When purchase a property, isn't buyer pay agent fees better?

Question

I consider myself an "little" investor mainly do buy and hold rental properties. So far, I bought 3 properties including my primary residence.

However I noticed that usually seller pays for 6% buyer and seller agent fees. Why don't people negotiate?

My thoughts are, assuming a property selling at $300k:

Option 1: Contact price $300k, seller pay 6% agent fee. Seller get $282k, buyer pay $300k.

Option 2: Contact price $282k, the term change to buyer cover agent fee. Seller pay 0% agent fee. Seller get $282k, buyer pay $282k + agent fee $16,920, total $298,920.

So option 2 seller get the same amount into pocket and buyer pay a little bit less. To me, if I'm a long term buy and hold, every year I can pay a little bit less on property tax right?

Am I think right? Sounds to me this is a no brainer.

Steve Vaughan · Answer

To make an offer unrepresented I'll admit is an advanced strategy and I wouldn't recommend for 9 out of 10 people.  A mistake could cost much more than the 3% potential savings.

That said, a pre-inspected cash buy may be a good fit, especially since you've purchased  already.  I use the standard MLS realtor PSA.  I'd look at your previous offer paperwork.  Each section should have a form # you can download as a pdf, fill out online and print.  Easy peasy.

Just make sure you include all the disclosures and addenda and review the sellers disclosures like property condition, lead paint, etc.  When they sign and return, take it to the title co with your EM check and open escrow.  You can ask them if everything appears to be in order if you're concerned.

Know what the house is worth. Offer 3% less than you would with a buyers agent and make it a specific number with no zeroes.  Good luck!

Steve Vaughan · Answer

Interesting take on this, Bei.  I don't know many buyers that have the desire or ability to put an extra $16,920 'down' at the buy to save $1080.  Plus, the listing contract is between the LA and seller. It states the seller will compensate.

Not every area bases property tax on actual sales price, but some might. The prop tax savings would be pretty miniscule I would guess.

The real problem you'll have is when you sell.  You paid $298, but your cost basis on paper is only $282.  To save $1080, your tax burden increases plus you'll get to take less depreciation while you own it.

I've had great results not getting a buyers agent at all. I offer 3% less, stating I will remain unrepresented unless countered.  I usually do not get countered.  Keep thinking creatively out there!

Peter M. · Answer

I agree with @Steve Vaughan. Also, sellers who use agents have a separate contract with the broker regarding the fees and services for those fees. The agency requirements for brokers are very strict and although this may not break any of them the broker would have to be very careful with disclosures to you since you are not their client. If something goes wrong in the deal they could open themselves up to liability which they may not be willing to do.

The standard offer and purchase contract does not address your 2nd option so you would need your own contract or an addendum which you would have to pay an attorney for. A normal broker might be intimidated by an offer which doesn't conform to the traditional process. Besides 6% of 300k is 18k so the agent is losing $1000 to do more work to make sure he gets paid.

Bei He · Answer

@Steve Vaughan, thank you for the feedback! I'm in California so I think most cases is based on sales prices...just based on my past experience so I might be wrong.

Good point on the cost basis. However isn't the additional $16,920 I paid can be counted as expense when I purchase the property? I thought the difference is I depreciate part of those gradually - only part of it counted as building value can be depreciated, vs. immediately count as expense when purchase?

I was thinking if the property tax is 1.6%, $16,920*1.6% is $270 a year. $10 yr period would be $2,700. Not much, but just thought if there is no down side, why not?

I would LOVE to hear more about your success on not getting a buyer agent at all! How you make offer? I used to had one case, we are pretty sure about the property and we are ok to waive ALL contingencies since seller already have all the inspection report and it's a cash offer so not even need any loan work. I offered 0.5% out of 3% buyer agent fee to the seller agent. All I need is some one to write the contract. We used buyer agent for all our deals so far, man 3% is just quite a bit.

When purchase a property, isn't buyer pay agent fees better?

Most Popular Reply