Originally published 4/2009.
Buyer’s Agents Really are FREE for Buyers
Many of us believe that if it sounds too good to be true, it probably is. The truth is that buyers really do get professional services for free.
I’ve heard it suggested many times that having a buyer’s agent really isn’t free, since buyer’s agents are paid out of the commission paid by the seller. Buyers who think they will get a house for a lower price when they contact the listing agent directly are assuming that the listing agent will pass on a commission discount to the seller.
How are Real Estate Agents Paid?
Before we can talk about why it is a misconception that buyer’s pay more when they have their own agent, you need to understand how agents are paid.
Almost all agents work on 100% commission. No salary, sick days, or health insurance.
Home sellers hire listing agents to help them sell their home. The agent charges the seller a commission on the total sale price, typically somewhere between 5-7% for a full service agent. Listing agents only get paid if they are able to get a contract on the home. If the home doesn’t sell, then the agent makes nothing.
Since there are thousands of agents, and thousands of buyers, the chances that the listing agent will actually locate a buyer for the home is slim. So, listing agents offer to pay a portion of the commission that they receive to the buyer’s agent that represents the buyer who purchases the house.
But, it rarely is just a split between the 2 agents. Most of the time, the agents work under the umbrella of a brokerage. Both agents split their side of the commission with their brokerage. Depending on the brokerage and the agent’s production level, the portion that the agent keeps is typically between 50-70% of their side of the deal (there are a few company’s that offer plans where agents can pay upfront fees and keep up to 95% of their commission).
1 Agent & 2 Clients Doesn’t Result in a Lower Sale Price
When a buyer calls the listing agent directly, some agents will try to talk the buyer into not using their own agent. The reason that they do this is obvious. If there isn’t a buyer’s agent assisting the buyer, then the listing agent doesn’t have to pay out a portion of the commission to the buyer’s agent/buyer’s broker.
Many buyers assume that listing agents will reduce the commission charged to the seller if there isn’t a second agent…and thus the home seller can sell for a lower price.
Usually, this simply is not true.
There is a lot of work that goes along with assisting buyers after a contract gets accepted. When this work isn’t done, contracts can fall apart. Homes go unsold and agents don’t get paid.
To make sure the deal closes, listing agents will add the buyer side details to their list of things to do when a buyer’s agent isn’t involved in the transaction.
Most listing agents don’t want to do all of that work for free. If they reduce the commission to the seller by the amount normally paid out to a buyer’s agent, then the listing agent does twice as much work for the same money.
What is Dual Agency?
Some listing agents will offer to assist the buyer while only representing the seller. This means that the buyer has no one advocating for their rights, since the listing agent is working for the seller.
More often, the listing agent will offer to work under Dual Agency.
Dual agency means that one agent represents both the seller and buyer in the same transaction. If you call the listing agent from an ad or off the yard sign, or walk into an open house, you will often be setting yourself up for the listing agent to try to talk you into dual agency.
Why You Should Avoid Dual Agency
Whether you are the buyer or seller, having your agent represent the other side means that your agent cannot advocate for you in negotiations. Your agent can present options for you, but can’t help you decide which approach is most likely to get you what you want.
Buyers and sellers don’t benefit from dual agency. The only people who benefit from dual agency are listing agents that keep the entire commission.
How Do We Handle Dual Agency?
We don’t do dual agency except in rare situations.
When unrepresented buyers contact us about our listings, we offer to show the buyers the homes and explain that we represent the seller. We let the buyers know that they have 3 choices if they like the property and want to make an offer:
- As a seller’s agent, we can assist them with the paperwork and the contract details just as a store salesperson can assist the people that are purchasing products from the store. We will be representing the seller and will encourage the buyer to accept the terms that the seller wants. By the way, this is exactly what new construction salespeople are doing when a buyer purchases a new home without a buyer’s agent.
- We can refer the buyer to another good agent that can act as a buyer’s agent and represent the buyer’s interests. We would much rather have a good agent of the other side of the deal, doing the work to make sure that the deal closes, than have a deal fall apart when an unprofessional agent fails to stay on top of contract details such as loan and appraisal contingencies.
- The buyers can find an agent on their own who can represent their interests in contract negotiations.
If you discover a home through an ad or a yard sign, call an agent that will represent YOU and not try to sell you on dual agency.
