Reasons Why You Want A Buyer's Agent

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There's an awful lot of nonsense out there that advises people to do without an agent. Quite often, first time buyers of real estate get seduced into not having an agent by this stuff before they get into the market, let along before they understand what's really going on. After all, it's pretty easy to get seduced by an advertising come on that says, "Save money!" when there's an explicit cash reason to do so, and there is no corresponding line on a HUD 1 that details everything it cost you. I get emails and even occasional comments from people who are convinced they did "just fine" without an agent, often despite evidence right in their own email that they did not.

The fact is that with a routine transaction, if nothing goes too horribly wrong there are no red flags or screaming flares that rub a layperson's nose in how badly they are missing a buyer's agent. You make an offer, it gets accepted, the loan gets approved, you move in. There's nothing to tell you you're going to spend tens of thousands in repairs, you spent tens of thousands too much on the purchase price, the seller and listing agent kited by on their legal requirements (reasons on top of the double commission why bad listing agents and brokerages love buyers without an agent or their own), or any one of dozens of other problems that really do crop up. But the person who said "ignorance is bliss" made one glaring omission that changes everything (unless you're a politician). Ignorance is only temporary bliss.

By the time of their second real estate transaction, most people have figured out that while an agent is an expense, a good one is a financial lifesaver as well. For most people, however, the second transaction is a sale as opposed to a purchase, and a buyer's agent makes a lot more difference to your result than a listing agent

The first thing you have to understand is that just because you don't have an agent does not mean there isn't an agent involved. Furthermore, the agent that isn't yours is working for the person on the other side of the transaction, not for you. If you think of agents as some sort of tollbooth, it makes sense to try to bypass them. It's very possible to do so. In no state that I am aware of is there any requirement whatsoever to have an agent. However, agency is not a tollbooth, no matter how many "do it yourself!" hucksters and crummy real estate agents make it out to be. There are real opportunities to make a positive difference at every stage of the transaction, and if these is no agent, chances are that not only will things not be made better, but that the other side will make them worse.

For buyers, the very first thing to understand about a listing agent is that they have a contractual and fiduciary responsibility to get the best terms possible for the seller. Highest price, quickest sale, fewest problems. When I take a listing, I am trying to sell that property. When a prospective buyer calls me wanting me to show my listing, and I am going to do my best to sell you that property. Nothing so crass as a high pressure sales pitch, but I'm going to get the job done a lot more often than you'd think. Whereas I might look at 100 houses or more for my buyer clients and show them only the ones where I see some value, my sales ratio is a lot higher than 1 in 100 or even 1 in 10 when I've got one listing I'm trying to sell to people who call me out of the blue to see one of my listings. The specific numbers might change, but you'll find that's pretty much the way of things with listing agents. Not the best property for the buyer? Better properties available more cheaply in the same neighborhood? You could get a lower price for the same property if you had a better negotiator? None of these is a problem from the listing agent's point of view. The listing agent's job is to get the best possible terms for the seller, and every one of these situations is indicative of a listing agent who has done their job.

Now if I'm the buyer's agent, my responsibilities are entirely different. The vast majority of the time, that listing agent doesn't so much as get to talk to my clients. That agent has my contact information, not my client's, and I don't have a financial incentive to sell them any given property. I'm not going to let my clients get pressured to buy something that doesn't suit them, and even if the listing agent does (due to showing restrictions) get to talk to my client, I'm going to keep the conversation where I think it belongs. I've put listing agent's noses out of joint quite effectively by bringing client attention to defects or any number of other tactics, including the old "talk to the hand" standby where necessary. These people have designated me their agent, therefore, you talk to me, Mr. Listing Agent. It's my responsibility to pass it to the clients - along with anything I believe is getting left out. A good buyer's agent is not looking to sell their clients this property, they are looking to find the best bargain for the client's needs and make that happen. A buyer's agent has no responsibility to the owner of the property beyond "fair and honest dealing" - our responsibility is to our clients, the prospective buyer.

Any time you are looking to buy real estate, you are in a situation of asymmetric information. The seller knows more about the property than you do. A good buyer's agent is going to remove most of that gap in information. I know the area, or I wouldn't agree to work there. Simply by practice, I've become much better at spotting issues that buyers need to become aware of before they make an offer. Quite often, the buyer was aware of something I point out, but hadn't considered it in this particular context. It's a rare property where I don't get a look from my client that all buyer's agents should recognize, because it means the clients hadn't thought of that. Often, it's something that means I've just talked them out of a property they would have been miserable in.

It's not just in spotting defects, either. A lot of what I bring up has to do with long term livability of the property or relative value. I've saved clients from so many misplaced improvements that you probably wouldn't believe me if I gave you a number. Saving people from spending money they don't have to (along with the interest on the bigger loan that goes with it) happens multiple times with most clients. Beautiful is nice - but it's also seductive and usually over-priced.

Then there are negotiations. A buyer's agent has seen what's sold in the area recently. Unless you've had a long and unfruitful search, chances are that you have not - and they're not going to let you in now. A buyer's agent knows how this property compares to what has sold lately in the area. It's disgusting how often I find listings where the agent literally has no clue about the antecedents or the current competition. Often it's because that agent bought a listing - promised to get an unrealistic price in order to secure the listing contract. They're not going to get that price - except from people who think they're being "smart" by not having a buyer's agent. Far and away the largest reason for overpriced sales is people trying to "save" a little money by not having a buyer's agent.

Furthermore, quite often once you do get into negotiations, you discover that the other side has decided not to be reasonable, and there is a tension between whether it's a good enough bargain to stay in the transaction, or whether the attitude of the seller and their agent has crossed over a line into territory where you are better off bailing out. Just because you have started negotiations doesn't mean you are under any obligation to continue. Sometimes, even if you have a purchase contract, the best way to respond to a given situation is to decide you don't want the property that badly. If the owner is not going to fix problems they should, the purchase contract needs to be re-evaluated in terms of the rest of the market. This property might not be the bargain you thought it was. Better to discover that before there is an offer, of course, but before the transaction is consummated is better than afterward. That owner is stuck with that problem. Whatever it is, you don't want to take it off their hands unless you're getting something out of the situation that compensates you in your own mind. Then there are costs associated with the transaction, and who pays for them. Your agent should know what is and is not customary in your area, and why, not to mention the basic law behind everything.

Everywhere in the United States that I am aware of, the listing contract calls for the listing brokerage to get a set percentage of the sales price, and split that percentage in some wise with the buyer's agent, if there is one. If there isn't, the listing agent gets to keep the difference. There are reasons why the seller effectively pays the buyer's agent, despite the questionable nature of it - and consider too, that the only one bringing any actual money to the table is the buyer. Without the buyer's money, nobody gets anything, so everybody is being paid by the buyer. Nonetheless, trying to save money by doing without a buyer's agent won't get you any actual money, and you will end up paying all sorts of extras that don't show up on any official paperwork but are no less real, because you didn't know what a good buyer's agent knows, and therefore bought the wrong property for too much money and spent extra for stuff that really should have been the seller's expenses.

Caveat Emptor

Original article here


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About this Entry

This page contains a single entry by Dan Melson published on September 8, 2013 7:00 AM.

The Division of Labor Between Buyers and Their Agents was the previous entry in this blog.

Buying One Property While Selling Another is the next entry in this blog.

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