Apparently(?) the realtor representing a buyer of a house gets paid just if the house is sold.
But then, doesn’t that mean the buyer’s realtor has an interest at odds with the buyer him or herself? The buyer wants a good value, while the realtor just wants a sale.
So how does this work?
Links:
Quote from Freakonomics: [INDENT] But what if the house was actually worth more than $300,000? What if, with a little more effort and patience and a few more newspaper ads, she could have sold it for $310,000? After the commission, that puts an additional $9,400 while she earns only $150, maybe your incentives aren’t aligned after all. (Especially when she’s the one paying for the ads and doing all the work.) Is the agent willing to put out all the extra time, money, and energy for just $150?
There’s only one way to find out: measure the difference between the sales data for houses that belong to real-estate agents themselves and the houses they sold on behalf of clients. Using the data from the sales of those 100,000 Chicago homes, and controlling for any number of variables—location, age and quality of the house, aesthetics, whether or not the property was an investment, and so on—it turns out that a real-estate agent keeps her own home on the market an average of ten days longer and sells it for an extra 3-plus percent, or $10,000 on a $300,000 house. When she sells her own house, an agent holds out for the best offer; when she sells yours, she encourages you to take the first decent offer that comes along. Like a stockbroker churning commissions, she wants to make deals and make them fast. Why not? Her share of a better offer—$150—is too puny an incentive to encourage her to do otherwise.
From Exerpt from Freakonomics book regarding real estate agents. - InterNACHI Inspection Forum Exerpt from Freakonomics book regarding real estate agents. - General Inspection Discussion - InterNACHI®️ Forum
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That’s relevant but not exactly to the point because I was asking about buyers not sellers. Still it’s somewhat comforting to think neither agent actually has their client’s best interest in their own incentive structure. 
When we bought our house, we used an agent. He explained that when we bought a listed house, he got 1/4 of the commission. The other three shares went to the listing agent, the listing agency, and our agent’s agency. So he was interested in making the sale, but a small difference in price was not important to him. In fact, he advised us to offer a price 10% below the asking price. We did and eventualy split the difference. The house was priced to sell and we actually got it before it hit the listing service, but after the sign went up. This was 42 years ago and I imagine things move much faster these days. But I assume that basic 4 way split is still in effect.
Negotiating the price is only a small part of their job as a buyer’s agent. They have to find the house the client wants to buy at the price they want to pay. If they don’t, they get no money. Isn’t that incentive enough?
It is more complex than that (surprise!); at least in MD, where a buyer’s agent is required. You have to sign a contract as a buyer that binds you to the realtor for a certain period of time. I’ll let someone more knowledgeable than me explain the details.
I’ve also had luck with offering personal bonuses like $500 to the realtor who sold my house.
Thing is many of the costs for selling a house like all the paperwork is the same whether the house cost $60,00 or $500,000. So a new model is the flat fee where for say $2000 the real estate agents do nothing more than handle the paperwork and provide the listings.
Generally, with the transparency in today’s residential real estate market, residential real estate agents are a commodity and in my opinion add very little in value to the process for experienced buyers and sellers.
Wait a minute. In Maryland you can’t go find your own house and buy it without having to get (and pay) your own agent? Is this the real estate lobby at work or a well-intentioned case of big brother looking out for naive buyers who would otherwise be taken advantage of by shady sellers and their agents?
Yeah, but a great buyers agent can do so much more.
What do you expect from a good Real Estate Agent as a homebuyer? Well, you expect them to find you the RIGHT house, correct? Then of course to walk you through the loan and escrow process.
And based upon that, there are many “good” Real Estate Agents out there, sure.
But what gets an agent beyond “good” to “Great!”? Service above and beyond just simply buying your new dream home.
Our agent informed us of all the right utilities and other amenities locally. Ok, but went far beyond that and found us just the right service and repair people to fix or update our new home. New Screen door? He found us the “Right Guy”.
One of my memories of our agent is seeing him out in the backyard of the new house right before the sale went through. There was a problem with the lawn drains, and it had been raining – and a big storm was on the way. So there he was with the lawn drain guy, standing in the mud, soaking wet- just to make sure our new home would be safe and dry when we moved in.
THAT’S a “Great” Agent.
Yes, that’s exactly the case. The realtors will often first show you nice houses which are above your price range before showing you the regular ones at your price point. This way the regular one looks inferior and you desire the higher priced ones.
When showing a house, they will tend to overlook flaws or describe them in a positive light. “Oh, that low spot in the back (which is full of standing water from the last rain) would be perfect for a pond. And that hole in the roof is like a natural sky light.” They want you to diminish the flaws so you’ll buy the house.
You need to be aware of this and take charge of the process. If they want to show you houses out of your price range, don’t agree. Take things they say about the house with a grain of salt. I eventually told our realtor not to talk about the house if he wasn’t going to also mention the flaws.
I agree their are some great agents.
However the problem in our area of Kansas City is there are sooo many realtors because our local JuCo has a course to get people their real estate licenses so you have lots of realtors who before, were old gray haired men, are now getting younger all the time and their are just too many. I remember our last foray into buying and many of the real estate agents were only 21 and had never even owned their own home before yet they thought they knew everything about home buying.
Another tip, tell your spouse that a real estate agent is a salesperson and NOT your friend. I swear we had this one woman realtor who got my wife to talk up a storm by being nice and all because they know that’s the way to hook you in. You have to go around with a realtor and at the end of the visit say “Thanks” and go to another. Nothing personal. Which is darn hard I know for the realtor because they live off of commissions and me buying a house from someone else really upsets them.
I for one sit there quietly and only discuss the house. I dont reveal my personal life and definitely dont get all chummy with them.
I’m a licensed real estate broker. Most of my experience is in commercial real estate, however (and I’m not all that experienced in that).
But anyhow, based my experience, whether it’s residential or commercial, real estate agents just want/need to get deals done. What is the beeline to at least some money? As other posters have pointed out, the difference between a $150k deal and a $200k deal is not all that big to the agent; but the difference between either of those deals and $0 is big.
This incentive can both work both in favor of the client or against the client, depending. Sure, pressing for the best deal possible is generally to the client’s advantage. But is telling the client to hold out for $10k more really to his/her advantage? You don’t really know if or when a better deal is coming along.
As far as a buyer’s agent goes, s/he is going to zoom in on likely properties and advise on “comps” (comparable properties and their prices). The goal will be to find something the client likes and get the deal done. Again, how picky should the agent advise the client to be? That’s a judgment call. And it really can depend on the situation. Sometimes in the world of commercial, in a particular geographic area there were only a few properties that matched the client’s needs (for example, an industrial property with a particular type of crane, etc.). Take 'em or leave 'em. In other cases, there is an almost infinite number (small retail locations). The same thing applies to houses–it depends on the market.
Buyers don’t really pay for an agent. When the seller signs an agent, they will agree on how much commission the seller will pay, before the house even gets listed. That commission then gets split between the buying and selling agents.
If you have a buying agent and you’re paying out of pocket, you’re doing it wrong.
In California and AZ, we’ve always had buyer’s agents. The incentive to be a “great” agent is stronger than is being described here. Agents make money on repeat business. When I have found a great agent, I’ve done several deals with them. When it comes time to sell the place, the “great” agent gets the listing.
All of the agents that I have worked with have never commented very much on the price. They have always offered opinions only if asked for, but never tried to “sell” me on a deal.
Additionally, agents know that if they are “great” agents, they will get lots of referrals from me.
So there are a lot of reasons for agents to go the extra mile on a deal. It may cost them a tiny amount of commission right now, but will pay off in additional commissions in the future.
J.
There is only one way you can be certain a real estate agent actually has your best interests at heart, and that is to pay him/her for the time, but since most realtors aren’t really worth a shit anyway, you may as well hire an attorney knowledgeable in these matters.
Otherwise, its fraud, pure and simple. “Buyers” agents pose as though they were your lawyer. Realtors get paid when a house is sold. Period. They pretend to be driving a hard bargain with the “sellers” agent, but in reality, the two realtors are just collaborating to get the sale so they can move on the the next one. Any other scenario which they paint is for children. I have bought three houses and sold one.
Or buy from a friend.
Our last two real estate transactions involved buying a house for my brother in law to live in while he had cancer, and then selling the house after he passed. We used someone who had known both my husband and my brother in law since they were kids and was well aware of the situation. The upshot - she worked really hard on our behalf, used part of her commission to do a few maintenance things as a housewarming gift, including an outlet where one was badly needed, when we sold the house, had her son do some work on the house to make it more sellable, and found us the best possible house that met our criteria.
Unusual circumstances given that she really wanted to help in a situation where everyone feels helpless - and was able to help so did, but if you know a realtor personally, it isn’t a bad deal.
Really? I bought a house in MD about 10 years ago, and don’t remember signing anything that bound me to a specific realtor. The only thing that might be similar was that I agreed that if I bought any houses that a realtor showed me I would buy them through her, (which makes a lot of sense, otherwise people would use a realtor to find a house and then cut them out when it came time to buy.)