[quote=Portlock]Like scaredycat, I started exploring what an agent can do for me.
Last week I interviewed a young realtor and came away with one concern which made me doubt his fiduciary responsibility to me as his client.
He said his commission is 3% of listing, and the seller’s agent also gets 3% of listing, and their payment is already included in the Listing Price. Is this usual?
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This is almost uniformly practiced.
While the seller pays the buyer agent, the cost is reflected, more or less in the purchase price.
Generally buyers will not use a buyer’s agent if they have to shoulder the cost of the representation.
[quote=Portlock]
Also, because his payment is already figured into the LP, wouldn’t he be reluctant to submit my lowball offer? If accepted, he would get less than if I paid asking …or is it in his best interest just to get the sale even if that means he gets less money?
[/quote]In practice, contrary to theory, the buyer agent is more interested in getting the deal done than in maximizing the purchase price.
When I submit an offer that is lowball, my only reticence is that it will be a waste of my time and my buyer’s energy. That is very relevant because a discouraged buyer may decide to take a year off looking for property or may blame me for the offer’s rejection (similar to how seller’s blamed agents for properties not selling in 2005).
Generally buyer agents (I cant speak for every cheeseball agent)try to represent their client’s interest. Often that means lowering the contract price. This does not usually lower the commission amount significantly. For example, if I can knock 20k off my clients purchase price, that will cost me about $420 before taxes are considered. That amount refers to 3% gross buyer side commission (a common amount) on the $20k portion with a 30% cut to the house (my brokerage’s share for overhead). I would gladly accept a slightly smaller commission that was more certain and would result in goodwill and repeat business rather than hurt my own reputation for a small increase on a less certain commission (better deals are exponentially more likely to close). For example on a $400,000 purchase price this would mean the difference between about $8400 and about $8000. Again I can’t speak for every agent but 5% of my paycheck is not enough for me to put my name at risk (and, as agents, that’s really all we have to trade on).
On the other hand a major reduction in price means a war story and lots of referral business. I offered $530k for a place listed for $630k. They came back asking for $545k. That client’s referrals and that story presented to other buyers got me far more money than the 85k reduction in price cost me. Also, my buyer would not have bought at the asking price.
[quote=Portlock]
this is his first experience with a down cycle, and he said the majority of his time would be spent actively searching listings in real time… I guess Redfin can only get me so far?
Any comments would be appreciated.
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If you want an idea of how to avoid this potential conflict, try this:
Approach an agent. Agree to a buyer broker relationship that specifies a certain dollar amount rather than a percentage. If he makes more, then he credits it to you at close. If he makes less, you pay the difference at closing. Make sure the dollar amount is at market rate. For example, if you intend to spend $300k, make the dollar amount 9k even. Then his only concern is representing your interests.
As an agent, I would have no problem with this. I don’t think many would.
