Buyers Who Don't Want A Buyer's Agent
You see it all the time at open houses and elsewhere. People who desperately need buyer's agents, but think of Buyer's Agents in the same way they think of automobile sales folk, and that's the complete opposite of the way it is.
They don't want to deal with an agent, because an agent will use high pressure tactics, convince them that this property is the one they want even if there's better stuff out there cheaper, and trick them into signing on the dotted line. Or so they think.
Actually, the above person is part of the transaction. They're called the Listing Agent, and they're the one you're going to deal with regardless of whether you want an agent or not. It is their job to get that property sold. They have a fiduciary responsibility to the owner of that property to get it sold for the best possible price in the shortest amount of time. They only responsibility they have to the buyer is that they're not supposed to lie, mislead, or conceal the truth. All of those are tough to prove. If they can sell the property for $100,000 more than neighboring properties in better shape are selling for, they have done nothing else except their job. They have no responsibility to tell you there's a better deal around the corner. To a listing agent, the only importance of a better buy three blocks over is to hope you don't discover it.
Lest you think I am kidding or in any way exaggerating, consider this: Within five miles of my office are at least 100 Planned Unit Developments (PUDs) built within the last three years. These are legally condominiums, but they have detached walls. Most often, the developer puts up a 1700 to 2000 square foot two story dwelling, separated by maybe six feet from the next dwelling over. In many of these, the first thing most of the inhabitants do every morning is greet their neighbors in the next unit over, then get out of bed. Not that I'm against condos - I'm not - but the townhome I bought in 1991 has more privacy than most of these, and it's got a shared wall. The inhabitants of PUDs usually - not always - have a small quasi-private back yard, and they units may or may not have shared walls. The garage is always within the walls of the unit, because they are packed so tight there is no room for a driveway or outside parking. The developer slapped on false granite counters and travertine floors at a cost of maybe $300 extra, and with their in-house agents who dealt swiftly and efficiently with those who come to look, sold them for $100,000 to $150,000 more than comparable dwellings sitting on 8000 square foot lots and without a homeowner's association (and association dues) to deal with. Those PUDs are not going to be new forever - and as a matter of fact there are a much larger than representative percentage of the new owners trying without much success to sell them right now. Whether they decided they didn't like their neighbors whom they practically share a master bedroom with, they want a place with a yard where they can build a pool or even just a horseshoe pit, or that they want to paint the place a slightly different shade of off-white (and can't), they are finding out the difficulties, and trying to sell. But they're asking the same kind of prices they bought them for, and without the massive marketing campaign the developer used, it's not working. When you're trying to sell 20 units on what used to be two lots totaling half an acre, you can afford the kind of marketing campaign that pulls in the suckers. At $520,000 each for twenty units that cost you $150,000 each to build, if you spend $100,000 on advertising, you'll make it back in spades. Not so much if you spent that $520,000 buying one of those units and now the market has declined and you need $570,000 to break even - and I'm finding my prospects single family homes on their own 8000 square foot lots for $420,000, where they can spend a lot less than $150,000 putting in travertine if they've got to have it.
A Buyer's Agent is not the person who's out to sell you their property no matter what. That's the Listing Agent's job. A Buyer's Agent is there to represent the buyer's interests, the same as the Listing Agent represents the seller's. Buyer's agents aren't car lot sales folk. They're like the folks who make a good living representing people who don't want to deal with car lot sales folk, so they charge people who want to buy a car $300 and save them a couple of grand off the sales price.
Buyer's Agents don't make their living selling one specific property. They make their living helping people to find and buy the property that is the best bargain for them. It is a Buyer's Agent's job to point out all of the little and not so little stuff I talked about two paragraphs ago, as well as a lot of other stuff I haven't talked about here. Buyer's Agents make their living getting buyers a better bargain - just like Listing Agents make their living getting sellers more money for their property. Real estate is a lot more costly than automobiles, and a lot more games get played. The Buyer's Agent is the one with the responsibility to say "Slow down, let's stop and check out everything else that's available, and consider the state that the market is really in - and where it's likely to go," not to capitalize upon the emotion of the moment and get the prospect sucker's signature upon dotted line before they walk off the lot. So long as they stick to a real budget, that Buyer's Agent gets paid about the same no matter what you buy - and the happier you are when it's all over, the more likely it is that they will get paid again when you send them your friends, or when you come back again when you're ready to move up or buy an investment property.
This is not to say that Buyer's Agent's won't play games; this is why I use and recommend non-exclusive buyer's agency agreements to stop most of them. These agreements give the buyer's agent everything they really need - assurance that if they find the property you want, they will be the one getting paid the buyer's agent commission - while not committing you to work only with them. If they waste your time, don't get the job done, if they act more like a Listing Agent, or if you just decide they're not putting your interests first, you stop working with them and that's the end of it. Unlike the exclusive agency agreement which locks you in to dealing with that agent, and four months after the last time you see them you might still be obligated to pay them a commission on a property somebody else showed you, the non-exclusive agreement lets you go your own way, and so you have nothing to lose by signing it, unless you're the sort who will stiff someone who's done work for you. Let's face it, the Buyer's Agent finds you a property you think is worthwhile, you are doing yourself no favors to ditch them in favor of your brother-in-law who didn't or couldn't do the same, or the discounter who doesn't do anything, but generously allows you to keep half the commission which they did precisely zero good for you to earn. Who do you think will get you the better deal: The agent who went around with you to ten or fifteen properties (and looked at forty others that weren't worth your time) and knows the market that property is competing against, or the agent who only leaves the office to cash commission checks? Who's going to negotiate harder? Who's going to have more negotiating power? Which agent is more likely to get your the better total bargain? There are exceptions, of course, and sometimes the long shot beats the triple crown winner, too. But that's not where smart money bets when the payoff is structured on strictly one to one odds, as it is here.
Now buyer's agents do get paid, but it's out of the commission that the seller has agreed to pay no matter who sells the property, or for what price. Buyer's Agents will make more difference to the sales price - not to mention the quality of the property you end up with - than any reduction in price you might get by agreeing not to use one. They're out there in the market all the time. They know the market you're in, and they know the tricks in ways that you, the buyer, are not going to equal, unless you spend the time it takes to learn everything they know. And unless you're a buyer's agent yourself, you pretty much can't. You've got your own living to make. What are the chances they could do better than you at your profession? The odds are not good; Even if they have the book learning, they don't have your experience. Why would you think the situation is any different when the roles get reversed?
Caveat Emptor
UPDATED here
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Great article Dan. I posted a kudo and linked to it for my readers. Keep up the good work.
Here's a link to my follow up piece
Obviously written by someone very bias to the realtor industry. Reality is, the entire relationship between the buyer and buyer's realtor is one big conflict of interest. The more you pay the more they make and the quicker you find a home (regardless if it's the right one for you) the less they have to work for their money and the quicker they get theirs. In the end of the month they have a mortgage payment to make just like you do, and most will do anything they can behind the scenes to get the deal closed quickly regardless of your best interests. Especially during tough markets like this one. It's great that they all want our referrals in the end, but if they can't make enough money to live, they won't be agents for very long. Unfortunately for most people that don't have the know-how or time to represent themselves, buyer's agents for most are a necessary evil. Just be smart about your relationship with them, and learn how to get the most of the service that they provide.
Tips from the wise:
- Don't show emotion to your realtor when walking through homes and limit what you tell them about how you truly feel about the place. Emotion is the krytonite of business, and they will use it in their favor to get a deal done quickly for more than you should pay. This can be tough because a house is a very emotional transaction since it's your life, money and future we're talking about. Just save it for those times when your realtor isn't around.
- No realtor wants to work hard during negotiations. It's human nature to get the most out of doing the least. Do your own research and comps, know your market and never tell them the max you would be willing to pay. Make the realtor work for you to get you the best price and make them feel like you're willing to walk away if they don't fight hard (even if you have to bluff).
- Don't trust the realtor with information that you wouldn't want the seller's realtor to find out. You don't know what's being said behind closed doors or over the phone, and they know you can't prove what been said either. They both want the deal to be done quickly and will try to draw both the seller and buyer to a compromise somewhere in the middle. Is this in the buyer's best interest? Not usually. Pretend that you're talking to the seller's realtor when talking to your buyer's realtor.
- Never use an inspector that they recommend! Realtors hate tough inspectors called 'deal-breakers', and their recommended inspectors know that if they're really tough that they won't get future referrals from agents. Use an independent inspector that isn't associated with any realtor. Do your research and don't be lazy with this, independent inspectors are out there! I had one inspector that was referred by our realtor look at a home and I was skeptical with how thorough they were. So I had a second independent inspector come in that was known as a 'deal breaker' in the industry and put my agent into a panic. I was shocked at the things that the first inspector missed and ended up walking away from the house because of the severity of some of the issues, saving tens of thousands. Buying a bad house can be a life altering decision, so don't take the inspection lightly!
Good luck with your home search! The realtor industry is a powerful one, so I don't see its structure changing or being heavily regulated any time soon. Just be smart about how you use it, and your home search will turn out okay!
DM: Actually, I've written quite often about how to hold the professional working for you to a higher standard. But the bottom line is that if you don't trust your agent, you shouldn't be working with them. If they won't tell you the problems they see with every house (and there is no such thing as a perfect property), you should stop working with them. How to Effectively Shop For A Buyer's Agent.