Earlier we talked about the best way to sell your home, but here we address the perspective of buyers and how they can take advantage of the ubiquitous buyer’s agent commission factored into nearly every single listing. Despite many options to the contrary, savvy buyers know how to take that money for themselves by asking the right questions or even to give it back to the seller to get a lower price.
At a high level, the options for buying a house include working with a) a traditional “free” buyers agent, b) working with a buyer’s agent that will refund you some commissions, c) working with the listing agent, or d) using a lawyer.
The easiest thing to do is hire a traditional real estate to work as a buyers’ agent and start looking at homes. Buyer’s agents will usually tell you that their services are free and paid for by the seller. In reality, the buyer is paying for all the commissions since they are the only party bringing money to the transaction. Think about it. Because of the confusing language that buyers agents are free, buyers working with traditional agents typically don’t know they can do much better. In fact, most homes in the MLS can be purchased for 3% less than the listed price depending on how you approach it as a buyer.
The better option than ‘free’ is to find an agent that will offer you a commission refund. Due to intense competition to find customers in real estate, many agents will agree to refund part of the buyer’s agent commission back to buyers at closing. A typical example might be to get 1-2% of the listing price applied as a down payment, credit to other closing costs, or a reduction in the amount paid for the home. These commissions get routed back to the buyer instead of going to the buyers’ agent and make the cost of a buyer's agent far more palatable.
If you don’t want to use an agent at all, often a lawyer can assist in a purchase of an MLS listing for an hourly rate, or you may be able to find a licensed agent that will also work on a fixed flat fee or an hourly rate if you ask around. Note we say ask since very few agents will publicly advertise that they are open to working under non-traditional terms. Offers crafted with this type of help will help you direct all of the commissions from the listing to the buyers directed purpose. The issue with no agent being involved for buyers can be getting access to the properties for tours at convenient times. Buyers can also get in touch with listing agents for access since they’re often looking for new clients and potential buyers for the listing.
For true insiders, the savvy way to buy a home is always directly with the listing agent. When you buy a home this way, you can capture the commissions and set things up to get the best shot at a lower price. For buyers, this can be incredibly strategic, but for sellers, it is a disaster because it distorts incentives between the sellers and listing agent. Agents love it when an unrepresented buyer contacts a listing agent to buy a house because they can get two commissions instead of one. As a savvy buyer, you can split the difference on the new extra commission with the listing agent on any commissions and use these funds without making the seller worse-- the listing agent will try hard to get your deal done because they still get more in commissions even after refunding part or most of the buy side! When it works well, it’s one of the best ways to get the absolute best deal on a house.
The caveat here is that in some states, consumer protection laws don’t let you put in an offer with the listing agent directly, due to obvious conflicts of interest which is also called “dual agency.” However, Washington state does not have those restrictions. Other states make it harder to get commission refunds as well. Check to see what the laws are in your state but many brokers including Surefield explicitly do not engage in dual agency on behalf of sellers and instead refer to a lawyer or fixed fee buyers agent to close deals for sellers without any conflicts of interest.
Before choosing which method you use to buy a home, consider how you can benefit from the standard commissions and maybe even use that leverage to get a better price. Misaligned incentives are something to watch out for unless you can make them work for you which is why it can pay when buyers to go direct. And since buyers can always go direct, sellers don’t need to include unnecessary upfront buyers agent commissions with their MLS listings these days either.
The least effort and most common way to buy is by paying a 3% commission which is expensive. Asking questions to get discounts or refunds can be a bit more work for buyers, but there are no trade-offs to this approach since commissions don’t have anything to do with what you get or quality. Often a bit more legwork by buyers will yield even more savings, if they can handle the conversations to get into the homes and organize the write-up of a solid legal offer. Finally, insiders know to always talk to the listing agent directly since they know the most about the house and when it’s legal, to put in an offer and create a dual-agency situation. Just be sure your own broker doesn't get into that kind of compromise when you sell!