How to save the 3% agent fee when buying a house?

Question

Hi home buyers,

I know, I know, the seller pays for the buyer's agent, so the buyer "shouldn't be worried" about that. However, I have my reasons why I don't want to have a buyer's agent.

The main reason: let's assume you want to sell your house for 500k. You have 2 offers: Bob's offer for 500k and he has a buyer's agent like most people. 2) My offer which is 490k, but I don't have any real estate agent. You should pay 500k * 3% = $15,000 extra for Bob's agent. Consequently, it makes more sense for you to accept my offer and save $5,000 and I will save $10,000 merely for not having a real estate agent. I know that: "The buyer's agent works hard and there might not be a lot of clients and he has to pay a lot of commission to brokerage, etc." But as home buyers, the point is not who is making money; we want to minimize the loss and maximize the profit.

The less important reason: As a buyer, your agent makes more money when you pay more money. How can we trust that our agents are not doing what benefits them? At least based on my experience, my agent didn't let me have any communication with the seller's agent or the seller. I'm not aware of what kind of negotiations they make, but I am aware that increasing the purchase price benefits all 3 of them. By having your own agent, you might buy the house more than what you could without having an agent. I emphasize that I am sure that there exist a lot of honest and ethical buyers agents who work very hard to get the best deal for the buyer and consequently decrease how much they make. I also agree that in general having a seller's agent, usually benefits the seller.

I admit that as a buyer, the good thing about having a real estate agent is that they can open the door of houses you are looking at. But I could get the seller's agent's contact info from Zillow and meet with them. It's even a bit better because you can talk directly with the seller's agent or the seller if they don't have an agent about the house, offer, etc. I'm wondering if there's any way I can write my offer without having an agent?

Alternatively, I am considering getting my real estate agent license. I'm happy with my full-time job, but assuming that I will buy 1 house a year, after 20 years that license will save me at least 200k (based on the above assumption). There are a few hundred dollars for the 90 hour course and the exam, which are not a big deal and are a one time thing. Based on my understanding, though, as a real estate agent, I should "hang my license" at a brokerage and pay some fees to them. Is there anyway to avoid or minimize those fees if I just want to buy a house for myself?

I read this post:

https://www.biggerpockets.com/forums/21/topics/330647-no-desk-fee-online-real-estate-brokers-washington-state

After getting my license, I will probably pay $100 (the month I will buy the house) desk fee and $250 transaction fee once a year when I buy a house. I would appreciate it if you could guide me with better ideas.

Thanks!

Dave

Marian Huish · Answer

I would suggest getting your Real Estate license so that you can better appreciate the value of a Real Estate Agent @Dave Williams!   And just a couple of points of clarification: 1) the Seller agrees to the total sales commission at the time the listing is taken so that has already been agreed to up front. 2) If you come without a Buyer's agent (which is going to mean more work for the Listing Agent), the Listing Agent, who represents the Seller will look out for the best interest of the seller when writing/negotiating your offer, repairs, financing, etc.  and 3) The point of having an agent represent you is so that they do all the communication and negotiation on your behalf based on their professional training and experience.  Realtors are held by a code of Ethics they must follow and that includes looking out for the best of their clients as well as the public.  If the buyer doesn't agree to the price being offered, the deal doesn't happen and the Agent get's zip.  If the buyer overpays, they will walk away frustrated and likely not refer that agent or use them again... Agents need to provide a valuable service, which includes fair negotiations if they are to succeed.   Also, if you do decide to get your license, be prepared to pay thousands of dollars per year in Realtor-related fees including marketing, signs, lockbox's, association fees, MLS fees, technology, as well as desk/transaction fees or whatever fees are charged by the Broker you choose.  Otherwise, I'm hoping you find a Buyer's agent that you trust and delivers a level of service that you can see value in.  Best of luck!

Erik W. · Answer

I think the key thing to understand when hiring an agent, from either the Buyer's or Seller's perspective, is you want a GOOD agent.  Only about 20% are good.  The rest are the 80 in the 80/20 rule.

A really GOOD Buyer's agent can help tremendously.

That said, I somewhat sympathize with the OP.  Unless you're a newbie and don't know how to read contracts and/or are clueless on how to do inspections and obtain financing, there isn't much for a Buyer's agent to do other than order the title work, and that again is something an experienced investor can do him/her self.

If I'm shopping on the MLS, though, the commission is part of the deal.  I have occasionally gotten a little bit of help from a Seller's agent who was willing to discount their commission a little when we were very close on a deal.  I handled everything on my end: financing, inspections, title work & closing.  No hand holding + a 9 day close that happen sometimes.  Too, I get it that a good agent does do some good work, but it takes about the same amount of time/effort to follow up with a Buyer on a $500,000 house as it does a $50,000, but the different in commission is 10x ($15,000 vs. $1,500).  I doubt there is much concrete evidence to justify a $13,500 higher commission purely due to the amount of work required on the Buyer agent's behalf.  It's simply the way the deal works on MLS.  I think in the future as more Buyers become savvy they will use Buyer's agents less.  Smart Seller's agent should be willing to offer 5% commission (or even 4.5%) if they bring the Buyer as well, thereby saving their clients some money but still getting more $$$ themselves since they are not splitting the commission.

Jeremy A. · Answer

Simple list your own property online mls for $300-600 with a unbundled agent in new England.

I done it on my last 3 homes its  all automated online, Works great. I used jason saphire at entry only dot  com. I love unbundled agencies. pay for only part you need. I advertised and crested my own disclosures, showed my prop myself used my own lock box gave agents with verified prequalified or cash buyers the combo they replied with offers. If don't hire agent help must do same work.  and via mls got smaller commission for agent who brought me qualified buyer and we closed with both our title lawyers and 1 only agent earning 1.5%. Cause you can advertise change any rate you want.

Also did dual agent on commercial deal. Realtor helped me get 13k off price of her seller.

if want cheap no hand holding get savvy closing title lawyer and or wait till seller contract expires or they fire their agent then go directly to owners and title lawyer.

I suggest get schooling on both sides walk thru fire buying selling at least own home before you decide get licensed. Then you will have more wisdom to decide.

Or hire hungry agent at deep discount rate but need keep busy  closing more 1 x year. I know broker who does only 7% or more as new norm to get traffic flow and incentivized all local agents bring him buyers.

Charlie MacPherson · Answer

@David Martinez I was looking at this sentence: "When you decide to work with the seller’s agent, they then become a dual agent..."

So in both Mass and Maine, let's say I'm representing a seller.  I can show a property to an unrepresented buyer, after an Agency Disclosure form is presented, which states that I represent the seller.  I can encourage them to write an offer, but that doesn't mean that I represent them.

I do have the option of asking my seller to allow me to work as a disclosed dual agent.  The seller should tell me to pound sand, and if they do, I would have another person in my brokerage represent the buyer.  We'd have a wall of secrecy between us.  Neither I nor the other agent can reveal any confidential information about their client to the other side.

If the seller agrees to disclosed dual agency, I'd then ask the buyer for the same.  The buyer should also tell me to pound sand and if they do, again, I'd hand them off to another agent in my brokerage for representation.

If they both agree and sign off on the required form, then what you've stated is correct.  I can no longer advocate for either party but simply work to get the deal done, even if I know I could have gotten a better deal for one party or the other - which is exactly why they should both tell me to pound sand.

As to your last question, I'm currently licensed in both Massachusetts and Maine - both coastal states with lots of sand for pounding should the need arise.

Charlie MacPherson · Answer

@Dave Williams  Here's an analogy (true story).  Two nights ago, I tripped and smacked my head into a stone wall.  I had a pretty decent scalp laceration, so I had a choice to make.  I could either superglue it myself (seriously, how hard could that be?) or take a trip (no pun intended!) to the ER.

If you do get your real estate license and gain an understanding of what real estate agents actually do for their clients, I promise that you'll never write another post like this again.

The fist thing you need to grasp is that the seller's agent is a fiduciary of the seller.  That means that by law and ethics must put the client's best interests first.  If you deal directly with a seller's agent, that agent, who will probably have a heck of a lot more experience that you, is negotiating AGAINST you.  If he didn't and did something shady, he stands a good chance of heavy fines and suspension/loss of his license.

I've represented sellers with unrepresented buyers and within the bounds of ethics, I have walked all over them to the benefit of my client.

The next thing to understand is that virtually all agents will operate only under a contract with the seller called the "Exclusive Right to Sell".  There are two vitally important things for you to understand about that contract.

1. The full commission is agreed to in advance and in writing.  If a buyer who is not represented buys that property directly through the seller's agent, the same X% commission is paid anyway.  There's no bargain to be had there.

2. Even if you were to try to cut the seller's agent out and work directly with the seller, that same X% is still due - and you could be sued by the agent's brokerage for tortious interference in a contractual relationship.

Those who think that a real estate agent is just someone with a pulse and lockbox access are the kind of people who would superglue their own scalp laceration shut.

Michael Noto · Answer

@Dave Williams You aren’t saving anything by not using an agent and just purchasing through the listing agent. They have an agreement with the seller which outlines the total commission the seller will pay and then the listing agent decides how much of that percentage is paid to the buyers broker if there is one involved.

So in essence if you use the listing agent he/she will have double the commission at stake. Do you think they are going to look out for your best interest with that being the case?

Alex G. · Answer

You can trust your buyer's agent to put his/her interests - make more money in less time - ahead of yours.

Charlie MacPherson · Answer

@David Martinez Yes - that's correct.  The agent representing the buyer I hand off to him will pay me a referral fee.

MY motivation for getting disclosed dual agency is that I could collect both sides of the commission, but I don't ask for it as I wouldn't be doing the right thing for my seller.

Ethics goes a long way in this business.

Treat your clients like a paycheck and you'll be out of the business, toes up in the parking lot in no time.  You'll be known for having commission breath and people will cross the street when they see you coming - and that includes other agents.

Treat every single client like they were your mom or dad and you'll do well.

Theresa Harris · Answer

@Dave Williams  The commission is determined ahead of time at the full rate, so it won't matter if the buyer has an agent or not from the perspective of the seller.  For the agent, if they represent both the seller and the buyer, then they get the full commission-however that is illegal in some areas.  The seller is going to look at how much money they get and the conditions of the offer (inspections, mortgage approval, closing date, etc).

Using your example "Bob's offer for 500k and he has a buyer's agent like most people. 2) My offer which is 490k, but I don't have any real estate agent. You should pay 500k * 3% = $15,000 extra for Bob's agent. Consequently, it makes more sense for you to accept my offer and save $5,000 and I will save $10,000 merely for not having a real estate agent. "  The difference in the commission is $300, not $15,000.  The realtor is going to push for the higher offer because it is better for their client.  The realtor won't care as much about the $300 as they will about closing the deal.

David Martinez · Answer

@Dave Williams

Most on this post have already cleared a lot of things up with precise information on what a buyers agent does. To add, when you contact a seller’s agent they have a legal fiduciary responsibility to the seller, representing the seller’s best interest. When you decide to work with the seller’s agent, they then become a dual agent, legally obligated to give fair honest service but having a fiduciary responsibility to neither of you at that point. No one is going to be more likely to accept your offer because you aren’t coming into the deal with a buyer’s agent. The % is pre-determined and the only way you affect that as the buyer is whether it all goes to the seller’s agent and their brokerage or if it gets split between 2 agents and their brokerages.

You are putting yourself more at risk by not using a seller’s agent, which puts a licensed professional in your corner with, here is the most important part; a fiduciary responsibility to only you and your best interests as the buyer.

How to save the 3% agent fee when buying a house?

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