Following is a link to a Money Magazine article on how a buyer should deal with a Realtor. Read the article first and then read my comments.
The author suggests a Buyer to choose one of three techniques-
1) Go it alone
2) Set the fee
3) Put it in dollars
With the “Go it alone” technique, you call the listing agents to have you show the properties. Then offer on the one you want and ask that 3% (one half of the Realtor’s double-ended commission) be taken off the price.
Ok, first this assumes the total commission is 6%, which as you know could be higher or lower. The article also assumes that the Listing Agent is getting the same % as they are offering the Buyers Agent. This isn’t always true. A Broker may be keeping a higher percentage for themselves and offering the Buyers Agent less than half which is totally legal. The only amount that is listed in the MLS listing is the Buyer’s Agent commission. The Listing Agent does NOT have to disclose how much the seller is paying them to anyone. So, if a home is listed in the MLS with 2% to the Buyers Agent, the Lisiting Agent may get 2%, or 3%, or 4%, or whatever. Note: If you list a home, make sure the percentage split for Buyer and Listing Agent is written on the Listing Agreement (there is a space for it on the form!). A Seller should know (and agree to) the amount given to the Buyers Agent.
Apart from not knowing how much commission the Listing Agent will get, this technique has you having the same Realtor as the Seller. This is not “Go it alone”, it’s “Get the agent that is representing the seller to represent you too”. I’ve blogged about dual representation before. I can’t think of any benefits in having the same Realtor represent the Buyer and Seller. It’s TWICE the liability for the Realtor so why would they take the liability but get no fee. If you get a good Realtor to represent you and ONLY you, they’ll probably be able to negotiate a better deal than trying to get the Realtor to take a reduced commission.
A Realtor that is working for both sides MUST be neutral or it’s unethical. A neutral Realtor is not who I want negotiating and managing a million dollar transaction!
I’ll also mention a risk in getting multiple agents to show you properties. Say you call the Listing Agent but they aren’t available. You talk to another agent in their office and they show you the property. Later, you make an offer on that property using another agent you found. In this case, the agent in the Listing Agent’s office that first showed you the home will claim the commission that your agent would have received. Yikes, now you have a total of 3 agents in the transaction with 2 of them in a commission dispute. But, that’s the way it works in real estate with something called procuring cause. That’s not a risk that I would want to take. I don’t see either the Buyer or Seller benefiting if the agent’s focus is on commission and not the transaction.
2) Set the fee
This technique suggests to set a percentage fee that the Buyer Brokerage/Agent will get. Some Brokers already do this but it’s for a different reason than the magazine article uses. A Buyers Broker may ask for 3% to represent you. If the home they buy offers 3%, the Buyer doesn’t pay anything to the Buyers Broker. But, if the home only offers 2%, the Buyer pays the 1% to bring it up to the 3%. This type of agreement also motivates Realtors to present For Sale By Owner (FSBO) homes to Buyers. They Buyer usually pays close to the full 3% to the Buyers agent. When Buyers realize they may need to come up with thousands of dollars a close to pay their Realtor, many don’t opt for this type of Buyer-Broker agreement.
If you think that a bonus may effect the homes that your Realtor tells you about, I would either 1) Get another Realtor, or 2) Ask your agent what they will get if they sell this home, including any bonuses. Every buyer should know this. If it’s a concern of yours, discuss it with your Realtor and then move forward with your offer. Issue closed!
3) Put it in dollars
This one suggests that you set a dollar amount that the Buyers Broker will be paid (by the Seller). The article doesn’t bring up that the Buyer will pay the difference if the amount a Seller pays is lower than the agreed upon amount.
This article tries to suggest Realtors will push homes with bonuses. But, some of the techniques suggest that the Buyer take a portion of the commission. I don’t think that you’ll find a Good Realtor would offer a reduced set of services for a lower commission. If this is something that interests you, there are a few discount brokerages in the area that offer Buyer rebates. I think that would be smoother than telling your Realtor that you want part of their commission. I guess I could see that talk happening before the Realtor did any work for the Buyer but it would be a disaster if the Buyer waited until they were going to make an offer. “By the way, we think you shouldn’t be paid so much so we want a part of your commission”. I wouldn’t want my Realtor hearing that right before they went to bat for me in a negotiation!
Over the past several years, I’ve been looking at the commissions that Realtors make and trying to justify it. Knowing what I do now about the real estate industry and the politics of Central Coast real estate, I would look for a Good Realtor to represent me. Someone with local knowledge, local contacts, experienced, and is a good negotiator. Although Realtors are not lawyers, a Good Realtor understands the contracts and knows what disclosures are needed to help keep you out of court! This is the type of service that I would want and wouldn’t be looking to “cheapen” it by taking commission away from the Buyers agent.