Even though I have yet to persuade a home buyer to whipsaw sellers using my strategy, I thought I would pass along a tip for buyers on getting a better deal from your buyer’s agent — no matter where you might happen to be.
I happens that I have a friend who is moving soon, but not to Phoenix, alas. He took my advice and asked the question — “How much do you charge?” — of a potential buyer’s agent. The answer he got in return was rich in tap-dancing but not in results, so I wrote a model follow-up, shown below, for pressing the point.
Before we get to that, we need to consider some issues.
First, a rebate from your buyer’s agent may not be lawful in your state. I consider this absurd and obscene, but your state’s Association of Realtors may be keeping your state legislature as a special pet.
Second, if homes sell for lousy money where you’re buying, don’t get cheeky. A 3% commission on a $60,000 house is eighteen-hundred bucks. I consider that starvation wages, a clarion call to local Realtors to “find your passion” elsewhere.
But, third, a premium price is only justified for a premium product. If you’re buying investment real estate, you should pay Jeff Brown whatever he wants. But ordinary buyer’s agents are not a scarce commodity — too much the contrary. If a prospective agent huffs and puffs that he’s worth more because he charges more — press on. If an agent really is too busy to work with you, she might actually be worth more money — but she might not be able to deliver the value anyway.
But: Right now, the world is crawling with underemployed Realtors. If one won’t make a deal, the next one will — if you are willing to negotiate to hang onto your own money.
Here’s the language that I wrote, which you can easily adapt to your own circumstances:
Dear Realtor:
I do anticipate working with a buyer’s agent when I make my move. However, I believe I am justified in regarding myself as “a bird in the hand” for several reasons: I am committed to buying something, that something will be fairly costly, and I am very well qualified financially.
As I understand buyer’s agency, if I were to buy a small condominium for $165,000, you might make $4,950. But if I buy a substantial residence for $750,000, you could make as much as $22,500. I understand that it is common to say that the seller is paying your commission, but, in fact, for you to make an extra $17,550 in compensation, I would have to bring that many more dollars to the closing table. Even so, your effort in my behalf would be essentially the same.
Here’s what I was thinking, and you can tell me if this works for you and is lawful in your state:
I will pay you a $1,000 non-refundable retainer when we sign the buyer-broker agreement. At Close of Escrow, you will take an additional $4,000 in compensation from the seller’s agent, rebating any additional sales commission to me to be used to pay my closing costs or to be applied to the purchase price.
In other words, I am asking you to work with me for a total flat fee commission of $5,000. If this is not acceptable to you, I will understand perfectly and will seek assistance elsewhere.
I think this is an excruciatingly polite way to say, “Put up or shut up, Jasper.” If you can’t make this deal work where you are — move to Phoenix instead. I’ll even throw in a free home warranty…
Technorati Tags: arizona, arizona real estate, blogging, compensation for buyer representation, disintermediation, phoenix, phoenix real estate, real estate marketing
ardell dellaloggia says:
Interesting but just a tiny bit “off” in most markets. I think the median sale price of an area is more doable on a flat fee basis for anything above that commission level.
Basing the fee on the lowest possible price, is not relistic due to the amount of inventory to wade through. The lowest priced condo, is a jump on it as soon as you see one, which takes less effort than a price range that could take three months of weeding through all of the possibles, before finding “the one”.
Yes, we do sometimes sell a condo at $165,000, but that’s the one we take a loss on by close of escrow. $750,000 is not high end here. I find flat fee works in the $15,000 range, but not $5,000. I’d have to do too many of them to do a good job for any of them. Juggling too many balls at once doesn’t provide the best service level for any of the balls in the air.
I like a cap of $20,000 as in selling and buying and combining the two transactions and capping per client, vs. per transaction. A lot of trial and error is forming “a plan”.
October 25, 2006 — 1:44 pm
Greg Swann says:
> Interesting but just a tiny bit “off” in most markets.
Ardell, are you saying that the market value of an unemployed buyer’s agent exceeds $0? What you might be worth is not at issue. The point is, what price can a random un- or under-employed agent command? The alternative to whatever I might offer is nothing. The “yes” point for many of those agents is probably well below $5,000. Until every agent is working at or near capacity, the market value of the excess capacity is $0. This is the economic fact I have made it my mission to teach the home-buyers of Phoenix.
October 25, 2006 — 2:10 pm
Reuben Moore says:
Greg – I am completely with you on the revenue side. My trouble starts on the expense side. Seems to me if you are going to have a fixed income it is mandatory to control costs. The most notable, of course, being time and the costs of showing property. How are you dealing with this? Does your $5,000 fee include a certain amount of, what should we call it – field time?
We have a firm here that uses the listing agents for their buyer showings. So a buyer schedules their own showings with X given listing agents, chooses a property, and returns to the firm to go forward (for $2,000). Not my preferred model, but if it works for them, okay. But I do question whether this firm is serving the best interest of their own buyer clients? That is, is it really possible to truly protect your clients without at least seeing the subject property. You may agree that it is not. But, then, if you and your clients decide not to purchase for any given reason, do you not get to repeat this process? Or, what if a contract cannot be negotiated? For how many iterations over how much time?
My point is, isn’t it extremely difficult to predict costs? And, do you have some method for either limiting expenses or adding revenue (per client)?
October 25, 2006 — 3:49 pm
Mike Bliss says:
I heard that one of Century 21’s top agents charges 9%(!). He gets results and sells homes fast…any why not? The buyer’s agent gets a full 4.5% comission so every buyer’s agent is parading his clients through the property. Pretty smart if the seller wishes to part with that much cash.
October 27, 2006 — 12:36 pm
Broker Bryant says:
Hi Greg, Personally I don’t work with Buyers, so rebating a part of the commission to the buyer, if his Realtor wants to, is not an issue for me. In Floirda, where I work, you can legally rebate a commission to a buyer as long as it is disclosed to all parties involved in the transaction. Herein lies the problem. There are builders in our area that explicitly prohibit buyer rebates, it is written into their commission agreement(KB homes specifically). Also, one of the parties in the transaction is the Lender. A rebate must be disclosed to them as well. If the rebate is more than what a Lender will allow, as a concession, normally maxed out at 3% or 6%, it will not be allowed. To go ahead and rebate anyway, outside of closing, is mortgage fraud. So how do you handle this? What if you have agreed to rebate only to find out you can’t?
I guess you could always reduce the sales price to reflect the rebate. But that doesn’t assist in paying closing costs. To me there are just too many intangibles, that are out of my control, to able to agree to a rebate. Or am I just missing something?
October 27, 2006 — 3:43 pm
Rob Green says:
Greg, your proposal is an interesting one. I have just launched out using a form of this model and thus far have found it to be enticing to only the most serious of buyers, which is what I want anyway.
In my particular model, I provide a client with a “bid” for what my services will cost them, based on their stated goals and objectives. The retainer is a percentage of that “bid”.
My question to you is this; what has the general response been to your use of this model both in the buyer world and the opinions of your fellow agents?
June 15, 2007 — 9:09 am
Greg Swann says:
> My question to you is this; what has the general response been to your use of this model both in the buyer world and the opinions of your fellow agents?
I have yet to get anyone to play along. Buyers all love the idea when we talk about it in the car, but they’re too afraid to use it when they fall in love with that perfect house. It’s frustrating…
June 15, 2007 — 9:38 am