Wednesday, July 30, 2008

Buyer Agency: Myths and Misconceptions

The number of buyers who do not understand buyer agency is truly shocking. So many believe that forming an agency relationship will cost them more, or that they can somehow save money or do a better job of finding a home or negotiating price without an agent. These erroneous assumptions cannot be more out of touch with reality.

In example, I recently responded to a post on which asked, "I live in Texas and I am trying to buy a house in San Antonio. If I don't use an agent and do the negotiating and everything by myself would I be able to keep the 3% that would go to my realtor?" The answer is: No, and you would possibly even pay more. The seller is committed to pay the full commission to the broker regardless of whether the buyer is represented or not—and you would not be represented. You cannot therefore use your lack of representation to leverage a lower cost.

My response to questions like, "How can you make an offer on a house without an Agent?" is typically a curt recommendation that such a question is a sure indicator that the person who posted it needs an agent. This is especially true if the property is listed by an agency. Without an agent representing them, they will need to submit their offer through the listing agency—which represents the seller. Experienced agents love writing offers for unrepresented buyers.

Another buyer asked a question that allows for an example of how buyer's agency should work. The question was, "DOES THE BUYER OR SELLER OR BOTH PAY THE REALTOR(S) FEES?" My reply was, "If they are willing to do so, buyers sometimes pay part of a commission. This could happen if a buyer had an agency agreement with a buyer's agent. Let's say that the buyer agreed that their agent will earn a 3% commission, and they wanted to buy a home that had been listed for sale with a 5% commission, split evenly between the listing agency and the buyer's agency. It is possible then that the buyer would need to pay their agent 1/2%, but not necessarily. Every blank in a contact provides an opportunity to negotiate.

"A good buyer's agent will point this out to their buyer—it's part of representing the buyer's best interests. Just because the seller and their agency is offering 2 1/2 % to the buyer's agent does not mean that the buyer cannot insist (in the contract) that their agent be paid 3%. This puts the onus of taking a reduced commission on the agent that agreed to take a reduced commission in the first place! If the listing agent is doing their duty to serve their client's best interests, they will accept a 2% commission. The change in the contract does not affect the seller's bottom line, and should not be a factor in their consideration of the offer.

"I will not take less than I think my services are worth, but my buyers do not find themselves in the position of having to pay a commission, ever. Buyers are faced with enough expenses—I don't even charge gas money."

Most buyers don't even perceive the simple fact that they will spend countless hours driving around neighborhoods and calling on properties that they cannot afford, or which do not otherwise meet their needs. They call us about properties every day, asking "how much," when they should be asking to meet with us, and retaining us to find the right home—and to help them get their best price and terms. The unlucky ones finally hit on a property that they think they can afford, only to find that they cannot—or to have a listing agent squeeze every penny from them that they can.

The simple facts are that a buyer cannot hope to save money by going it alone, nor do the majority of buyers' agents charge their buyers a fee. Buyers going it alone are like someone who is trying to scale an 8 foot wall a few feet away from an extension ladder.

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