We're hot in pursuit of a house. We think we know which one we'd like to buy. As we're about to get into buying the house, I'm wondering if we should use a buying agent. Here are the pros and cons as I see them so far. Remember, I am a first time home buyer at the very beginning of the process. I don't know much about it and my current opinions could be bad ones.
Pros of a Buying Agent
- Proximity to the house We're 1400 miles away from the houses we're looking at. An agent could look at the house for us, do local paperwork, etc.
- Professional References A buying agent would know who to get to do the appraisals. They'll know which appraisers run high and which run low. They'll also know which building inspectors are on the level and which do a shoddy job.
- Bargaining They know the market and the business. They may be able to do a better job at knocking down a high price.
Cons of a Buying Agent
- They have conflicting interests Since the agent is paid a percentage of the house price they make more money if we spend more money. This removes motivation to help us find a lower priced house, or to bargain hard to get a price lower.
- They Do Nothing I Couldn't Do They may know what forms to fill out, but if the selling agent is interested in getting the house sold, they'll make sure I sign everything I need to.
- Higher Price The buying agent's pay has to come from somewhere. With the right negotiating it may be possible to have everyone else come out ahead by cutting the buying agent out of the picture.
This is the one I really wanted to talk about.
I called a friend yesterday who works at a real estate company and who has her real estate license. I wanted to get the scoop on buying agents to see if we were going to need one when we go to buy this house.
The quote which made me discredit everything else she said was
...and it doesn't cost you anything because the seller pays the agent fees...
OK, yes, it may be technically true that I will not be the one who writes the check to the agent, but isn't the check paid with money I just barely gave the seller?
One strategy I think we will be trying to use to lower the price is to not use a buying agent. By not using a buying agent we can pay less, the selling agent can take a larger incentive and the seller can keep more. Here's how it works in my mind.
|With Buying Agent||Without Buying Agent|
|House Price (we pay)||$100,000||$98,000|
|Selling Agent Commission||3% ($3,000)||3% + $400 as motivation ($3340)|
|Buying Agent Commission||3% ($3,000)||0% ($0)|
|Money Left for Seller||$94,000||$94,660|
We give the selling agent extra beyond the 3% commission so that he/she stands to gain from the deal. I pay $2,000 less on the house and the seller makes an extra $660. The benefit margins increase for everyone as the price of the house increases of course.
Since the selling agent and the house seller have more than likely already signed a contract stating what the commission is, reaching some sort of arrangement like the one listed above will depend on what their contract says and on their flexibility within the contract. They may be willing to break the contract if they will both come out ahead.
It will also depend on the house seller being smart enough to realize that selling the house for less money still nets him a higher return.
The Seller Agent Takes All (and splits it) Scenario
Removing the buyer agent commission will only work if the seller contract has a separate percentage for the buyer agent to earn. In some cases the selling agent will simply take a higher percentage (like 7 or 8%) and then split that with the buying agent.
In cases like these the seller doesn't have much, if anything, to gain, but I'm hoping that we'll have more power over the selling agent. We could
- Tell them that at the current price we would want the buying agent's percentage
- Tell them that if we don't get the house reduced by an appropriate amount that we will get a buying agent so that their commission is reduced
Have you used a buyers agent? Should I?
Does anyone here have experience using a buyers agent and think I should? Has anyone not used a buyers agent? How hard is it to do the paperwork on your own? We'll see how well the negotiating goes once we get closer to buying. For now we're still looking, but we're narrowing in on choices and will have to start talking to sellers soon.