Buyer Brokers: Can They Save You Money?
Joseph Eamon Cummins is an award-winning writer and a specialist in psychology and human learning. A former licensed real estate agent, he spent three years researching and writing the clear, lively text for Not One Dollar More! Learn more
Since the early years of this century homes have been bought and sold in a curious manner. Curious because there are parallels in no other area of consumer activity or commerce, none at least that I have been able to find.
Here's what I mean: Buying and selling property has always been a major financial transaction between two parties with opposite goals. The seller wants to sell for the highest price and on his best terms, and the buyer wants to buy at the lowest possible price and on her best terms. Clearly opposite objectives. Yet all traditional real estate agents and salespeople represent only the seller's best interests. Never the buyer's! That's not a recent phenomenon; it has been this way for all of this century.
How could this be? you might reasonably ask. Well, probably because nobody shouted stop, at least not loud enough. Not until the 1970s, that is, when a few 'radicals' (mostly die-hard consumer advocates and a small group of National Association of Realtors members) called for equal representation for buyers and sellers. Not superior, mind you, just equal. But their noble call was slow in reaching consumers; their voice was diminished by a powerful real estate industry that wasn't ready to change.
Nonetheless, the radicals wouldn't hush up or rejoin the flock. As a result, the fairness and good sense of home buyer and seller both being represented in every transaction is, today, widely accepted.
Buyer brokers now pledge to look after the buyer in the same way traditional realty agents have always been legally obligated to look after the seller. The buyer broker (sometimes referred to as a buyer agent or buyer representative) advises only the buyer, searches for suitable homes, and negotiates the lowest purchase price and best terms, representing at all times only the homebuyer's best interests, never the seller's.
Naturally, this type of broker takes his instructions solely from his client, the buyer. She owes no loyalty or confidentiality to the seller, unlike the traditional agent who pledges fiduciary responsibility (loyalty, confidentiality, full disclosure, etc) always, and only, to the seller.
The buyer broker's fee, typically, is paid from the standard sales commission taken from the price paid for the home. It works this way: The agent who listed the home for sale splits the commission (usually 6-7% of the selling price) with the broker who represented the buyer. The net result is that the buyer's interests are fully and exclusively represented, usually without any extra out-of-pocket cost to either side. So, neither the seller nor the buyer pays extra when a buyer broker is involved, yet both sides are fairly, equally, and separately represented.
Study Shows Significant Savings
In 1993, a major U.S. company announced results of a study it conducted into the effectiveness of buyer brokers. The study focused on 232 of its homebuying employees relocating to different parts of the United States.
The findings are worth noting for a number of reasons. Employees who used traditional realty agents paid, on average, 96% of the list price for the homes they purchased. Employees who used a buyer broker paid just 91%. The first point this study supported very clearly is that all listing or 'asking' prices are indeed negotiable. The more significant point, however, is that the know-how of the buyer brokers saved these homebuyers thousands of dollars.
How much? Let's assume that each subject bought a home listed at the then median home price of $106,000. Those who used traditional brokers paid 96% of $106,000. That is $101,760, a saving of $4,240. A respectable sum. Those who used a buyer broker paid just 91% of $106,000. That's $96,460, a saving of $9,540 off the list price. Significantly better. But it gets even better still.
Here's why: These figures represent specific amounts of cash saved on the day the deal is made. But the true financial gain is bigger than simply deducting price paid from price asked (as in the example above). Over the life of a mortgage, any amount saved, multiplies. Consequently, all such savings are worth more over time than they are on the day the deal is made.
Let's simplify this and be more specific. The buyer cut $9,540 off the home price. On a full term 30-year loan at 10% (the historical average home loan interest rate), the buyer, in fact, saved not $9,540, but more than $30,000! Hard to believe, but nonetheless true. Here's how: By taking a loan $9,540 smaller than the one she would have needed had she paid the $106,000 list price, the buyer now will pay back $30,000 less over thirty years (lower payments every month for 360 months)
Of course, most mortgages are held for less than 30 years, which would result in smaller savings. Nonetheless, the dollars pocketed as a result of negotiating a price reduction are always significant, and the actual amount 'saved' is always greater than it seems on the surface. A double benefit, so to speak.
Types of Buyer Broker
What should you look for in a buyer broker and how should you choose one to represent you?
The first rule is to ensure the broker you engage will be representing you exclusively. So, ask if that is the case, and accept nothing less than an unequivocal yes. An exclusive buyer broker will pledge her loyalty, confidentiality and expertise to protecting exclusively your money and your interests. Her commitment is to work honestly and smartly to get you the home you want at the lowest price and on the best terms possible. She'll listen and advise, then act loyally on your instructions. And, the advantages don't end there; along with having access to properties not actively on the market - often a big plus - buyer brokers are able to offer advice on local regulations, home condition, local planning, and direct you to other professional services. Also, almost all buyer brokers can help you secure a suitable mortgage.
However, there is also a type of agent whose services can seem deceptively like those of an exclusive buyer broker, an agent I believe it is best to avoid. This is the 'dual agent' who promises to act for you and the seller at the same time. This is similar to a lawyer representing the plaintiff and the defendant in the same case. It's absurd. Yet there are agents who seem to believe, genuinely, that it's possible to play a 'neutral' role in buyer-seller transactions. 'Neutral' role can mean that the broker is offering 'agency services' to the buyer and seller, which she must disclose to you and to the seller and get prior consent of both parties (undisclosed dual agency is illegal everywhere). I recommend strongly against all types of dual agency and transaction brokerage as none of these give you the professional representation or protection you need (which only exclusive buyer agency provides).
Yet, even with an exclusive buyer broker, it is a good idea to have a getting-to-know-you meeting so that you can make an evaluation before you hire the broker. You need an agent who is a competent negotiator and generally knowledgeable about his profession. Get a feel for his local knowledge, experience, personality, and for how personally effective and convincing he is. (Keep in mind that this broker is just as likely to be female as male). And look for the broker's clear exclusive commitment to getting you the best deal possible. (In Chapter Eleven of Not One Dollar More! you'll find a list of questions and other concerns to help you select and work with the right buyer broker).
Finding The Right Broker
Next, where do you find such an agent? In the past, buyer brokers generally worked in smaller real estate companies and, naturally, in exclusive buyer agencies. Today, many traditional real estate offices provide such services. If in doubt, you have a few options: Call a national exclusive buyer broker group for a referral (see toll-free numbers and websites below). These groups typically offer helpful advice and will provide the names and phone numbers of local buyer broker agencies. Or call your state real estate commission and ask for assistance.
Some traditional real estate companies offer what is called 'single agency' which means they will represent the buyer's best interests or the seller's best interests but never both in the same transaction (always confirm at the outset that this 'exclusivity' is what you are getting).
Caveat: Be sure you understand all details of fees and responsibilities before you sign any document to engage a buyer broker, exactly as you should do before signing any other legally binding document. There is no substitute for understanding what you are signing. In working with a buyer broker you should stay involved and question everything that is not clear. This makes for a collaborative relationship which is likely to produce the most exciting - and most bankable - results!
National Buyer Brokerage Groups:
Buyer's Resource / Consumer Companion 1 800 359 4092 www.buyersresource.com
The Buyer's Agent 1-800-766-8728 www.forbuyers.com
Best Agents 1-800-962-1313 www.bestagents.com
© Joseph Eamon Cummins 1999. One time web posting rights given to HSH Inc 11/99
Joseph Eamon Cummins is an award-winning writer and a specialist in psychology and human learning. A former licensed real estate agent, he spent three years researching and writing the clear, lively text for Not One Dollar More!
The author's work is regularly featured in national magazines such as Money, Home, Business Week, Money World, and Kiplinger's, among others. He has appeared on CNBC, NBC, CBS, and other national TV and radio networks, and is on Money Magazine's 'Panel of Experts'.
A member of The Author's Guild in New York City and a former affiliate of American Psychological Assn., he has held faculty positions at a number of universities, and has produced acclaimed television documentaries.
Since it first appeared, Not One Dollar More! has been hailed as a classic, and has won for the author a score of superlative honors and reviews.
For more information about Not One Dollar More!, visit their Web site at http://www.notonedollar.com/.