$400 fee common for a buyers agent?

Question

I recently decided to educate myself in regards to investing in rental properties. After inquiring about the NOI and a few other details on a 16 unit apartment building in Newport News, I was contacted by an agent who eventually proposed a 3 month exclusive agreement. There was also a $395 transaction fee if any deal was accepted. Is this fee structure commonplace for agents in this area claiming to be investor-oriented?

Russell Brazil · Answer

Account Closed The fee is almost universal these days and is something that the agent typically is not able to negotiate as it is dictated by the brokerage. My brokerage charges a $345 fee. I believe Keller Williams and Centrury 21 are right around $350 as well.  My old brokerage charged a $500 fee.  If it is a highly priced property, say $550,000 or more, maybe you can get the agent to pay it....though Id say its typically bad form to ask.

Also a buyer agency agreement is pretty standard.  Read the language of it.  The one that we use in the DC metro area has a key stipulation in it that it becomes null and void if you sign a new agreement with another agent.

Also keep in mind that the agent actually may be legally obligated to have one with you to show you certain properties. (Though that does not dictate the length of time they are valid). For instance if I am showing a property that is listed by my brokerage (Which has a huge market share) and I do not have a written buyer/agency agreement with my client, then legally I am not representing him, but I am representing the seller since they have an a agreement with my brokerage.  And in this case I have no idea who the seller is as Ive never met them.

I typically operate without an agreement in place until I am writing an offer if the person has come to me through a referral.  If the person comes to be through some other means, such as the internet or BP, I will typically ask for an agreement after Ive shown them three properties.  Some people do not want to sign it....that is fine, I can cut them loose as a client.  Too many times with investor clients they want to work with multiple agents, and want you to show them 40 properties and then buy something with another agent.  Imagine if someone asked you to work 100 hours for free. This happens all too often with NOVICE investors. And that is fine, those NOVICE investors can work with NOVICE agents who have more time in their schedule.

Jon Holdman · Answer

This fee is nothing but a way for the brokerage to pad their profits.  Like fees car dealers tack onto the price at the last minute - "make ready charge" and junk like that.  Or the "resort fees" hotels have taken to adding onto to their posted room rates.   They will come up with some justification as to why they need this fee.  But the bottom line is you get NOTHING extra for paying this fee.  Its pure profit.

I fully get that agents sometimes show a buyer a bunch of properties only to have them buy nothing.  Or buy something from someone else.  Welcome to the world of commissioned sales.  The same thing is true for anyone who works a commissioned sales job.  So, no sympathy for having to spend time on prospects that don't end up buying.  That is in no way "working for free".  That's part of the job, and the commissions you do collect on closed deals have to cover the time you're spending on both deals that close and those that don't.

Imagine if you walked into a car dealer and they said  "before you can look at the cars, you have to sign this agreement to pay the sales rep who works with you $500 whether you buy a car here, somewhere else, don't buy anything anywhere."  An agreement with a buyer's agent that guarantees the agent a payment regardless of what the buyer buys is EXACTLY the same.

Jon Holdman · Answer

First, I would NEVER to an exclusive contract.  That will tie your hands, and if you find a deal from some other source, you will owe the agent a commission even if they have zero involvement in the deal.  Agree that if they buy a house they've presented, you'll pay them.  But if you find a property elsewhere, you won't.

Yes, I've ran into such fees.  Its just another way to generate a little more income.  Maybe you can negotiate it away, maybe not.

Account Closed · Answer

@Russell BrazilThanks for the clarification regarding the fee. If it's standard practice, so be it. The agreement I was forwarded forbade me from dealing with, or contacting in any way, any other agent.

I understand all too well the value of time. I'm certainly not opposed to committing to an agent; I just want to put myself in a position to work with a reputable agent willing to facilitate my learning process along the way.

Colin Smith · Answer

These fees are not uncommon. Even my brokerage charges a $199 transaction fee that I have to pay. Many of the agents in my office tack that fee onto their clients and make them pay for it. I do not, I just feel it is the cost of doing business and makes the commission I earn from my clients cleaner without the fine print. You can find agents who do not charge a fee either that will do just as much work as the one who do charge the fee.

Account Closed · Answer

@Jon Holdman

Thanks, Jon. My thoughts were the same, but I wanted confirmation from those more experienced. I thought about countering, but even if he did concede to a non-exclusive deal and/or a lower fee, I'd always wonder if I were truly getting his best efforts.

Thanks for the input!

Jesse T. · Answer

I agree this is basically a "junk fee".

For the OP I think the best course of action depends on their situation.  The first 2 factors are how solid is the financing and what is the price range.  If his financing isn't solid he doesn't have much leverage to negotiate, because the chances of the agent getting zero are pretty high.  If the financing is solid, I think he is in a position to demand a limited representation agreement.  For mid-range properties or higher, I would ask the agent what they can do about the fee.  Ideally the agent could get it waived.

On a smaller deal, especially if there are a lot of properties being shown by the agent, the fee might be more justified.  However I would try to get it knocked off on future business.

Even if the broker waives the fee, it could be a good motivator in getting the agent to negotiate a great deal.  If you need to hit a reasonable target price it might be good to offer it to the agent if they can get.  Paying 500 to get a property for 5 to 10K less is a good deal, and your broker/agent have definitely earned a little extra.

$400 fee common for a buyers agent?

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