As a buyer with a $1.5mm budget, which option would you go with?
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)
Quote from @David Weiss:That usually resolves most concerns.
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.
Everything you're talking about is on market. Your strategy should be different for off market because both sellers and buyers are motivated by excluding brokers where possible. As an investor and a broker here's my 2 cents.
In scenario 3 your agent has no incentive to perform whatsoever. They make $5k. Someone would be happy for you you give them $5k, set up automated listing alerts and ghost you while they spend their time hunting for listings that will pay them 6% of asking price. You'd be paying for at worst snake oil and at best a bad negotiator. This is the definition of penny smart dollar stupid.
Option 1 is bad because listing agents often sign a single agent listing agreements or with consent to transition to a transaction agent. In single agent relationships the listing agent is a fiduciary to their seller. Their interests are the opposite of yours. In a transaction relationship capacity they can negotiate both sides and sure, they can kick in some of their own money to make it work when negotiations come down to the penny. Even still, it's very likely they are biased to the seller since that's a pre-existing relationship.
For on market, Option 2 is the way. Your thought that their only motivation is to maximize the asking price is not remotely true.
-With a buyer's agent you have someone who is motivated by getting a deal to the finish line or they do not get paid anything.
-You are in control of what you offer or do not offer and their max compensation is a function of your highest and best bid.
-If you really like and trust your agent you can enter a exclusively arrangement where your agent acts as your fiduciary.
-Your buyer's agent is not only motivated by getting this deal to the finish line and also by a fruitful long term relationship if you are an active investor who will do more deals. They also want referrals to your network and they only get that by performing well.
-Real Estate is a relationships business and real estate pros like to have good stats and reviews handy when they engage future clients. No buyers agent wants to tell future prospects all my clients are paying 110% of asking price. Who would hire such a person?
With a good option 2 in your corner you will save considerably more time and money by avoiding bad deals and not overpaying for good ones. That is worth at least 3% of whatever you'd pay a listing agent anyways.Option 4: Get your own license to keep or waive the commission.
For off market deals you can and should call sellers directly and offer to buy their house. You can also network with wholesalers who will charge you a flat fee mark up on an assignable contract.