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- Is Buying in NYC an Option for Millennials? - January 25, 2018
There are a lot of myths in the real estate world, and it can be tricky to sort fact from fiction. Welcome to Truth or Myth, where we look at the most common real estate myths, legends, and adages to see if there’s anything there.
Today, we’re asking: are buyer agents worth it, or should you just represent yourself?
The myth is this: you only need a real estate agent when you’re selling a home, not when you’re buying one.
The rationale is that when you’re selling, you need someone to list it on real estate databases, market the property, negotiate the best price, help with any legal and building requirements, run open houses, and do all the legwork involved in any significant sale.
But when you’re buying, what would you need an agent for?
You know what you like, you’ve negotiated things like salaries and cars before, so you’re not exactly a novice in that arena, and your bank can help you work out the financials. What’s the point of a buyers agent?
That’s the rationale. But what does the evidence say?
Before we get too far into our evidence, let’s get a couple of terms straight.
The listing agent (or seller’s agent)
This the what most of us think of when we think of real estate agents. It’s the agent who’s listing the property and represents the seller. In some states like New York, the listing agent can serve as a dual agent, meaning they can represent both the seller AND the buyer, however, when doing, so their fiduciary responsibility remains to the seller by contract.
The buying agent (or buyer’s agent)
The buyer’s agent is a real estate agent who represents the buyer. They have a responsibility to be unbiased, find the right property, get the best possible deal for you and give you any information to help educate you about the property and help you make an informed decision.
Now that we’re clear on what’s what let’s look at what’s wrong with the single agent model.
Problems with using the listing agent only
For starters, the listing agent has a fiduciary responsibility to the person selling the house. And while it’s possible for one broker/brokerage to represent both, it’s a situation that is rife with potential conflicts and pitfalls (despite measures in place to minimize that possibility).
For example, as a buyer, you might go directly to the listing agent and negotiate yourself. This means the listing agent is getting 100% of the commission and gives you an “in” to the seller, opening the door for a more constructive negotiation (in theory). What’s more, the seller might drop the price because they can reduce the commission (since the agent isn’t splitting it).
In practice though, neither of these myths play out.
A single representative means that the agent in wholly incentivized to get you to buy the house for as much as possible, regardless of any problems or lack of potential the home might have or what their expertise about market value is telling them. Even if they’re representing you as a dual agent (and can convince the sellers to drop the price), the agent gets the most value from you buying that house, regardless of whether it’s the perfect home for you or even worth buying. And even if the seller AND the agent both wanted to drop the commission, it’s often not up to them because the agent works for a company, who have no reason to lower the commission.
In contrast, a buyers agent has no vested interest in any one particular property thus gets the most value from you buying a home you’re happy with, regardless of who the listing agent is.
Why a buyers agent is a good idea
First, a seasoned buyers agent means that you have someone representing your best interests throughout the search and purchasing process. The benefits of that experience are almost innumerable. They can help you:
- Find the right property for you with insider knowledge of currently listed and off-market properties
- Understand existing market conditions
- Estimate the fair value of a property
- Know how much to offer initially
- Handle negotiations
- Perform the final walk-through
- Submit a condo or co-op board package
These factors give you access to the skills you need to find the best property for you, as well as a representative who has a responsibility to get you the best possible price.
Second, buyers agents often have a dense network of real estate agents, lenders, home inspectors, contractors and legal help they can call on for you to move the process forward with confidence. These costs add up when you’re buying an apartment, and getting them scheduled and processed is hugely time-consuming. Buyers agents can do this quickly and efficiently.
Third, they don’t cost you anything. Buyers agents are paid out half of the commission of the home (usually 4-6% of the sale price).
There’s a misconception that listing agents won’t deal with them because of this, but that’s not a reality. In New York, listing agents are regulated by Real Estate Board of New York (REBNY). This means that they are restricted by a universal co-broker agreement and that they have to submit all offers equally to the seller, regardless of whether the offer was made with a buyers agent or not. So while it seems like listing agents are incentivized by higher commissions to avoid buyers agents, there’s not a practical way for them to do so.
Finally, buyer agents’ sales often move faster because they have someone working full time to get offers in, paperwork filed, as well as financials and contingencies squared away. This is good for both you and listing agents.
Why? Because listing agents are incentivized to get the property sold quickly to reduce the number of days on the market and give them the opportunity to drum up new business. Plus, most listing agreements are only for three months, so agents would prefer a deal move quickly rather than risk losing it all together.
Listing agents are like everyone else – they like to work with professionals.
The myth that buyers agents don’t bring anything to the table is just that — a myth. You can think about it this way — you wouldn’t get your spouse’s attorney to negotiate your settlement, would you? It’s the same with real estate.
A buyer’s agent has a fiduciary responsibility to get you the best possible deal (and years of real estate negotiation experience). Not only that, buyer agents can help with paperwork, house inspections, offerings, and condo/co-op board packages, and those with good reputations can expedite preferred access to a property before other buyers and agents.
Their years of real estate experience and knowledge, paired with dense networks to call on give you an unparalleled advantage and can help you find the right home at the right price that’s going to be a sound investment for the long term.
So why not use a buyer’s agent? That’s the real mystery.