We have been focussing on new construction and have been meeting directly with builders and their agents. We have not been represented by a buyer’s agent up to now. Our strategy has been to save on commission by dealing with a single party.
We recently looked at several resales where we sought out the listing agents, with the same commission saving strategy. We found a home we like, but the seller is being relocated by his company. The seller will be reimbursed for a full commission paid to the seller’s realtor. The normal strategy of reducing the commission has disappeared as any reduction in commission will ultimately result in less money in the seller’s pocket.
First, I’d be curious where you learned your commission reducing strategy. Is it something you read somewhere or learned at a seminar, or did you work it out on your own? I ask, because, while it is not impossible, it seems to me to be very implausible.
A new home builder pays a buyer’s agent’s commission as a gratuity to that agent for making the introduction. In Arizona, licensees are expected to actually represent their new-home buyers, but the builder certainly doesn’t want or expect this. I can drop off a party just like dumping the kiddies off at day-care and still get paid. I do not endorse this way of working — just the opposite — but the builder would have no problem with it.
But: Because the builder is paying an agent to introduce the buyer to the builder, why would the builder pay you anything. You’re already there for free. The sine qua non event the builder might be willing to pay me to effect has already been effected without any need to pay a bribe. This is why builders won’t let me represent you if you show up at a new home subdivision without me: The introduction has already taken place. What do they need me for?
In fact, right now — and uniquely right now — you just might be able to get builders to cough up some extra coin to get your name on the paperwork. I doubt they would give you as much as they would have given your buyer’s agent — this on top of all the other incentives they might give you — but you never can tell.
The other end of this, going for the buyer’s agent’s share of the commission on a resale home, is probably even more hopeless. The contract for the commission is between the seller and the listing agent. If the listing agent is the procuring cause of the sale — meaning the listing agent exclusively initiated an unbroken chain of events leading to the sale of the home — the listing agent is entitled to 100% of the sales commission, per the terms of the Listing Agreement.
There are gray areas, and we bat them around quite a bit here and at other real estate weblogs. But from the standpoint of real estate law, the listing agent has no reason to share any commission with you. As with the builders, it doesn’t hurt to ask, but I’d be surprised if you got happy news even one time out of twenty.
In other words, your commission reducing strategy seems unlikely to me to work even now, in a very strong buyer’s market. In a balanced or seller’s market, it would never fly at all.
Question #1: Can I now hire a buyer’s agent to represent me after being shown the property by the listing agent?
Probably not. The listing agent can agree to permit you to do this, but doesn’t have to. The listing agent is the procuring cause of the sale and is entitled to the full commission. If you interviewed buyer’s agents, they would probably shun you unless the procuring cause issue had been dealt with in writing.
For what it’s worth, if you asked me if you could bring in a buyer’s agent, I would say yes in a heartbeat — but it’s not because I’m a nice guy.
Question #2: Can I make a arrangement for the buyer’s agent to “reimburse me” for all the leg-work I have done in seeking out the property. I would like to propose a 50-50 split of the buyer agent’s commission. The agent merely needs to present the offers. No showing work or researching for me.
Assuming the procuring cause issue has been dealt with, this is eminently doable. For now at least, I would represent you in a situation like that for a flat fee of $5,000. I have a bunch of new builds in play on those terms. At least 25% of the National Association of Realtors is essentially unemployed, so negotiating a favorable commission shouldn’t be hard. Right now the commissions on spec homes can be outrageous, as much as 10%. If you bought a $300,000 home and paid me $5,000, you might have $25,000 to throw at your down payment. This is why you should always take your agent with you to look at new builds. Even on resale, you could get $4,000 from me, maybe a lot more from a hungry agent.
The important point here is that, at least in Arizona, it is perfectly legal for your agent to rebate a portion of his commission to you. Everything needs to be ratified on the HUD-1, and the gifted funds may be taxable to you as income — check with your accountant. In any case, this much is doable and probably not difficult.
Question #3: If the above options are not available, how can I get the listing agent to provide benefit to me for the fact that they are getting dual commission merely because I sought them out? Can I have a contractual relationship with selling agent similar to Question 2 above of to provide some of my desired upgrades after the sale? Can I encourage the selling agent to pay for seller upgrades, so the price remains high for the seller, while I receive upgrades in the sale.
You can ask for anything you want. The listing agent does not have to say yes, and doesn’t actually owe you anything for the legwork you have done. In this market, I would not hesitate to ask for anything, but don’t be surprised if the answer is no. If you want to discount a house, discount it. You can make the offer more attractive by making a large earnest deposit, by paying cash or making a large down payment, by waiving repairs, etc.
In fact, it might make sense for a listing agent to make a deal such as you suggest. Houses are selling in Phoenix at a fairly normal rate, but our standing inventory is very large. If I can get you to take my listing off the market, that might make sense to me. Fifty percent of something is more than one-hundred percent of nothing. Even so, I would expect an appeal like this succeed very rarely.
Four other contributors to BloodhoundBlog have broker’s licenses, and one or more of them may take a swing at the ball, so you may get more (or less!) encouraging words from one of them.
For my part, the house is the house. It’s worth what it’s worth. Right now, in Phoenix at least, homes are worth less than they were a year ago, but not much less. You may be able to get some discounting from the seller — particularly from new home builders. Your chances of getting commission rebates from a buyer’s agent are pretty good right now, provided the buyer’s agent’s right to get paid is protected. Your chances of getting a commission rebate from a builder or a listing agent might be better right now than they have ever been before. But they are still not very good…
Technorati Tags: real estate marketing
Buzz Saw says:
Why do I need a realtor to make an introduction? Can’t I, as the buyer, just walk up to the builder’s office and introduce myself? Oh, BTW, congratulations, you made the list.
December 5, 2006 — 10:47 am
Jonathan Dalton says:
> Can I now hire a buyer’s agent to represent me after being shown the property by the listing agent?
I’d actually answer an unequivocable yes, as long as the buyer understands they’re really doing the hiring and will be paying for the agents’ services themselves. Which most likely isn’t what this question was meant to ask.
Buyers can be represented whenever they choose, so long as they are willing to pay for that representation. It’s when they are relying on their agent being paid through co-broke fees that issues such as procuring cause come into play.
December 5, 2006 — 11:09 am
Greg Swann says:
> It’s when they are relying on their agent being paid through co-broke fees that issues such as procuring cause come into play.
Absolutely right. Although I might add that the whole conundrum seems to me to be a decent argument for splitting the buyer’s agent’s compensation away from the Listing Agreement. If the listing agent doesn’t want to show without a Buyer Broker Agreement, that’s fine.
December 5, 2006 — 11:16 am
Samuel says:
Why not just form a LLC and sign a buyer broker agreement with the LLC, then after the purchase dissolve the LLC and pay all the fees received to yourself?
If the problem is that some party won’t recognize “you” as your own broker, simply form some other legal entity that you control to be your broker.
December 5, 2006 — 12:13 pm
Greg Swann says:
> Why not just form a LLC and sign a buyer broker agreement with the LLC
You have to have a real estate license to receive compensation for work done incident to the transfer of real property. I would love it if these idiotic laws were done away with.
December 5, 2006 — 12:18 pm
Kris Berg says:
I am starting to agree with Greg that divorcing the buyer- and seller-side real estate commissions may in fact be a good idea. Now, I am definitely not a real estate attorney, but every attorney I have posed the question to over the years has stated unequivocally that, absent a buyer-broker agreement, the procuring cause is the one that puts pen to paper and signs as the agent on the purchase offer. In my market, a buyer is quite likely to find an agent, listing or otherwise, who is willing to credit commission, particularly in the case where “I found the home, now write the offer”. In the case of new home builders, it is my experience that the commissions offered to cooperating brokers and the buyer concessions are paid from two distinct pots; one has nothing to do with the other. Therefore, your ability to negotiate price and upgrade concessions is not compromised by the presence of an agent in the transaction. In short, it is not only possible to bring an agent into the transaction, but advised. And in this market, the agent can actually bring value as there is indeed negotiating that can and does take place prior to contract.
Now, I feel compelled to point out that I always find being so consumed with the agent’s fees in a real estate transaction somewhat trivial. Finding a property that meets your needs and that you are excited about, negotiating the best possible purchase price, having your rights protected and advocated during escrow, these are the much bigger issues in my opinion. And in the case of dual agency, it is a funny thing how everyone thinks they will derive the benefit from a reduced real estate fee, if in fact one exists. Many, many sellers negotiate a reduced commission if the transaction involves dual agency at the listing contract stage, so that they would expect any value in a “listing agent shopper” to accrue to them. Sure, the listing agent can credit some portion of their commission to the buyer but, as Greg points out, it is up to that particular agent. And, if they have already effectively given up that commission, but to the seller, then we are back to negotiating the old fashioned way to determine who will lay stake to that money. The bottom line is the bottom line, and that is all anybody should care about.
December 5, 2006 — 1:51 pm
Todd Tarson says:
Oh no, Greg. You made the list of incoherent ramblings by an anyomous blogger. Darn.
As to the question posed… probably should have asked you about this before the buyer did any of the leg work first. Certainly could have made a nicer deal for themselves.
December 5, 2006 — 2:59 pm
Greg Swann says:
> Oh no, Greg. You made the list of incoherent ramblings by an anyomous blogger. Darn.
You cannot imagine how insulted I am to be equated to Donald Trump.
For the record, I have never posted a comment on any BubbleBlog, nor will I.
December 5, 2006 — 3:17 pm
Buzz Saw says:
Oh no, Greg. You made the list of incoherent ramblings by an anyomous blogger. Darn.
You realtors are publicity hounds, I prefer to remain “anyomous”.
For the record, I have never posted a comment on any BubbleBlog, nor will I.
Your objection is duly noted. Not that you care, but I appended my blog entry:
1) To be fair, this is an allegation was previously made by Keith at Housing Panic and which I recently found out Greg Swann denies.
December 5, 2006 — 5:00 pm
Gena Riede says:
Greg,
First time posting here. If I read your blog correctly, you indicated that the buyer’s agent could credit money back to the buyer as long as it was on the HUD. Recently, due to all the fraud, I attended some video seminars and read quite a few blogs from attorneys regarding this subject. One of the key note speakers addressing Remax Brokers, emphasized that the FBI is looking very closely at transactions (HUD statements) and when they find a Realtor who continually credits clients, they will investigate. It would appear that this is a practice that is not so agreeable with the Feds. I recently blogged about this on SacramentoRealEstateVoice.com – thought I would share this with you and get your point of view as well as some of your followers.
December 5, 2006 — 5:24 pm
Doug Quance says:
I am always somewhat amused by the beliefs of some buyers.
While the concept of trying to get a good deal is not foreign to me… the idea of the buyer getting a better deal because they found a home is ludicrous. The job of a listing agent is to promote a listing – both to the public as well as to other agents.
Even more ludicrous is the idea that the buyer should get some sort of a rebate after the fact. Here in Atlanta, most of the listing agreements with builders usually involve a heavily discounted brokerage fee for unrepresented buyers. As in slightly more than the co-broke. And these agents split their commissions with their brokers… so it usually works out to a 1.75% commission to the agent.
And many resale listing agreements, as Kris pointed out, also involve discounts when the listing agent has both sides of the transaction. Russell Shaw makes this arrangement very public, as do many others. It’s a very common occurrence.
So, trying to go in after you view a home and attempting to cut a deal might not get the desired effect. Doesn’t hurt to ask… but don’t hold your breath.
As Greg pointed out, you would be better off finding an agent that would allow you a rebate to do the legwork… and at least you would be represented.
Here in Georgia, it is my understanding that the HUD only needs to reflect the rebate if the money is used in the transaction. Many rebates are paid a week or two after closing, and have no impact on the transaction – and therefore do not need to be on the HUD. As far as I know, this practice has passed the legal tests, so the FBI can investigate all they want. Either it’s a crime… or it’s not. I have never heard of a charge, much less a conviction, regarding the practice.
Personally, I think you would be better off finding a good competent agent that will give you good, practical advice – and find the best home for yourself… and not the agent that you think you will get the most cash-back working with.
December 5, 2006 — 9:36 pm
Nick Davis says:
Doug,
It’s my understanding that a rebate of commission used to pay settlement charges must be on the HUD-1. If a financial payment is made directly to your client after closing, then this is really deemed a “gift” and doesn’t need to be on the HUD-1. Many states allow gifts, so long as they are given directly to a principle.
If you take your buyer out for an expensive dinner after settlement, do you call the settlement company to make sure the $500 tab is on the settlement statement and approved by lender? Or how about the tickets to a 49er’s game? Does all this have to be disclosed to the lender or seller? There is not enough room on the HUD-1 for all this! It gets to be an absurd argument.
February 27, 2007 — 3:42 pm