Agent comm on cash purchase
My biz partners and I found a house on the MLS and used an agent to make a cash offer, which was accepted and we paid 3% commission. I don't mean any disrespect to agents, but we can't help but feel like the 3% was overpaying for this. We're new and maybe that's just the deal we all have to accept. Any thoughts on this? Do investors often negotiate this cost down for purchases like this where the agent played a small part in the process?
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A little out of the norm that you "the buyer" paid the agent the 3%.
How did that come about?
Originally posted by @Jacob Stark:
My biz partners and I found a house on the MLS and used an agent to make a cash offer, which was accepted and we paid 3% commission. I don't mean any disrespect to agents, but we can't help but feel like the 3% was overpaying for this. We're new and maybe that's just the deal we all have to accept. Any thoughts on this? Do investors often negotiate this cost down for purchases like this where the agent played a small part in the process?
Jacob - it's not normal for the buyer to pay the 3%. Additionally, you can ALWAYS negotiate commissions. If the seller would not pay the agent I might offer them $500 - $1000 for their time. How much did you buy the property for? Might have been an expensive mistake :(
Your agent might have got a 3% commission, but my guess is it was actually paid by the seller. I've bought a fair amount of houses and have never paid any commission as a buyer.
@James Wise and @Justin Tahilramani,
Good catch on my post and let me correct myself (rookie mistake). We didn't pay the commission, the seller did, but we feel like that could have been a negotiating point for us if we had an agent willing to do the "formalities" for a lesser commission when we found the property. In the end, we're paying in some way, right? It's good to hear you say that commissions are always negotiable. We're thinking we should negotiate this with our agent but don't want to feel like we're coming from left field on this. Just have to pose as a good business decision for both parties.
The agent did not get paid for helping you buy. The agent was paid to list and market the property. You found it - so they did their job, and you were a cash buyer, so they did their job well! Congrats on the purchase - stop overanalyzing what you paid to and to who.
@Travis Lloyd, I appreciate your candor, but I'm not sure I was clear here. Our agent didn't market the house at all. We found the property and she just handled the paperwork. We're just trying to think about future deals if it makes sense to negotiate this down, only in scenarios like this where we found the property, which could happen given our personal reach in the neighborhood. Thanks.
@Jacob Stark I get it now - thought you were talking about the listing agent. Well the truth is this - if the property is on the MLS, the seller has already signed an agreement to pay a certain percentage for the sale (5-6%). The listing agent then (usually) splits that between themselves and the buyer's agent. The only way to get a "discount" on the BAC (buyer's agent commission) would be for the agent to agree to PAY you part of that commission. There is technically an alternative whereby your offer goes in noting that the buyer's agent will accept a lower commission, allowing you to make a lower offer. But most agents won't work for less than 1.5% (because they still have to split with their broker), so at most you might save 1.5%. Also, this is rare overall.
If you find a house through your personal reach in the neighborhood, then it will be unlisted and you won't need any agent! Anything found on the MLS is not really found through "personal touch" lets be honest. It's listed for sale and marketed to the world through this fancy world-wide web thingy!
I don't know what your exit strategy is, but if your goal is to flip - give the agent the full commission on the purchase (you don't pay it after all) but leverage the relationship and that commission for a discounted listing commission! 1-1.5% of the ARV is going to be more, and that part is something agents are more willing to negotiate on.
Here's the way it (usually) works: an agent gets a listing contract and in it they arrange to be paid a commission (say 6%) by the seller. When the sale happens, the listing agent gives a share of that commission (usually around 50% of it) to the buyer broker (or co-operating broker, as it's called in some areas). If there is no buyer broker, then the listing broker keeps the whole commission. Yes, you can negotiate around that. But really, if you "don't use a broker" on an mls listed property, then what you're doing is using the listing broker to handle the transaction for you. That does leave you without an advocate in the process - maybe not a problem, maybe so, it depends on the deal.
The best way to remove that pesky commission is to become an agent yourself, then you could offer a lower price with the stipulation that you won't be taking a buyer agent co-op. Or, you could just collect the commission yourself.
If you want to avoid commissions altogether, buy stuff that's not on the mls. I think you'll find that there's a little more to handling title, escrow, closing, etc than you think. Not saying it's rocket science, lol, but still...
@Travis Lloyd, that was a great response and good insight to share. I really appreciate it. Thanks for taking the time to explain. I like the point about paying it and leveraging toward the listing. I hadn't thought about it that way at all.
Thanks @Jean Bolger, I think one of us getting our license is ultimate answer here, at least for buying like this. Listing and marketing our flip is something we'll likely always want help with. I appreciate your response.
Yes, like the above said, the seller has already negotiated the commission rate. I have not seen a situation where the agent agreed to lower the commission and have it effect the sales price. It is also not just about the paperwork. It is about having someone in your corner making sure you aren't getting screwed and that you are buying a property has a clear title and disclosing any issues. At least that is what a good realtor does and good realtors don't negotiate commissions. If you want to develop a relationship with an agent, they will usually rebate you on the sell side.
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Originally posted by @Jacob Stark:
@James Wise and @Justin Tahilramani,
Good catch on my post and let me correct myself (rookie mistake). We didn't pay the commission, the seller did, but we feel like that could have been a negotiating point for us if we had an agent willing to do the "formalities" for a lesser commission when we found the property. In the end, we're paying in some way, right? It's good to hear you say that commissions are always negotiable. We're thinking we should negotiate this with our agent but don't want to feel like we're coming from left field on this. Just have to pose as a good business decision for both parties.
Most listing agreements are written in a way that seller agrees to pay a brokerage/agent x amount of commission. Let's say that amount is 6%.
The brokerage/agent then offers some of that to all the other brokerages/agents around town. Let's say that amount is half or 3%.
If the original brokerage/agent finds a buyer without the help of another brokerage that agent is still being paid the full 6%.
If another brokerage/agent brings in a buyer (you) its because they were offered a 3% commission.
Some investors think agents are a dime a dozen and not worth much. Many are a dime a dozen but some are very skilled.
I guarantee you that if you continue your career expecting your agent to give you part of their commission you will never work with a skilled agent.
You will always get the bottom of the barrel. Maybe that will work for your business, maybe it won't.
Only you can decide what is more important. Squeezing out a few percentage points via kickbacks or having a skilled agent on your team.
Some don't need a skilled agent. Some do. Some just need doors opened. Some become agents just so they can open their own doors and recieve that 3% themselves.
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Originally posted by @Jacob Stark:
@James Wise and @Justin Tahilramani,
Good catch on my post and let me correct myself (rookie mistake). We didn't pay the commission, the seller did, but we feel like that could have been a negotiating point for us if we had an agent willing to do the "formalities" for a lesser commission when we found the property. In the end, we're paying in some way, right? It's good to hear you say that commissions are always negotiable. We're thinking we should negotiate this with our agent but don't want to feel like we're coming from left field on this. Just have to pose as a good business decision for both parties.
"Bulls make money, and bears make money, but pig only get slaughtered"
Old stock trader expression.
Who cares how big a commission the agents are getting? After all, they're just working for "tips".
If you focus on the deal and not being cheap, you'll have a much better chance of attracting both money and profits. That's the way money works. Really.
