I’m not a realator, I’m a computer guy. I think one of the recent cases had to do with compulsory use of a ‘broker’, specifically described as a business that finds information about available rentals so that you don’t have to do your own searching, and renters didn’t see why they should be paying a fee for a business that was not involved in any way in their transaction.
This was covered in the computer press because a lot of that is automatic on the internet now, and the business model is obsolete (except for taking a cut)
As I understood it, brokers were taking a cut of the rental listings because they had contracts with the agencies, not because the renters used their service.
It hadn’t occurred to me that the use of the word “broker” in this context might have something to do with the way real-estate agencies are named in the USA.
Trying not to sound too snarky, but I just don’t get this.
I know I’m not in the US, but out in the antipodies, but I am really struggling to understand what a buyer’s agent brings to the table. We don’t have them. So far it doesn’t seem to have caused us any problems.
I have only bought two houses in my life, and each time I just looked at the advertisements of properties, did my own research on the market, understood what I wanted, spent time on weekends looking at properties, and negotiated directly with the seller’s agent. When it came time for the actual transaction we each used a conveyancer (fancy word for a solicitor specialising in the problem) to act for us in making the transaction - which is basically the atomic transaction moving money, liabilities, and title around. That costs a few hundred dollars each.
Selling, I engaged an agent who worked on a known sliding scale, plus costs. He negotiated on my behalf with prospective buyers, but in the end it was a very easy sale.
I can understand why some people might like to get someone to act as their agent in a transaction, some people don’t like the stress of negotiations. But the idea of engaging someone who is paid a percentage of what the final transaction costs to act on your behalf to get a good deal is counter-intuitive at best. A fixed price to negotiate on my behalf with maybe an incentive to beat down the price might be reasonable. Paying someone what in the current market might be a significant fraction of a year’s income to do nothing more than find you a house and tell you what you will pay for it makes exactly no sense. If they are on the hook for anything going wrong in the future, like undisclosed unexpected problems with the building, maybe there is a bit more value. Doesn’t sound like they are providing anything like this.
I have known (friends) agents here who have been willing to act as negotiators, but they are not demanding a cut of the pie. Just go in and work the negotiation, (or bid on your behalf at auction) using experience to get the best deal. A friend did that for me for free. (We didn’t in the end get the house however.)
Cynically the whole idea of buyers’ agents sounds like a great way for a second stream of money to be leached out of the real estate system. It sounds a lot like the “buyer’s premium” that has of recent times been added to high end auction sales.
With the market being so hot even in historically depressed cities, having an agent as a buyer means you get access to listings before they go public. That’s why so many homes are already shown as “pending offer” when the listing drops. Buyers’ agents also have a direct line to mortgage brokers and home inspectors. Yes you can do that yourself, but when listings go live on Friday with offers being accepted only until the following Monday, you don’t usually have time to go through all that on your own. They also deal with a lot of the back-and-forth communication and paperwork that you’d otherwise be responsible for, a lot of which happens during the workday when you might be, you know, working.
I’m not trying to defend the situation, but under the current sucky circumstances, there is some value to what they do. Is it worth the commission they charge? Maybe not, but they’re not useless.
I’s kind of confusing and it also requires understanding how transactions were handled in a particular area traditionally. I’m not 100% sure how it works now , after this lawsuit , but traditionally in my area , a seller would list the property with a real estate agency , which is owned by a broker who often employs multiple agents. This is often referred to as the “listing agent”. The broker/agents there would represent the seller in any transaction. Typically, it would be exclusive for a period of time and that agent/broker would get the commission if the house was sold during that period of time, even if the seller found the buyer without any involvement by the broker/agent. A seller lists the property with only one agency at a time. It would more than likely be listed on a multiple listing service- and here’s the part that might sound weird. Let’s say I’m looking to buy a house and I see one advertised. I go to a real estate agent and they show me multiple houses. Most of those listings they have access to through the multiple listing service - they show me houses that were not listed with them. HOWEVER - I haven’t signed a contract of any sort with this agency/broker. If I buy a house without their involvement, they don’t get paid. This agent/broker does not represent me - they represent the seller. It doesn’t mean they can lie to me, but they have a fiduciary duty to the seller, not to me. They won’t tell me , for example, that they think the seller will accept a lower offer. They won’t give me advice that might help me, but might hurt the seller- for example, they won’t advise me to have an inspection done. Sometimes there is only one seller agent involved but more commonly, there are two - the one who owns the listing and the one who found the buyer. The seller will pay the commission and the brokers/agents will split it according to the multiple listing service agreement.
A buyer’s agent is something different. It’s an agent that represents the buyer. Usually, the buyer signs some sort of agreement - it may be exclusive, so that I owe the buyer’s broker a commission if I buy any property, whether that broker was involved in finding the property or not. Traditionally , in my area, the buyer’s broker and the seller’s broker would split the commission just the same as if both agents represented the seller ( this is often described as the buyer’s broker services being free to the buyer). It caused a conflict of interest as the buyer broker was paid by the seller but had a fiduciary duty to the buyer. This is what I think the lawsuit changed. Now the buyer’s broker agreement has to address compensation and it can’t be that the buyer’s agent will split a commission paid by the seller. Of course, you can still end up with the same effect by the seller paying closing costs or making some other concession.
Traditionally, in my area it wasn’t all that common to have a buyer’s broker - but that’s probably because everyone involved in the transaction had a lawyer - which in my case , cost less than half of the broker’s commission.
This sounds extraordinarily like bad behaviour on both parts. Just how does a seller know they are getting a good price if the agents have stitched up a deal in a couple of days? No possible way would I be willing to sell a house under such circumstances. Seems we have a situation where the seller’s agent suggests a price the seller will be happy to accept, and then tells a set of other agents in the business about the the property, those agents then tell their clients about a house that might suit them, and gives them a day to make up their mind.
This is near cartel behaviour where the interests of neither client are being served by their respective agents. Rather the system is rigged to extract 4-5% of each transaction into the agent businesses. I am going to bet that a personal approach to a seller’s agent will elicit a response of “not talking to you, get your agent to call me.” Which is simply a tactic of keeping the cartel behaviour running. Any behaviour like that should warrant another lawsuit.
I did that myself. It took a couple of phone calls. It didn’t involve $10,000 worth of grief. I made an offer contingent on building inspection and finance. This is the typical offer. Getting pre-approved finance is useful, as it allows you to make a clear offer that can include an early settlement if the seller wants it (and also needed for bidding at auction.) I assume there are few properties sold at auction in the USA. Very common here.
That’d be pretty damn rare. Only if your buyer’s agent happens to be acting as a seller’s agent for someone else who is about to list a property that matches what you’re looking for.
You can accomplish exactly the same thing as a buyer without an agent by going to open houses and talking to the agents there. Tell them you’re shopping for a house without an agent, and if they have any listings that fit your criteria, to give you a call.
However, even if this situation arises, and the agent tells you he has a house matching what you’re looking for going on the market next week, the seller isn’t just going to accept your offer (unless it’s above market or all cash or something); they’ll want to put the house on the market and hold at least a few open houses, so other offers for comparison can come in. So it’s not really that advantageous to know early, as long as you’re checking for new listings daily and calling the agents of any interesting listings right away.
Seems to happen pretty often. Maybe it only happens among realtors within the same company, but they definitely have “internal” listings that go up a few days before they go public.
I’m not saying it’s good, quite the opposite, but if you don’t play the game then you don’t get the house. I’d been watching the house next door to my apartment for years, and when it finally did go up for sale (I didn’t get any prior notice this time) on a Friday morning, they were only taking offers until 5:00PM the following Monday. I had to scramble to get a new mortgage pre-approval because those are only good for about 90 days, and I offered 6% over asking and got outbid by someone (or someones) who offered 12% over asking. This is for a house that needed a full renovation, and on top of that it sat in probate for a solid year after the sale. Had I gone it alone I wouldn’t have had any chance whatsoever, and even with help I still lost out on this one.
Friend of mine many years ago bought a nice property, house and pool on a decent acreage. He saw it advertised in a flyer from a real estate agent. However, friend’s wife’s cousin was a real estate agent so they engaged her as the “buyer’s agent”. The guy who put out the flyer got very upset, because these were not his listings. He’d put together a flyer from assorted listings on the MLS (Multiple Listing Service) and when friend’s agent went to the lister’s (seller’s) agent, that cut him out of the loop. (Obviously, she just looked up the property on MLS) Nothing he could do about it. All he did was give the original seller and his agent free publicity.
Apparently he came banging on their door a few times complaining they owed him and had somehow ripped him off - but they ignored him, nothing he could do.
AIUI, you ask an agent to sell a house. You pay a commission. It’s up to the agent and whatever agreements he has, as to how he distributed his commission. The agency/broker he works for gets a cut, and if it was listed on MLS and some other agent shows up saying “I have a buyer” then the usual agreement was the commission is split 50-50 with the agent who put the buyer in touch, who usually did the negotiations for the buyer, etc. (who then splits his half with his agency/broker)
In Canada before the house prices went nuts, 7% used to be the quoted rate. I don’t understant what the agency does to get half the commission. I assume it’s advertising prices and MLS fees, plus overhead like office space, real estate licenses and cerrtification…
I gather it’s not unusual for the agency to see if they can sell the poperty within their own agency/broker group, before it goes public, i.e. wait a bit to put it on the MLS.
Should also add, the warning - as established in law, IIRC - is if an agent shows someone a house, then you are obliged to pay that agent if that person buys the house within 6 months(?) of it going off listing. I.e. No making side deals to cut out the commision. (a plot incident in the movie “Bounce” I think.)
I am very dubious, there is any (or more correctly, very little) value in a buyers agent.
And was my original point.
Yet seemily EVERY listing agent insists that commission also being part of their contract.
Seems incredibly brazen to me, but my daughter is not is position to await further court action.
Just another several thousand needless expenses, for a young family to endure.
Because an very well represented group is slow to respond to already lost cause.
The reality is in a multiple listing situation, where one agent has the listing and the other brings the buyer, that second agent is going to be paid somehow. Either the agent with the listing splits the commission or the buyer pays the second agent directly or we get rid of the whole “Multiple listing service” and the only people who see a house for sale are the ones who happen to walk into the selling agent’s office. Which is going to make it harder to sell the houses. Houses are not like most physical products - if I want a toaster, there are loads of places I can buy the exact same toaster. But houses are unique - even if they were built to be exactly the same, after some period of time they no longer are. And if a house is listed with Jones Realty, I won’t see that house unless I happen to walk into their office. If I walk into Smith realty, they aren’t going to show me the house unless they get paid. Which means either 1) splitting the commission or 2) I pay them directly. But if I pay them directly, I’m probably going to lower my max bid to account for that. Which means the seller is indirectly paying for my agent’s fee.
Oh and also, in my experience, that split doesn’t raise the price. Because if the agree-upon commission with the seller and the listing broker is say 6%, it’s 6% whether it’s split with another agent in a real estate office, between two agents in the same office or not split at all
As a buyer, I agree with you that a buyer’s agent provides almost no value. All they do is search the MLS for you, something you can do yourself, and write offers, something the listing agent will happily do for you even outside of a dual agency situation. As a buyer, I’ve always chosen to go without a buyer’s agent.
As a seller, the buyer’s agent provides a ton of value: they bring you buyers who’d have never made an offer without the buyer’s agent. Because only a tiny percentage of the population thinks the way I do and house hunts without a realtor; for 95% of people, buying a house means using an agent. As a seller, if you were to somehow shut all those agent using buyers out, you’d never sell your house.
As a seller, it is the selling agent that you can choose to forgo. It just means a lot more work for you, because the listing agent actually does quite a bit to market your home and get it sold, and without an agent you have to do all that yourself. And, unless you somehow find a buyer without an agent, you’ll need to pay the buyer’s agent’s fees when all is said and done.
Look, the default is that a real estate transaction has a realtor on either end. If you don’t like that, you can give up your own realtor, and do the job they’d normally do for you yourself, and save money that way. Like I said before, there are agents who will create an MLS listing for a flat fee but then leave you on your own for actually finding a buyer and selling the house. If you’re comfortable with that, you can save 2.5% of your home’s value this way.
But you can’t insist that the other party in the transaction forgoes their agent. You might get lucky and find a buyer without an agent, or a house that’s for sale by owner; but I wouldn’t count on it.
When I purchased my first house over 20 years ago, I had no idea where to start. So I drove around a town I wanted to live in, and eventually walked into a real estate office on the main street. They told me that to show me houses, then I was obligated to sign an exclusive buyer’s agent contract with them for a certain period of time (i.e. a few months). They also told me that it wouldn’t cost me anything out-of-pocket because their fee came out of the listing agent’s fee (i.e. they got a cut of the seller’s agent’s fee).
The seller presumably already had an agreement with their listing agent to pay them a certain percentage, so my understanding was there was no particular benefit to me at to forgo going having my own agent. If I approached a seller’s agent directly without my own buyer’s agent, all I would be doing is putting more money into the pocket of the seller’s agent.
(By the way, I am using the terms “seller’s agent” and “listing agent” interchangeably here, because they are the same person.)
My thinking was that at least with a buyer’s agent, I have an agent on my side Instead of dealing solely with the seller’s agent by myself. I would think that the seller’s agent’s loyalty would be first to the seller, with whom they have an established relationship (and an agreement).
I think most buyers think the same way, which is why most buyers show up with buyer’s agents.
20 years ago, buyer’s agents had something to offer, because Zillow is only 10 years old, and before that agents controlled access to the MLS. You could pay an agent a flat fee for MLS access, just like you can pay an agent a flat fee to list your house for you. But actually making use of the MLS yourself was much harder, and short of that you’d have to physically drive around looking for ‘for sale’ or 'open house’s signs, or at least go to various real estate offices for their flyers, which could be outdated.
It was still very possible to find and buy a house without an agent, but it required a much higher level of expertise and familiarity with the system.
Having free access to all MLS postings available without an agent radically changed the equation. You can now see every single house on the market the very day it goes on the market. You can find the listing agent’s contact info online and reach out to them yourself with five minute’s effort.
That’s because what they were offering you is not to show you just their own listed properties. They were offering to represent you as a buyer’s agent, take you to properties that are listed by other agents, negotiate on your behalf, etc.
If you understand how the process of buying a house works - which as I said above 95% of people don’t - you don’t need an agent to show you around. You either go to open houses, or approach the listing agent and say “I don’t need a representative, I just want to see this house for myself”.
Putting more money in the seller’s (and seller’s agent’s) pocket IS the advantage to you. It means you win if all else is equal.
For example, if there is 5% commission in total, and you approach to the selling agent and offer 100k without an agent of your own, and another interested buyer offers the same amount, it is in your best interest, the agent’s best interest, AND the seller’s best interest for you to win that bid. The reason is that the seller’s agent can voluntarily cut his commission to 4%, for example. The same 100k offer is now worth 96k to the seller instead of 95k. The listing agent wants to do this, because by taking a cut to the commission he gets 4% or $4,000 rather than 2.5% or $2,500. And of course you want to do this because this way you get the house instead of the other potential buyer. It’s a win-win-win.
It also gives the seller’s agent an incentive to go with you and make sure that you have the opportunity to make the best offer that you’re willing to make. So in the situation above, if your competitor offers 105k, it is in the agent’s interest to (with the seller’s permission) tell you about that and give you the opportunity to offer, say, 104k with the agent lowering their own cut to put more money in the seller’s pocket with an offer of 104 than they would get from the offer of 105.
If you understand the incentive structure, then you can set up a situation where you, the seller, and the seller’s agent all have it in their own best interest to make the deal.
I wouldn’t count on loyalty as a buyer or a seller. An agent is going to do whatever it is in their incentive to do. The trick is making sure that your incentive structure lines up such that your agent takes actions that benefit you and them at once.
Most buyers are going to be going through this process once, maybe twice in their life. They have no understanding of the process, and there is no real reason why they should. You are right, this is how the vast majority of people think and this is why the OP as a seller cannot unilaterally cut the buyer’s agent out of the equation and expect to make a sale.
But the op is correct that a buyer’s agent provides very little of actual value nowadays. If the average person was more familiar with buying a house, the way that they are with booking a vacation, then real estate buyer’s agents would be as extinct as vacation agents.
This is the gotcha. As i understood, the seller pays their agent from the proceeds, an amount that includes the commission for the buyer’s agent etc. Without a seller’s agent handling that aspect, you need to figure out what method to pay the buyer’s agent. As a seller, you are not obligated to pay the buyer’s agent unless that is in the MLS agreement. Then, the buyer’s agent has to chase the buyer for payment - is that a percentage of the price, or on top of it?
Should also point out the study mentioned in Freakonomics about Real Estate agents. The study showed that their own homes stayed on the market longer and got higher value vs asking prices. After all, 5% means 1.25% to each agent and agency/broker. If the agent can get say, $10,000 more for a $300,000 house - that’s $125 on an otherwise $3,750 payday. The incentive is to move them as fast as possible with as little work as possible, unless that work has a pretty good payoff (i.e. it’s your house and you get the $10,000). So sellers’ agents tend to push for closing a deal unless they’re thinking there’s a decent payoff in waiting. Their interest is somewhat at odds with the seller.
My experience of buying four homes, selling three homes, and being married to a Realtor for over ten years, many of whose good friends are realtors is that this undersells the conflict of interest quite a bit.
Successful realtors convince their clients to take less or pay more better than less successful realtors. Whichever client is more amenable (susceptible?) to pressure either by personality or by situation gets screwed twice as bad by real estate agents. You might convince yourself to take $20,000 less or pay $20,000 more, but if might take you weeks to do that. Your agent’s livelihood depends on them doing that in a day or two many times a year or losing deals to realtors who do.
Exactly. And the buyer’s agent’s interest is to get the buyer to purchase a house before their exclusive agreement ends with them and the buyer can move on to another agent (or buy a house without a buyer’s agent). So this often means encouraging the buyer to spend more in order to get their offer accepted. And the cherry on top is that buyer’s agent gets even more money as the purchase price increases. So there is literally no incentive whatsoever for the buyer’s agent to help the buyer purchase a house for the cheapest rate possible. All of their incentives are going the other way.