they run up against a situation like this.

9. Lending problems.  These days there are generally multiple hiccups in the lending process before the loan is cleared for a closing.  We see this all the time and know how to deal with many issues buyers can’t imagine happening.  This is especially true for condos and cooperatives.  Some loan products will not work with specific complexes  for various reasons.  Two recent issues that I have had:  a cooperative board lacked sufficient fidelity bond insurance for the lender.  what would a buyer do if this happened? In another instance a buyer was trying to use an FHA loan in a complex whose board had a right of first refusal requirement that eliminated them from FHA.  Agents can short-circuit issues like this before they happen.

I’m not going to prolong these issues with more examples – the point is that trying to avoid using a buyers agent just  to save a few $$$ when you are dealing with the single biggest investment of your life makes very little sense and involves no small amount of risk.  The savings are not nearly as great as most buyers are thinking.

© 2011- Ruthmarie G. Hicks – http://thewestchesterview.com – All rights reserved.

Comments (50)

Ruthmarie Hicks
Keller Williams NY Realty - 120 Bloomingdale Road #101, White Plains NY 10605 - White Plains, NY

# 24 - Hi Will - The payment is tough to wrap your mind around.  Buyers just see a nice big kickback of 3% dangling in front of them and they can't resist. And then there are plenty who will prey on their misconceptions in order to turn a fast buck up-front.  Then when the buyer needs real help they are still out that fee.

#25 - I hope that works!  He may be able to maneurver the legal matters - but neighborhood issues, inspection issues etc. - not so much.

#26 - Hi Phil - The devil is in the details. And these days getting from accepted offer to closing is an obstical course.

#27 - Hi Allison - Thanks!  Are you blogging less - or am I missing you in the rain???

#28 - Hi Bryan  - that is also true.  Most on-line stuff is outdated anyway.

#29 - Hi Gary - That really is a good question - but I think many buyers really think they can pocket that money.  Indexible IDX has produced some results that Kris Berg discussed at length.  Although I think it should be transparent as to who the listing agent actually is - she noted that many buyers were calling all the time trying to find the listing agent to present the offer directly.  It brought the behavior into the light and showed that all too many buyers are running from LA to LA trying to cut "deals."

#30 Hi Allen - Thanks for saving - Glad you liked it.

#31 Hi Tni -  I too would use a buyers agent.  If I'm relocating to an area that I know nothing about.  And if it is out of state the laws are different. So when you move - you are a client like everyone else - and you know very litttle and hence - NEED HELP!

 

 

Feb 09, 2011 08:56 AM
Ruthmarie Hicks
Keller Williams NY Realty - 120 Bloomingdale Road #101, White Plains NY 10605 - White Plains, NY

HI EVERYONE!

SORRY FOR THE CAPS - BUT COULD SOMEONE TELL ME IF MY RE-BLOG IS STILL INACTIVE?  I CAN'T TELL BECAUSE I CAN'T RE-BLOG MYSELF!  JUST LET  ME KNOW THNX!!

Feb 09, 2011 08:57 AM
Petra Norris
Lakeland Real Estate Group, Inc. - Lakeland, FL
Realtor, Lakeland FL Homes for Sale

Ruthmarie - I was going to reblog your excellent post but is has been disabled.  

Feb 09, 2011 10:05 AM
Peg Barcelo
Fluff My House! Home Staging Inc. 250.486.6369 - Summerland, BC
The FlufftasticStager from Summerland, BC

Ruthmarie, What a wonderful explanation. As #21 said, a lot of people don't know enough about the biz. Personally, I think having someone in my (the buyer's) corner would be such a relief. The whole process can be so stressful, having an advocate is the way to go. I think I'll show this article to some of the people I see.

Feb 09, 2011 10:33 AM
Brian L. Sirota, Esq.
Bristar Realty (Realtor/Attorney) - Orange, CA
For Solutions: (714) 501-7660

Ruthmarie, in your title, you describe the buyer as one who argues:  "I can find the house myself" as opposed to the buyer who claims "I can and did find the house myself."   In the latter scenario, the buyer has found your listing, wishes to make an offer, but raises an issue by demanding that a portion of your commission be used as a credit to the purchase price.  

This was the reason for your discussion, if I'm not mistaken.

You spoke at length about the value of a buyer's agent and, at some point, you advised the buyer to get representation.   So far, so good.

However, since the buyer declines to get representation, the problem is still outstanding.   What solution has worked for you in the past, and what are you advocating now?  

Or, are you saying the solution is to press the points you've raised to convince a buyer to get an agent?   If so, I suspect the response from a buyer may be different from the Realtors on AR.

Brian L. Sirota, Esq., Broker/Attorney, BriStar Realty, Orange County, California  

Feb 09, 2011 11:01 AM
Coral Gundlach
Compass - Arlington, VA
Real Lives. Not Just Real Estate.

I could go off on this subject for days!  Just got rejected by a prospective buyer who just couldn't get his head around the buyer agency concept.  He said to me, I will look for the houses and the listing agent who has the house I want to buy will get rewarded.  I basically wrote everything you just wrote in your blog to him and got no response.  Heh?  Reward the listing agent?  How about rewarding yourself?

Feb 09, 2011 11:24 AM
Ruthmarie Hicks
Keller Williams NY Realty - 120 Bloomingdale Road #101, White Plains NY 10605 - White Plains, NY

Just an update - My settings are saved to allow reblogging - I don't know what is going on. I'll writ the "Rain Gods" and ask...

Ok I wrote the Rain Gods - hopefully you guys will be able to re-blog.  The post also seems to off the feature blog roll - so something might be a bit funky!

Feb 09, 2011 02:34 PM
Trevor Foote ~ Realtor® ~Rocky Mount NC MLS
Moorefield Real Estate - Rocky Mount, NC

I had a friend of a friend ask me to email an offer to purchase as he's buying direct from a FSBO! Again...another reason....the contracts. Anyone can do our job....YIKES!

Feb 09, 2011 02:49 PM
Ruthmarie Hicks
Keller Williams NY Realty - 120 Bloomingdale Road #101, White Plains NY 10605 - White Plains, NY

Hi Petra - Reblogging is enabled. I wrote to AR to find out what the issue was.It shoudl be up later.

Hi Peg - LOVE the charicature... Thanks - it is stressful for the buyer - even in a buyers market!

Hi Bistar - no that had nothing to do with the discussion.  I was trying to explain why trying to haggle the listing agent for 3% is fruitless.  As to the other - the buyer becomes a customer and must sign the necessary disclosure that they waive representation.  Then it is up to the seller.  The seller and I have a contract.  I will present the "offer" as I do with all other offers.  In the context of the agreement that I have with the seller - the seller may choose or may not choose to counter.  But my commission was set at the time of the listing and any circumstances under which that would change were explained up-front.  Thos terms vary from transaction to transaction and are moot for the discussion here. The seller can choose to counter or not.  My commission is NOT a bargaining chip for random buyers trying to save money on commission. 

Hi Coral - What they don't get is that it has to come from the SELLER.  They are the ones paying the commission - and the contract that exists between the seller and the agent is what matters.

Hi Trevor - Oh my...interesting that he needed you for the offer!

Feb 09, 2011 03:10 PM
Anonymous
Joe

Hi Ruthmarie,
Thanks for sharing this information.  I think you’re exactly right about the need to engage realtors and agents in searching for homes. It is trie that a realtor or agent understands the business more than a buyer especailly first time buyers. The realtor will help a buyer get what they need more quicly and at the right place and price.
Do you use blog marketing a lot in your business?
Thanks again,
Lauren Stevens
http://www.smartblogcontent.com

Feb 09, 2011 05:14 PM
#41
Kevin Kueneke
Caliber Home Loans - Encinitas, CA
San Diego Mortgage Banker

Thanks for the post Ruthmarie.  Having the seller's agent represent the buyer is kind of like being sued and having the plaintiff's attorney represent you (maybe not that bad).

Always important to be represented by an unbiased party.

 

Feb 10, 2011 05:01 AM
Petra Norris
Lakeland Real Estate Group, Inc. - Lakeland, FL
Realtor, Lakeland FL Homes for Sale

Ruthmarie - tried the re-blog feature, it is still not working.  Have you had your post re-blogged by other members?

Feb 10, 2011 05:47 AM
Glenn Freezman
Nucazza LLP & Home Buying Evolution, & Family Abstract, Inc - Fort Washington, PA

Ruthmarie, WHAT????  Where did that come from???  My issue is not with what Realtors make, i agree that you need to charge and be paid what you are being paid because someone needs to pay for all your wasted time, why not the Buyer that actually bought a home.  While he is at it, he gets the pleasure of being responsible to pay for four seperate salaries.  Buyers agent and Broker and Sellers agent and broker.  My issue is with the commsiions being built into the sales price.  I have no issue with what you make!!!!!!!!!!!!!!!!!!!  I know conventional wisdom and the law of the contract includes the commissions, so my point is that the homes value is inflated due to the commssions being factored into the price.  IF, the seller were to pay for her/his representation and the buyer their own representation, would the homes sales price NOT be less than what its listed for with the commissions built in? Why is it that home buyers and home sellers need to pay a transfer tax on your income when the deed is recorded for sale?  Your income should be reduced from the final sales price and the deduction should be able to be made resulting in the net price of the home being the recorded value. 

It seems that being paid for your work in place of screaming at me that your not is a better solution.  Fee for service is not an either/or its a choice.  If the buyer is right for it then fine if the buyer is risk adversive then also fine. Since you are so proud to work for free 4 out of 5 times it seems like RISK should be your middle name.  You are right that is RISK my friend, and the only person within the transaction that can eliminate the risk is the buyer.  But I dont see why if a buyer was willing to hand me 150 dollars an hour, the same rate he pays his doctor, accountant and dentist, to handle the fiduciary council especially from contract to close and i handle about 15 tasks or services a week, plus my occasional traditional income, fee for service makes sense.

OOO, and its FREE so not really sure about that get rich quick barb.

Respectfully,

Glenn Freezman

Feb 10, 2011 06:09 AM
Ruthmarie Hicks
Keller Williams NY Realty - 120 Bloomingdale Road #101, White Plains NY 10605 - White Plains, NY

Sorry to those who want to reblog...It is turned off even though it is ON in "my settings" I contacted the rain Gods.  The post also disappeared from the feature blog roll which is strange...I don't know if its back or not.  I noticed it last night.   For those who want to reblog - I'll send you an email if you just ask me to once  AR says its fixed.  Just leave a - please contact me comment....Best I can do.

Feb 10, 2011 07:09 AM
Ruthmarie Hicks
Keller Williams NY Realty - 120 Bloomingdale Road #101, White Plains NY 10605 - White Plains, NY

Hi Joe - Thanks for stopping by - but I'm not buying anything new just now...

Hi Kevin - I agree.  Buyers really need representation.

Hi Petra - I will email you when this is fixed.  I haven't heard back from AR yet.

Glen - you are just another in a loooooooong line of people who keep thinking "they" can revolutionize the market.  It is obvious from your website  that you know very little about the process of buying and selling a home.  What is free today will be monetized tomorrow.  So sure - you are just another person trying to glom on as a middle man.

From your own website:

 

Let's be perfectly honest... the real estate models that are in place today are broken.

On one side there are Realtors® who have valuable insight and skills that home buyers really need but it comes with a steep price tag - 3% of a home's selling price (on average) paid as a commission when the deal goes to closing. While these Realtors® are 'working' on behalf of their home buying clients, they are also stuck in an ongoing conflict of interest because being really open with their clients about the value of a property or other aspects of a deal could mean killing it - and no closing means no Realtor® payday!

On the other hand more and more home buyers are taking on the bulk of home buying responsibilities themselves (today over 90% of all home buyers use the Internet to find and research the houses they want to buy today) and who really don't want to give away thousands of their dollars in commission payments just because a Realtor® showed them around a few houses. This means fewer future commission deals are coming their way! The reality is that home buyers still want and need the understanding and knowledge the Realtors® bring to the table - but they want to buy only the help they need and not pay for the things they can do themselves..

If you knew ANYTHING about selling real estate you would know that FINDING A HOME TO BUY is the easy part.  The real work begins when they have selected the home they want and the agent negotiates to secure and bring it to a successful closing.  That is hours and hours and hours of work.

Feb 10, 2011 07:17 AM
Mollie Wasserman
Your Move Made Simple - Framingham, MA

Ruthmarie, you are absolutely right in that finding a home is the easy part and that the fiduciary parts of our job - negotiating, trouble shooting to close are paramount. But in defense of Glenn, our industry's refusal to look at alternative ways that the consumer can pay us is what sends more and more consumers AWAY from us - if they don't want to have to pay by commission, they are going to attorney's (who can't do this properly because that's not what they do) or they are at the mercy of the listing agent.

Glenn is not suggesting that our role isn't valuable - he's suggesting that because of the growth of technology, we no longer have a monopoly on informating providing. Where our value is and what we need to get paid for is information interpreting and fiduciary counsel and care and as long as we stubbornly stick to a one-size-doesn't-fit-all package, payable only by commission, we are going to be more and more marginalized as an industry.

I remember similar arguments to yours in the mid-90's when buyer agency was beginning to emerge. I heard the same arguments and accusations as you said from traditional agents that couldn't imagine a different way. 

As Ghandi once said: "First they ignore you, then they ridicule you, then they fight you, then you win”.

And lest you accuse me of not knowing anything about real estate, please visit OUR site, and you'll see a huge growth in hard-working professionals who believe that the consumer should have a choice in how they can compensate us.

Feb 10, 2011 09:59 PM
Gary Coles (International Referrals)
Venture Realty International - Las Vegas, NV
Latin America Real Estate

Ruthmarie,  The re-blog issue is not just yours.  It is all of ActiveRain. They have posted the following information on the Official ActiveRain Blog and several other places:

Our developers had to temporarily disable two features on ActiveRain as they work on the overall performance of the site. For the time being, reBlogging and the Hit Router search box that appears on the top of pages when someone is not logged in to ActiveRain have been disabled.

Feb 11, 2011 03:02 AM
Ruthmarie Hicks
Keller Williams NY Realty - 120 Bloomingdale Road #101, White Plains NY 10605 - White Plains, NY

Hi Mollie - I don't mind different models - that's why I attended the seminar yesterday.  See my newest blog (I give you and Jennifer a link)  and you will see that I have suggested a reduction in commission in exchange for being paid win, lose or draw.  People turn it down because they won't accept the risk.  Consultive real estate may be the future - but around here -getting people to accept that this is contingent upon them taking the risk off the agents shoulders is a very hard sell.

Glenn's  web site assumes  a 6% gross commission - around here it is about 1/3 less than that for most transactions - which is a problem because it isn't enough to mitigate risk.  At the low end, it isn't even consistent with any kind of a profit.  Discounters flooding the area in the good times did this and it is a huge problem. 

He also assumes that we are automatically being dishonest on the buyers side.  The major dishonesty I see in that regard is on the listing side where agents will say anything for buyer's bait... on the selling side there are a lot of forces out there that prevent lying regarding value.  For example - the bank won't LEND if the property doesn't appraise.  I can see no advantage to being at all dishonest on that side of the equation.

He also assumes that surfing the web buyers have done 90% of the "work."  If this man knew anything about the nuts and bolts of real estate. The hard work begins AFTER we find the house.  Finding it is actually the fun part when you have a serious buyer.  Usually, they come in with a laundry list of needs and wants and often that has to be pared down to what works best for them.  Sometimes I find a community for them that they are thrilled with - that they never would have thought of on their own.  But the point is - that getting the deal from the memorandum to the closing table is an obstical course and it is where I earn about 80% of my money. 

The point here is that the woods are full of people who want to revolutionize real estate with no working knowledge of the  nuts and bolts of actually selling real estate.   They want to build a big website make it free for a little while to lure in agents and then WHAMO!  They want a big cut.  Generally the web site explains - that agents are making too much money and that the buyer has done the "hard work" by themseves and then asks "why pay more?" while they are trying to insert themselves as yet another middle man.

Feb 11, 2011 05:12 AM
Ruthmarie Hicks
Keller Williams NY Realty - 120 Bloomingdale Road #101, White Plains NY 10605 - White Plains, NY

Hi Gary,

I tried to reblog something and it didn't work for me too.  It was then that I realized it was a problem accross the board. Thanks for stopping by.  When its reactivated, I'll send email to those who wanted to reblog...I'm flattered that they liked it that much.

Feb 11, 2011 05:15 AM
Ruthmarie Hicks
Keller Williams NY Realty - 120 Bloomingdale Road #101, White Plains NY 10605 - White Plains, NY

First of all - the poster who started this is basically just trying to sell something.  I see websites like this all the time - they start out free and the WHAM!  Nice big finders fee.  No one does anything like this just for charity.  The last thing our industry needs is more middle men in the middle of about 10 layers of middle men.  I'm tired of it on the web where it just sucks the agents google juice dry.

The biggest problem I see with this model is that it will make one HUGE problem worse.  The biggest problem I see is the pricing of listings.  If you get paid up front on a consultive basis - then there is no incentive to get the seller to price the home correctly.  "I'm getting paid anyway...if they want to list it $200k above market - so what?"  I won't take an overpriced listing - so I end up being a buyers agent about 75% of the time.

The other problem is that the poster has obviusly never sold a home if they think that the lions share of the work is finding a home!  The obstical course that is the escrow period is the most labor intensive and is probably worth about 2/3 of what I make. Add to the metric that the service he is offering will not stay free and I fail to see where the savings are for the consumer - because eventually he will charge for the service so - poof! there goes the savings.

If anyone has EVER bothered to read my posts on the industry in general - they would note that I am quite honest and blunt.  They will also note that I am very critical of the industry overall.  The issues that are being addressed here would be better solved by simply limiiting the number of agents and raising the bar significantly for licensing.  This would actually solve many more problems then having yet another layer with finders fees.

This site is not  advertising space for someone promoting thier own site.  Add to the fac that I see no reason to be insulted or implicated as unethical on my own site - and I have made the decision to delete the posts and terminate comments. Sorry it came to this.

 

Feb 11, 2011 04:23 PM