Occasionally, people wonder if they can save money by NOT working with a buyer’s agent. Unfortunately, there are not many good sources on the web on this subject, so we created a video discussing both sides of the argument.
Many people wonder, “Can I save money if I don’t work with a buyer’s agent?” Most people conclude that home buyers will save money by working with an agent. In fact, “going it on your own” many times results in costly mistakes that do not become apparent until after closing Working with an experienced and trustworthy agent will help you save money by helping you identify a good investment (and avoid bad ones). A buyers agent can help you find good deals, handle all the negotiations, and advise you through the inspection process.
Some people believe that home buyers can save money by not working with a buyer’s agent. The main point on this side of the argument is that if you work with the listing agent, or the agent that represents the person selling the home, instead of your own buyer’s agent, there is an opportunity to ask for the buyer’s agent part of the commission that is built into the price of all homes for sale. Companies that sell their own listings receive double commissions—both the buyer and the seller’s sides.
But does this strategy actually reduce the purchase price of the home for the buyer? A relative of one of the authors of this site recently bought a home on his own thru a big portal site like Zillow, and found out to his dismay that he couldn’t get a loan because the appraisal came in $20,000 BELOW his final offer. This was a shock to him because he thought he had studied enough internet sites to know what to offer.
So that you can make an informed decision, lets look at facts a little bit closer.
When a person works with a real estate agent to sell their home, they enter in a listing contract with that agent. This contract determines the amount of commission that is reserved for the home buyer’s agent and the home seller’s agent. In Colorado, they are usually equal amounts, 2.8% each. If the home buyer and the home seller are represented by the same agent, that agent or brokerage may keep all of the commission. If a buyer is interested in a property within the same company where his buyer’s agent works, typically the company will designate one agent in that company to be the buyer’s agent and another agent to be the seller’s agent, so both sides of the commission can still be legally retained. This is called “designated agency”.
What does this mean? This means that the most money a home buyer could save by negotiating commission in Colorado is the 2.8% reserved for the buyer agent commission. Usually people who end up working directly with the seller’s agents are best protected if they hire an attorney to review their offer. This money has to be paid up front out of the buyer’s pocket, so if the deal does not go through, that money is lost.
Additionally, attorneys typically are knowledgeable about contract law, but not necessarily market conditions or the historical MLS information needed to make a good offer. So if you save, say, 2% off the offered price, but the property is actually worth 20% less than your offer, you end up losing much more money than if you had hired a professional to represent you.
So, in the end, a home buyer could potentially stand to gain a portion of 2.8% of the purchase price of the home and give up the option to having a professional that is working solely to protect their interests, not the home sellers, which is particularly important when it comes to negotiating. If a buyer chooses to shop for homes on a large portal site, there are many tools to help determine value.
These tools are intended only as a starting point for determining the market value of the home. For example, Zillow recommends (http://www.zillow.com/wikipages/What-is-a-Zestimate/) that in order to get an accurate current market value, home buyers should consult a professional real estate agent to take special features, location and market conditions into account. These three factors greatly affect a homes value, and an accurate value cannot be determined without properly accounting for them. Also, home buyers must consider the time it might take to learn all of the tools, do the research, and fine tune their negotiation skills before undertaking this approach.
Working with a buyer’s agent will not cost anything additional since the commission is built in to the price of the home, almost always without any out of pocket fees. Also, the home buyer will have maximum protection and professional advice throughout the home buying process.