This is a phrase I hear all too often. As an Exclusive Buyer’s Agent, it really makes me wonder why people think that way. Well, I know why they think that way. I think the bigger question is why is it so hard to explain to them why they really do need a buyer’s agent?
I remember the days before I was an agent. I was a home buyer that didn’t know one agent from the next and at the forefront of my mind was the new home that we were going to raise our family in. In fact, the last thing on my mind was the agent that would be my alleged representation in the purchase. I thought all I had to do was find that right house and when it came time, any ‘ole agent will do in helping me write up an offer. I could do it all on my own! I found out the hard way that I was wrong!
My wife and I had locked in an offer on a condo and had moved forward with a home inspection and were satisfied with the results. We ignorantly chose to go with a big bank that offered a very enticing rate on our mortgage with no extra points. Long story short, 2 days before closing, the bank denied our loan after telling us to move forward because it was approved. Due to the fact that 2 days before closing is way past any full commitment deadline that was put in the contract, we lost our new house and also my life savings which was put in escrow. If I had known what I know now, none of that would have happened. My agent knew better, but I ignored him and didn’t see my agent as a factor in my choices.
The point of the story ultimately is that 1000 things can go wrong in the process from an accepted offer to closing. None of which I as an amateur home shopper would have been prepared to handle on my own. Now that I’m an agent, I can say that even the seasoned home shopper wouldn’t be prepared to handle most potential problems on their own. One can hope that it all goes smoothly, but if it doesn’t, the hope then is that you have a buyer agent advocating for you and staying on top of the process so you don’t have to figure it out on your own. You don’t need a buyer agent… until you need a buyer agent… but there’s so much more to it as well.
The analogy a lot of EBA (Exclusive Buyer Agency) buyer agents use is the comparison to lawyers in a court of law. Can you defend yourself in a case? Sure! That is a legal step you can take, but is it advisable? Absolutely not. Let’s say you’re on trial for murder. We’ll also assume you are completely innocent in the matter. Are you going to trust that you’re going to have enough savvy to outsmart the defense lawyer and save yourself from conviction? Of course not! With buying a house, the consequences might not be as severe as life imprisonment or the death penalty, but you are making one of the biggest purchases you’ll likely make in your lifetime. You are putting your finances on the line and committing to purchase for usually at least several years. If you go at it on your own, you may end up losing a lot more than the house you were hoping to buy. On top of that, any agent that is working with a brokerage that does both buying and selling is going to be motivated to steer you toward properties their agency is listing. Not only that, but they’re going to try to get you to pay the highest price possible rather than try to negotiate and save you money. A designated agent may negotiate on your behalf, but ultimately, they’re going to be more motivated to make sure you get that house under agreement than they are at you getting a good price for that house. Their paycheck depends on it!
This goes onto the cost of an agent. Did you know that regardless of whether you go at it on your own or you work with a buyer agent, you end up paying the same amount out of pocket? Many times, you end up paying more if you go on your own. Most EBA buyer agents take what is called the cooperating commission as payment and ask for little if any more. The cooperating commission is the percentage of the sale price that the seller and the seller’s agent agreed upon before even listing the property. Which means they’ve factored in your buyer agent’s payment into the purchase price of the property. Therefore, if you buy a property, you are paying a buyer agent commission along with it regardless if you’re working with an agent or not. If you’re not working with a buyer agent, the listing agent stands to pocket their own share as well as the buyer agent’s share. They in turn get a double paycheck. Do you really want to be paying a seller agent extra to do a job they’ve already agreed to do with the seller? It would be like paying the attorney in your murder trial that’s fighting against you. Why would you do that? Yet this is fairly common practice in the Real Estate Market. In the end, it’s your money. Shouldn’t that money go towards someone who is advocating for your best interest and investment?
There are many clever sales pitches that come out of the woodworks when agencies want you to work with them. Redfin’s 1% listing fee is a perfect example. They are promising a seller to only have a fee of 1% IF you choose to also buy with them. What they don’t tell you is that their agents stand to make the difference off you in the purchase… what they also don’t tell you is that you still have to pay the buyer agent commission when someone buys your house. So their 1% commission is really 3% minimum just for selling your house. That’s in my state anyway. Other states are likely to be more. So 3% is really coming out of your pocket IF you choose to buy with them too… You also probably realize now if you’re selling a property that you, the seller is paying the buyer agent commission as well. Therefore, you are likely going to raise the listing price of your house so that you can net the specific amount you want. Therefore, you must conclude then that the same thing is happening with your purchase. The seller of the next house you’re buying is also pawning the cost off on you the buyer. So this amazing savings that you allegedly were going to get IF you work with Redfin suddenly dwindles down to maybe 1% less than you would have normally paid… if you’re lucky. And forget asking your Redfin agent that’s helping you buy for money back at closing or a discount on their commission. An exclusive Buyer Agent can likely get you that extra 1% either by negotiating the offer in your favor, negotiating their commission or even working with the seller to make up the difference… In the end, your savings through Redfin ends up more likely breaking even rather than saving you anything. And your representation is likely going to be sub-par as I found out the agents themselves are working at very low pay and their goal is to get as many transactions as possible rather than to give quality service to each individual.
Did I just say EBA agents negotiate their commission? Yes. This is actually the law. Commissions cannot be fixed. When you sit down with ANY agent, you have the right to negotiate their commission. Usually, that happens at the consult when you’re discussing the terms you’re signing on for. However, you and your agent can discuss any details regarding how they get paid. If you can both come to an agreement, you can make it happen. This is also something that makes an EBA unique. If you work with an agent who is a part of a larger Real Estate corporation or is part of a larger team, many times, they themselves have little say in their commission number. Therefore, if you want to change what is already written on their contract, you may have to jump through hoops to get it. In my company, each agent has the power to make that decision at the table with you.
Obviously, the agent needs to get paid, but how much is a decision you can both come to an agreement on. You do not have to settle for the number they give you. DISCLAIMER: With that said, EBA’s tend to offer fair compensation options right upfront. If you feel the number they’re taking is unfair, definitely discuss the reasons, but there is a minimum agents will take for jobs considering the average amount of time an agent puts into you and your purchase adds up to hundreds of hours over the course of your search to the closing table.
EBA’s are in it for you, not the money. Granted they want to get paid, but they make their living by building good reputations and respect with all their clients rather than trying to squeeze as many transactions as possible into their day.
That was a lot of time on the money part, but it seems to be a big question that comes up frequently and it seems to be the most misunderstood part. Compensation terms are also very negotiable if you’re someone like a contractor who might buy up many properties or someone who likes to do most of the leg work on your own. The less running around your agent has to do, the more negotiation room you may have in their compensation as they will just be there for your protection and negotiation.
One last thing I want to address about signing on with an EBA. A lot of people see signing a contract with an agent restrictive. It should not be that way. If you sign on with an EBA, you should feel less restricted and freer. Some concerns that are brought up are;
- If I sign on with you, does that mean I can’t look in area X? Of course you can! You can continue to search for homes wherever you want. If you go outside of the area I cover and you are signed on with me. Most of the time, as long as it’s not extremely far outside my area, I will still work with you. If you go way outside, say to the next state, then EBA’s typically have trusted agents they can refer you to. Many times, EBA’s will have what is called a cooperating commission with other agents where both agents in each area can work with you and whoever you close with will ultimately share a part of the commission with the other agent that was doing a lot of leg work. This again doesn’t cost you more money as the number you negotiate at the table when you have a consult will stay the same.
- What if I don’t want to work with you/change my mind/lose my job/choose to hold off on searching? Most EBA’s also don’t want you to feel “locked in”. The contract is something they use to make sure they don’t spread themselves out too thin. It also assures them you’re going to stick with them and not drop them after they put hours and hours of work in for you. Also for legal purposes just in case another agent along the way tries to claim their commission that you agreed with them on. Consider that if another agent claims the commission at the closing table, any agreement about money back at closing or discounted commission would be out the window as you do not have an agreement with that outside agent. This problem, though it is only between the agents, could end up costing you more money in the end.
With that said, what if you go into an offer without a signed agreement? A common practice is that the agent who is writing up the offer for you will have you sign an agreement while you’re writing up your offer… in that agreement is going to be their compensation piece. Therefore, you may miss the fact that you might owe them more at the closing table and that can be snuck into the closing costs. Your focus in that moment should be the details of the offer, not what kind of agreement you’re locking yourself into with the agent writing up the offer. Sadly this is all too common in the Real Estate market. Just note, if an agent is involved, then an agent is claiming you as their client. They are taking the buyer agent’s commission and you probably don’t realize the commitment you’ve made unless you took the time during your offer to read through the multiple page document that is their agency agreement.
So why do you need a buyers agent? Simply to look out for yourself and your investment. As your agent, they’re supposed to do all the dirty work for you. They’re supposed to make sure you have timelines being met, budgets that work, purchases that will appraise out, and houses that aren’t going to cost you more than you expected in the end. They’re supposed to make your home shopping experience much easier and straight forward. You’re likely paying for one anyway, why not make sure the one getting your money is the one that is also advocating for you?