The question of, “will I end up paying more for a house if I use a buyer’s agent?”, is common among homebuyers both new and experienced. Many articles from Real Estate agencies will tell you that if you go with a buyer’s agent, you’ll end up paying more for your house. They justify this by telling you that the buyer’s agent commission is usually half of the listing agents commission.
So, for example, if the seller pays the listing agent 2.5 percent of the sale price to their listing agent, any buyer that comes in with a buyer agent will cost them an additional 2.5 percent. Though it is true that a buyer’s agent’s commission is usually around half of what the seller’s commission will be, there are some things they’re not telling you.
Commission is Negotiable
So yes, a buyer’s agent could get around half. Or they could get less or more. The first thing you should know before you start working with a buyer’s agent: Their commission is negotiable. You, the buyer, sit down with the agent you’re going to work with and determine what their commission will be just like the seller does with their agent; note that agency commissions aren’t and cannot legally be fixed.
A commission is an agreed upon fee for the services your agent will be providing you. Most agencies have a set rate they tell their agents to offer, especially dual agencies, and so they may gloss over that detail or even tell you they can’t or won’t change it. If they are unwilling to discuss their fee, ask if they have the authority. If they do not, ask to speak to the broker directly as they are the ones that would manage that. However, if they’re giving you the run-around and aren’t giving you options, it’s time to find another agency to work with. It’s more than likely the brokerage itself and not the agent as the brokerage is the one that determines the rates generally that their agents are allowed to accept.
I am the proud broker and owner of Buyer’s Choice Realty. As an Exclusive Buyer’s Agency (EBA), my Real Estate company only works with buyers. This to me is the best choice for ethical and fiduciary reasons. Buyers have legal rights to have full representation when buying a house.
Designated Agency vs. Exclusive Buyer Agent
The only way ANY brokerage can offer full representation is to only service one side, either the selling side, or the buying side, but not both.
It can get confusing as there are agencies out there that will have you sign what they call an Exclusive Buyer Agency agreement. That is different, as it is telling you that your agent and just your agent will work with you as the buyer agent only. That agent may not take listings, but their company does.
This agent could also have listings, but won’t be your agent if you choose to buy one of their listings. This is what is called designated agency. It’s a fancy way of saying that the agency they work for has “designated” that agent to be a buyers agent for this transaction. Your exclusive agency agreement you signed likely has a clause in it that states something like, “if you are interested in purchasing a house our agency lists, this relationship will change.” You can see already how this complicates the process as their loyalty is with you only conditionally.
If they have listings, their loyalty with you ends when you become interested in one of their own listings. Then too, this agent already knows a lot about you and if you try to negotiate the offer on that house, it will be harder if they already know you’re capable of more. So now you won’t get confused by this clever discrepancy.
What about the cooperating fee?
When it comes to commissions I always tell my clients, we of course are doing this for a living and need to make a living wage, but I discuss with them my terms and ask them if they feel it is fair. If they don’t think my rates are fair, I am open to discussion about what they feel would be fair. ‘But wait!’ You say. ‘I thought the seller sets the buyers agent’s commissions?’
When a listing agent sits down with a seller, they talk about the listing agents commission, and the cooperating fee they will offer to a buyer agent that brings in a buyer. However, despite common belief that this sets the buyer’s agent’s commissions, it does not! You, the buyer do.
The commission that is shared can supplement the buyer’s agent commission that you agree with your agent on. If it ends up being higher than the commission you both agreed upon, you get money back. If lower, then you talk about how you can make up the difference, a lot of times with money back at the closing table.
So, with that said, this cooperating fee is already factored into the house you’re going to purchase because they figure those numbers out before listing. Therefore, if you choose to work with the listing agent to make your offer, how exactly do you save money? The seller isn’t going to accept a lower offer simply because you’re working with the listing agent. In most cases, the listing agent will double dip. In other words, they will take home both the listing fee AND the cooperating fee as that was pre-determined in a signed contract between the seller and listing agent costing you possibly more money because the agent is less likely to negotiate a better offer on your behalf.
The simple reason is because they are loyal to the seller and their job for the seller is to get the seller as much money as possible for their house. You in turn then become the customer who is trying to negotiate the price on your own as if you were in a used car lot.
Now yes, occasionally the listing agent has an agreement with the seller regarding flexibility with the buyer agent cooperating fees. Namely, if an agent from their own brokerage brings in a buyer OR the buyer works with the seller’s agent, the fee is lowered for the seller… but notice that the financial winner here is the seller, not the buyer. You still have to try to negotiate the price and if a higher offer comes in, you lose the house anyway and don’t get the alleged savings.
The market is changing, but even in a buyer’s market where buyers have the power to negotiate the price, you’re more likely to get a better price with an agent negotiating on your behalf than with an agent that has agreed to get the seller the highest price possible for their home.
The truth of the matter is, the seller rarely pays anything out of pocket. They pay ALL fees through the big check you write to them at the closing table or the money you put in escrow. You the buyer on the other hand are paying fees left and right from start to finish. This is why the cooperating fee is actually a benefit to you. If you do the math, it may sound like you saved 2.5 percent, especially if you negotiated the price down by that much when working with the listing agent, however, it is more likely that you could have gotten that price or better anyway with an outside buyer agent representing you directly and negotiating on your behalf.
What’s more, having an agent fully representing you will lessen the headache of the process going forward once you get an accepted offer. Once your offer is accepted, the job of the agent really begins.
So, what else does an Exclusive Buyer Agent do?
Your buyer agent has many jobs. When you’re looking, their job is to make sure you have a sound financial institution that will give you a good pre-approval and advocate for you in the purchase. It is ultimately your choice, but the bank or company you are borrowing from can make or break your offer.
Your buyer agent will have connections and will be able to connect you with many financial institutions that they’ve worked with through the years. They will know who to trust, who will best represent your offer and who won’t. It’s not always the lowest rate, but it will be the one with the least amount of issues later on.
It is also your buyer agent’s job to make sure you’re connected with a proper attorney (if your state requires that or if you choose) and other professionals like insurance agents and inspectors. Your buyers agent will help you build a solid team that ends up being your go-to throughout the rest of the process.
When you’re ready to put an offer in, your agent becomes your advocate and master negotiator. You sit down and discuss the terms of your offer. Just like in a court of law, what you discuss with your agent is confidential. You may put one number in your offer, but be willing to pay much more. The selling side does not need to know that you’re flexible with that number.
Once your offer is accepted, your agent becomes the liaison for your team. They will be in constant communication with your lender to make sure they’re moving forward as they should assuring no deadlines pass, your attorney to make sure they’re on top of the process and keep them apprised of any legal issue that may arise and they will even help you schedule the home inspector and connect you with the insurance agent so that you can get things set up for the closing.
If you work with an EBA like me, we not only go to bat for you because of our ethical and fiduciary standards that far surpass any agency that works with both sides, but if we lose you as a buyer, we’ve also lost our opportunity at getting paid. In other words, the only way an EBA wins is if the homebuyer does!
Nicholas Martin is broker/owner of Buyer’s Choice Realty in Wenham, Massachusetts. He has worked under Ronald Huth, founder of Buyer’s Choice Realty who has more than 40 years of experience in the Real Estate industry. Feel free to reach out to Nicholas Martin; [email protected] or 978-468-2138.