As a buyer with a $1.5mm budget, which option would you go with?
Member since 2023 · 9 posts · 2 votes
As a buyer with a $1.5mm budget, which option would you go with?
Most Popular Reply
I would worry less about the agent's money and focus on getting the deal as low as possible.
27 Replies
- Member since 2023 · 9 posts · 2 votes3y
Quote from @Ian Walsh:
I would worry less about the agent's money and focus on getting the deal as low as possible.
The question is ultimately about getting the deal as low as possible.
- Lender · Fort Lauderdale, FL (Lending in FL CT GA MI PA) · Member since 2022 · 470 posts · 349 votes3y
I'd personally go with 2. You get someone looking out for your interests, and at that price point they may be able to save you that same 40k that you feel you're saving on option 3.
For option 3, I don't like the idea of paying something upfront and losing it if a deal doesn't close.
Quote from @David Weiss:
Quote from @Scott E.:
Option 2
Thanks for the feedback, would you mind elaborating on why you'd choose #2 as opposed to the other options (especially #3)?
Sure. I've bought a lot of deals using Option 1 and Option 2. So both of those are fine.
I wouldn't do a deal with an agent who has an Option 3 structure. To me that just screams 'desperate' or 'discount broker.' Which you don't want when you're looking to deploy $1.5mm.
If you go directly to the listing agent (option 1) you will be able to probably negotiate the total commission down, which might land you a bit of a better price on the house since the seller will net more. But the agent will still have a responsibility to act in the best interest of the seller (meaning they will not be there to represent you and your best interests).
A good buyers agent is worth their weight in gold. Negotiation is both a skill and an art. If you have a good buyers agent on your side, they should be able to negotiate the deal down far more than their 3% commission rate. On the last deal I bought with an agent, I bought the house for about 15% off of the asking price. Why? Because my agent is stubbornly persistent and a great negotiator.
- Lender · San Diego, CA · Member since 2022 · 130 posts · 75 votes3y
I would go with Option 2 as I am sure you will have a larger selection of qualified agents to choose from rather than Option 3. Also, having somebody on the inside with your greatest interests in mind could be a powerful tool.
- Member since 2023 · 9 posts · 2 votes3y
Quote from @Ash Hegde:
I'd personally go with 2. You get someone looking out for your interests, and at that price point they may be able to save you that same 40k that you feel you're saving on option 3.
For option 3, I don't like the idea of paying something upfront and losing it if a deal doesn't close.
It's interesting you say #2 gets me someone looking for my interests. It seems to me #2 better align's my agent's interests with those of the seller. Doesn't #3 better lay the foundation for a relationship with less potential ulterior motives? #3 doesn't have to shuffle me to the closing table to get paid. They get paid the same amount regardless whether i buy or not, and regardless of what i spend, so no motivation to make me spend more. They also wouldn't have preference for a seller offering 3% as opposed to 1.5%, and so on.
- Member since 2023 · 9 posts · 2 votes3y
Quote from @Scott E.:
Quote from @David Weiss:
Quote from @Scott E.:
Option 2
Thanks for the feedback, would you mind elaborating on why you'd choose #2 as opposed to the other options (especially #3)?
Sure. I've bought a lot of deals using Option 1 and Option 2. So both of those are fine.
I wouldn't do a deal with an agent who has an Option 3 structure. To me that just screams 'desperate' or 'discount broker.' Which you don't want when you're looking to deploy $1.5mm.
If you go directly to the listing agent (option 1) you will be able to probably negotiate the total commission down, which might land you a bit of a better price on the house since the seller will net more. But the agent will still have a responsibility to act in the best interest of the seller (meaning they will not be there to represent you and your best interests).
A good buyers agent is worth their weight in gold. Negotiation is both a skill and an art. If you have a good buyers agent on your side, they should be able to negotiate the deal down far more than their 3% commission rate. On the last deal I bought with an agent, I bought the house for about 15% off of the asking price. Why? Because my agent is stubbornly persistent and a great negotiator.
Just seems so odd to me that you'd rely on the agent to persistently negotiate the price down on your behalf, considering the commission structure incentives him not to, no? I'd have more confidence in #3 to do that, at least he doesn't have such a conflict of interest.
Quote from @David Weiss:
Quote from @Scott E.:
Quote from @David Weiss:
Quote from @Scott E.:
Option 2
Thanks for the feedback, would you mind elaborating on why you'd choose #2 as opposed to the other options (especially #3)?
Sure. I've bought a lot of deals using Option 1 and Option 2. So both of those are fine.
I wouldn't do a deal with an agent who has an Option 3 structure. To me that just screams 'desperate' or 'discount broker.' Which you don't want when you're looking to deploy $1.5mm.
If you go directly to the listing agent (option 1) you will be able to probably negotiate the total commission down, which might land you a bit of a better price on the house since the seller will net more. But the agent will still have a responsibility to act in the best interest of the seller (meaning they will not be there to represent you and your best interests).
A good buyers agent is worth their weight in gold. Negotiation is both a skill and an art. If you have a good buyers agent on your side, they should be able to negotiate the deal down far more than their 3% commission rate. On the last deal I bought with an agent, I bought the house for about 15% off of the asking price. Why? Because my agent is stubbornly persistent and a great negotiator.
Just seems so odd to me that you'd rely on the agent to persistently negotiate the price down on your behalf, considering the commission structure incentives him not to, no? I'd have more confidence in #3 to do that, at least he doesn't have such a conflict of interest.
You have clearly come to the forums with your mind made up, so I'm not sure why you posed the question to begin with.
I will spell this out very clearly to be sure that nothing is up for interpretation: Option #3 is a bad plan.
I would never, and I mean never hire an agent who was willing to take a $5,000 flat fee on a $1.5mm transaction (unless I brought them the deal myself).
You want a discount broker to be doing your negotiations? Be prepared to pay more than necessary for the deal. It's that simple.
Last I'll just speak to your point about the commission structure incentivizing an agent to get you to pay more for the property. In real life, this couldn't be farther from the truth.
-If you pay $1.5mm for the deal, your agent at 3% will make $45,000
-If you pay $1.35mm for the deal, your agent at 3% will make $40,500
A good real estate agent will negotiate that thing down for you all day long. Because good real estate agents are in this for the long term relationship. They know that if they perform for you today, they are going to get your business potentially for a lifetime. Think they will jeopardize that over a measly $4,500?
- Investor · Houston, TX · Member since 2015 · 17 posts · 2 votes3y
This sounds like the folks that say they don't want to pay for airdna, but then they go buy a $700k house. Makes zero sense. If you're prepared to invest in a $1.5M property, wouldn't you want someone there to help support your investment?
- Member since 2023 · 113 posts · 129 votes3y
Option 4 is to get your own real estate license. This is what I ended up doing after a couple of deals. The pre-licensing education requirement was a little tedious, but not hard, and the exam wasn't too difficult either.
Aside from the possibility of representing yourself, having your own license also allows you to negotiate for commission spits or discounts if you do decide to hire another agent to represent you.
I've also made some pretty good side money on commission splits when I refer friends and family to another agent.
- Member since 2023 · 9 posts · 2 votes3y
Quote from @Craig Jones:
Option 4 is to get your own real estate license. This is what I ended up doing after a couple of deals. The pre-licensing education requirement was a little tedious, but not hard, and the exam wasn't too difficult either.
Aside from the possibility of representing yourself, having your own license also allows you to negotiate for commission spits or discounts if you do decide to hire another agent to represent you.
I've also made some pretty good side money on commission splits when I refer friends and family to another agent.
I did the same, but I can understand why most people wouldn't want to spend the time & effort, esp if they're not investors. I'm considering letting it laps, and I'd be more inclined to do that if option #3 was more readily available when i need it. Without that being the case I'll probably renew my license just in case.
- Member since 2023 · 9 posts · 2 votes3y
Quote from @Scott E.:
Quote from @David Weiss:
Quote from @Scott E.:
Quote from @David Weiss:
Quote from @Scott E.:
Option 2
Thanks for the feedback, would you mind elaborating on why you'd choose #2 as opposed to the other options (especially #3)?
Sure. I've bought a lot of deals using Option 1 and Option 2. So both of those are fine.
I wouldn't do a deal with an agent who has an Option 3 structure. To me that just screams 'desperate' or 'discount broker.' Which you don't want when you're looking to deploy $1.5mm.
If you go directly to the listing agent (option 1) you will be able to probably negotiate the total commission down, which might land you a bit of a better price on the house since the seller will net more. But the agent will still have a responsibility to act in the best interest of the seller (meaning they will not be there to represent you and your best interests).
A good buyers agent is worth their weight in gold. Negotiation is both a skill and an art. If you have a good buyers agent on your side, they should be able to negotiate the deal down far more than their 3% commission rate. On the last deal I bought with an agent, I bought the house for about 15% off of the asking price. Why? Because my agent is stubbornly persistent and a great negotiator.
Just seems so odd to me that you'd rely on the agent to persistently negotiate the price down on your behalf, considering the commission structure incentives him not to, no? I'd have more confidence in #3 to do that, at least he doesn't have such a conflict of interest.
You have clearly come to the forums with your mind made up, so I'm not sure why you posed the question to begin with.
I will spell this out very clearly to be sure that nothing is up for interpretation: Option #3 is a bad plan.
I would never, and I mean never hire an agent who was willing to take a $5,000 flat fee on a $1.5mm transaction (unless I brought them the deal myself).
You want a discount broker to be doing your negotiations? Be prepared to pay more than necessary for the deal. It's that simple.
Last I'll just speak to your point about the commission structure incentivizing an agent to get you to pay more for the property. In real life, this couldn't be farther from the truth.
-If you pay $1.5mm for the deal, your agent at 3% will make $45,000
-If you pay $1.35mm for the deal, your agent at 3% will make $40,500
A good real estate agent will negotiate that thing down for you all day long. Because good real estate agents are in this for the long term relationship. They know that if they perform for you today, they are going to get your business potentially for a lifetime. Think they will jeopardize that over a measly $4,500?
I appreciate the feedback, but your assumption about my mind being made up is wrong and without basis. That option is obviously the most out-of-the-ordinary, and I am curious about why that is, since it does make better sense to me on paper than #2.
- Real Estate Agent · Denver, CO · Member since 2022 · 356 posts · 228 votes3y
great question! I guess you have to ask yourself a couple of things before you make any decisions.
1. If you aren't using an agent, how comfortable are you negotiating a 1.5mil deal? Do you know about concessions, temporary buydowns, contracts, how to negotiate inspections, appraisals, final walk throughs, organize the deal with title? There are A LOT of things agent do behind the scenes that most folks don't know about. If you are comfortable and have good experience doing these things, then definitely go this route!
2. Regarding the discount agent...someone who is charging only a flat fee to you is scary. To your point of no incentive to get you to the closing table..the key word is incentive. I would assume their only incentive is to get you to sign with him, after that, they has no incentive of negotiating you a better deal or not. You have to realize, any excellent buyers agent is going to do EVERYTHING they can to get you the best deal possible. If they do that, you are their best referral partner. Their reputation is critical, and I can't speak for anyone else, but I would never do anything to jeopardize that with my clients. If there are things missed because you hired the cheapest agent you can find, it could cost you far more than you thought by trying to skimp out on having a professional work for you.
Best of luck with everything.
- 3yDoug SmithPro MemberLender · Tampa, FL · Member since 2013 · 2k+ posts · 2k+ votes
I think a lot has to do with what the agent brings to the table. Have they invested themselves? How much? Do they have a background and track record of working with investors. What exactly do they advise on? If they are simply slap it on the MLS, you can train a monkey to do that. If they are really good with the negotiation part, are well versed in codes and the permitting process, know what they are looking at when they look at a deal, come up with great ARVs and have real insight, and can provide sound, thoughtful advice during the design process, then hold on to that agent. There aren't many of them out there.
- Member since 2019 · 7k+ posts · 4k+ votes3y
Quote from @David Weiss:
Pretend you’re looking to buy a property in Florida (or wherever the market works similarly enough for this question to make sense) and your budget is $1.5mm. Would you:
Option 1. Not use a buyer’s agent at all, just shop around yourself & let the listing agent keep the full commission.
Option 2. Use a regular buyers’ agent, who will get paid out of the listing agent’s commission (typically 2.5% - 3.0% here in Florida) if he gets you to the closing table.
Option 3. Use a “flat-fee” agent who charges a flat $5,000 and credits you the commission he’s entitled you at closing (effectively saving you up to $40k on the purchase, but costing you $5k out of pocket even if you end up not buying)
This is for buying , correct ?
Just use option 3.
Reason is simple. Inventory is very limited anyway. And the "negotiation" hahaha .... do yoy think negotiation is working by the buyer agent, no it relies on the desperation of seller LOLIn all seriousness, modern transaction should not need buyer and seller agent. Just like buying a car in Carmax. You like it you buy with no haggle price
- Member since 2023 · 9 posts · 2 votes3y
Quote from @Kenny Smith:
great question! I guess you have to ask yourself a couple of things before you make any decisions.
1. If you aren't using an agent, how comfortable are you negotiating a 1.5mil deal? Do you know about concessions, temporary buydowns, contracts, how to negotiate inspections, appraisals, final walk throughs, organize the deal with title? There are A LOT of things agent do behind the scenes that most folks don't know about. If you are comfortable and have good experience doing these things, then definitely go this route!
2. Regarding the discount agent...someone who is charging only a flat fee to you is scary. To your point of no incentive to get you to the closing table..the key word is incentive. I would assume their only incentive is to get you to sign with him, after that, they has no incentive of negotiating you a better deal or not. You have to realize, any excellent buyers agent is going to do EVERYTHING they can to get you the best deal possible. If they do that, you are their best referral partner. Their reputation is critical, and I can't speak for anyone else, but I would never do anything to jeopardize that with my clients. If there are things missed because you hired the cheapest agent you can find, it could cost you far more than you thought by trying to skimp out on having a professional work for you.
Best of luck with everything.
Thanks
- Member since 2023 · 9 posts · 2 votes3y
Quote from @Carlos Ptriawan:
Quote from @David Weiss:
Pretend you’re looking to buy a property in Florida (or wherever the market works similarly enough for this question to make sense) and your budget is $1.5mm. Would you:
Option 1. Not use a buyer’s agent at all, just shop around yourself & let the listing agent keep the full commission.
Option 2. Use a regular buyers’ agent, who will get paid out of the listing agent’s commission (typically 2.5% - 3.0% here in Florida) if he gets you to the closing table.
Option 3. Use a “flat-fee” agent who charges a flat $5,000 and credits you the commission he’s entitled you at closing (effectively saving you up to $40k on the purchase, but costing you $5k out of pocket even if you end up not buying)
This is for buying , correct ?
Just use option 3.
Reason is simple. Inventory is very limited anyway. And the "negotiation" hahaha .... do yoy think negotiation is working by the buyer agent, no it relies on the desperation of seller LOLIn all seriousness, modern transaction should not need buyer and seller agent. Just like buying a car in Carmax. You like it you buy with no haggle price
I agree
Quote from @David Weiss:
Quote from @Carlos Ptriawan:
Quote from @David Weiss:
Pretend you’re looking to buy a property in Florida (or wherever the market works similarly enough for this question to make sense) and your budget is $1.5mm. Would you:
Option 1. Not use a buyer’s agent at all, just shop around yourself & let the listing agent keep the full commission.
Option 2. Use a regular buyers’ agent, who will get paid out of the listing agent’s commission (typically 2.5% - 3.0% here in Florida) if he gets you to the closing table.
Option 3. Use a “flat-fee” agent who charges a flat $5,000 and credits you the commission he’s entitled you at closing (effectively saving you up to $40k on the purchase, but costing you $5k out of pocket even if you end up not buying)
This is for buying , correct ?
Just use option 3.
Reason is simple. Inventory is very limited anyway. And the "negotiation" hahaha .... do yoy think negotiation is working by the buyer agent, no it relies on the desperation of seller LOLIn all seriousness, modern transaction should not need buyer and seller agent. Just like buying a car in Carmax. You like it you buy with no haggle price
I agree
You finally got the answer you were looking for ;)
The best answer is going to depend on your circumstances. For each option:
1: You, as the buyer, have plenty of time, market knowledge and ability to negotiate and understand the offer/contracts/closing process. If you understand what you're doing and have the time/energy for it, do it yourself.
2: Have a trusted realtor who is interested in developing a long-term business relationship with you. As a realtor myself, I can tell you most don't think long-term and just desperate to make a quick buck. I'd advise finding a realtor who is also an investor (like myself) and doesn't need your money. I say that seriously as goofy as it sounds haha. Talk to a few agents and see who can really help you towards your goals.
3. I am not a fan of paying someone any amount of money if no deal closes. It's a fixed fee so it's like why would the agent try really hard if he knows he gets 5k for doing a crap job or amazing job. A good agent will work hard regardless of pay level... but I think most good agents wouldn't accept a flat fee deal like this.
- Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes3y
Option 2, as needed but I wouldn't sign an exclusive buyers agreement or whatever the term is.
My best deals have all been completely off-market, belly to belly. The seller's liked that no agents were involved.
But if a unicorn appears and you find something on the MLS, I'd want to be able to bring in my Rockstar buyers agent for that one transaction. The collusive structure of listing agreements has the seller 'paying' for my agent anyway.
- 3yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Quote from @Scott E.:
Quote from @David Weiss:
Quote from @Scott E.:
Quote from @David Weiss:
Quote from @Scott E.:
Option 2
Thanks for the feedback, would you mind elaborating on why you'd choose #2 as opposed to the other options (especially #3)?
Sure. I've bought a lot of deals using Option 1 and Option 2. So both of those are fine.
I wouldn't do a deal with an agent who has an Option 3 structure. To me that just screams 'desperate' or 'discount broker.' Which you don't want when you're looking to deploy $1.5mm.
If you go directly to the listing agent (option 1) you will be able to probably negotiate the total commission down, which might land you a bit of a better price on the house since the seller will net more. But the agent will still have a responsibility to act in the best interest of the seller (meaning they will not be there to represent you and your best interests).
A good buyers agent is worth their weight in gold. Negotiation is both a skill and an art. If you have a good buyers agent on your side, they should be able to negotiate the deal down far more than their 3% commission rate. On the last deal I bought with an agent, I bought the house for about 15% off of the asking price. Why? Because my agent is stubbornly persistent and a great negotiator.
Just seems so odd to me that you'd rely on the agent to persistently negotiate the price down on your behalf, considering the commission structure incentives him not to, no? I'd have more confidence in #3 to do that, at least he doesn't have such a conflict of interest.
You have clearly come to the forums with your mind made up, so I'm not sure why you posed the question to begin with.
I will spell this out very clearly to be sure that nothing is up for interpretation: Option #3 is a bad plan.
I would never, and I mean never hire an agent who was willing to take a $5,000 flat fee on a $1.5mm transaction (unless I brought them the deal myself).
You want a discount broker to be doing your negotiations? Be prepared to pay more than necessary for the deal. It's that simple.
Last I'll just speak to your point about the commission structure incentivizing an agent to get you to pay more for the property. In real life, this couldn't be farther from the truth.
-If you pay $1.5mm for the deal, your agent at 3% will make $45,000
-If you pay $1.35mm for the deal, your agent at 3% will make $40,500
A good real estate agent will negotiate that thing down for you all day long. Because good real estate agents are in this for the long term relationship. They know that if they perform for you today, they are going to get your business potentially for a lifetime. Think they will jeopardize that over a measly $4,500?
Truth full stop !!!!!! anyone who thinks an agent is trying to raise the price to the buyer so they can make a little more commish has no clue how the industry works or the mind of agents.. Agents want deals to close period end of discussion and are not going to try to make them an extra few grand that's ridiculous thinking and simply not at all reality. - Realtor · Providence, RI · Member since 2022 · 404 posts · 262 votes3y
@David Weiss - when using a buyers agent, you are basically getting free consulting services plus access to all of the agents connections; so why not option 2? With option 3, you are likely limiting yourself to a few agents who may or may not be best suited to add value for you.
- Member since 2023 · 113 posts · 129 votes3y"Agents want to close deals" is exactly right. The incremental commission on the higher price is not the point. Agents will push buyers to pay a higher price to close the deal. We can tell ourselves that "this is in service to my client, so they can get the property they wanted." But it's also "so I can get the commission instead of some other agent." It's nearly impossible to take self-interest out of the equation. It's not malicious (for most agents, anyway). Just human nature.
Quote from @Jay Hinrichs:
Truth full stop !!!!!! anyone who thinks an agent is trying to raise the price to the buyer so they can make a little more commish has no clue how the industry works or the mind of agents.. Agents want deals to close period end of discussion and are not going to try to make them an extra few grand that's ridiculous thinking and simply not at all reality.
There's a great section in the book "Freakonomics" using data to prove this out. The scenario is slightly different -- comparing sale prices when agents sold their own homes vs. clients' homes. But I think it works the same way on the buy side.
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