Why do home buyers use real estate agents?

[safari]

Originally Posted by Brokemofo

Let's get this straight people. The seller doesn't pay the agent selling the home. The seller pays the listing Broker/agent. The llisting broker/agent pays the selling agent.

That's absolutely correct. Usually the listing broker splits the commission in half with the buyer's agent, and each gets 3% of the sale price. I saw listings where the listing broker only pays 2% or 1.5% to the buyer's agent. When you're buying a house and using a broker, make sure he or she is trustworthy, because some agents won't even show you the houses where they won't get 3% commission. If you're selling a house, you negotiate the commission with your listing broker. Make sure that he or she splits it equally with the buyer's agent; otherwise, you won't get as many potential buyers. That's why it's a lot more difficult to sell a house with a discount broker, as you greatly reduce the pool of potential buyers.

[cschin4]

I haven't read all the threads. But, a real estate agent works for the seller. They are basically a means for people to list their house in a listing group. And, people who are looking to buy a home can easily go to a Realtor and get access to many homes versus reading the newspaper, driving around looking for "Sale" signs and so forth. As a buyer, the Real Estate agents are cutting down the work of looking and searching and bringing the listings to you for no fee.
For the seller, the agent can provide your home with much more exposure and a potentially faster and more lucrative sale. And, it takes time to show people your home, schedule the appts and so forth. If you are working then it is not always convenient to show for others and try to rearrange everyone's schedule whereas the realtor's job is to be available and to show the home and make a sale or they don't get paid.
But, buyers need to understand the realtor's primary duty is the interests of the seller not the buyer. However, good realtors want to make the buyers happy as well and thus build their client base.

[maat55]

Originally Posted by Seeker

The seller pays his agent, and the buyers agent usually gets 50% of that. Does not everything come from the seller home?

No, the buyer makes an offer and the seller accepts and pay's the agent out of that. The buyer can offer below market value and the seller can accept, and the agent is paid out of the equity.

[momof1in150]

Everything is negotiable. The buyer can pay their agent directly and if they have the cash to do so can save money if they are getting a mortgage. They are for most examples financing the agent's commission. The buyer's agent can take a smaller fee so that they can close the sale. Just about anything is possible but it is up to the buyer or seller to know what to ask for. There is plenty of information out there for buyers and sellers to get good information to make the best sale while using or not using an agent.

[FrugalFish]

Originally Posted by cschin4

But, buyers need to understand the realtor's primary duty is the interests of the seller not the buyer. However, good realtors want to make the buyers happy as well and thus build their client base.

You bring up an interesting point that I haven't seen in this thread yet.

I've been told that in some parts of the US (generally the further east you are), both seller and buyer agents are legally obligated to put the best interests of the seller first. The further west you move, the less likely this is to be true. Here in CA the agent chosen by a buyer is obligated to see to the buyer's interests first and foremost.

I've read that if you live in an area where your agent, as a buyers agent, must serve the seller first and foremost, that you should consider hiring your own independent buyers agent- someone who is paid by the buyer (either in a commission or with a negotiated flat rate) with an obligation to serve only the buyer.

In some parts of the country it seems like the seller ends up with 2 agents- the second one unknown until he/she brings them buyers. It seems very out of balance for the buyers IMO- we would have been up a creek if our agent could not have stood firm for our best interests.

[momof1in150]

Originally Posted by FrugalFish

You bring up an interesting point that I haven't seen in this thread yet.

I've been told that in some parts of the US (generally the further east you are), both seller and buyer agents are legally obligated to put the best interests of the seller first. The further west you move, the less likely this is to be true. Here in CA the agent chosen by a buyer is obligated to see to the buyer's interests first and foremost.

I've read that if you live in an area where your agent, as a buyers agent, must serve the seller first and foremost, that you should consider hiring your own independent buyers agent- someone who is paid by the buyer (either in a commission or with a negotiated flat rate) with an obligation to serve only the buyer.

In some parts of the country it seems like the seller ends up with 2 agents- the second one unknown until he/she brings them buyers. It seems very out of balance for the buyers IMO- we would have been up a creek if our agent could not have stood firm for our best interests.

Not true in RI. We have seller's and buyer's agents. The buyer will sign a disclosure form with their agent and the agent has fiduciary duties to the buyer (care, accounting, obedience, loyalty and disclosure). They only represent the buyer.

[Seeker]

Originally Posted by maat55

No, the buyer makes an offer and the seller accepts and pay's the agent out of that. The buyer can offer below market value and the seller can accept, and the agent is paid out of the equity.

I'm not sure I understand the difference here.

Seller chooses and agent to sell their home. Agent does his/her job. Buyer and buyer's agent comes along and makes an offer. Seller accepts offer. Seller pays agent agreed to percentage of price. Seller's agent pays buyer's agent the agreed to percentage of that.

I know that sometimes the ratio is not 50/50 and if the agents work for some major company, then there's probably a 4-way splitting.... but there's some agreed-to beforehand ratio:

1) seller can accept an offer below market value and still make a profit
2) seller can accept an offer above market value and make a greater profit
3) seller can accept an offer below market value and have a loss
4) seller can accept an offer above market value and still have a loss

Don't the agents always make some percentage of the price on the house? Yes, it can be a gain or a loss for the seller....??? In each of the above four alternatives, still the agents get paid a percentage of that sale price.... not just the "equity"?

Maybe the recent chaos in the housing market is getting me confused because I think "equity" of the homes sold within the last 5 or so years may not exist?

[maat55]

Originally Posted by Seeker

I'm not sure I understand the difference here.

Seller chooses and agent to sell their home. Agent does his/her job. Buyer and buyer's agent comes along and makes an offer. Seller accepts offer. Seller pays agent agreed to percentage of price. Seller's agent pays buyer's agent the agreed to percentage of that.

I know that sometimes the ratio is not 50/50 and if the agents work for some major company, then there's probably a 4-way splitting.... but there's some agreed-to beforehand ratio:

1) seller can accept an offer below market value and still make a profit
2) seller can accept an offer above market value and make a greater profit
3) seller can accept an offer below market value and have a loss
4) seller can accept an offer above market value and still have a loss

Don't the agents always make some percentage of the price on the house? Yes, it can be a gain or a loss for the seller....??? In each of the above four alternatives, still the agents get paid a percentage of that sale price.... not just the "equity"?

Maybe the recent chaos in the housing market is getting me confused because I think "equity" of the homes sold within the last 5 or so years may not exist?

Oops, I missed one word in your post. I some how missed agent after buyer. I thought you were saying the buyer picked up part of the fees. Your right, the two agents usually split the fees from the seller.

[cschin4]

Here in CA the agent chosen by a buyer is obligated to see to the buyer's interests first and foremost.

I don't understand this. Where I live, the real estate agent is contracted by the seller. The Seller and the agent have the contract with each other and therefore the fiduciary responsibility of the agent is toward the seller. You can hire an agent to represent you as a buyer if you choose but this is pretty rare. The buyer has no contract with the real estate agent and the agent technically does not represent their interest. But, it does behoove them in the long run to try to make everyone happy.

[Brokemofo]

Originally Posted by maat55

Oops, I missed one word in your post. I some how missed agent after buyer. I thought you were saying the buyer picked up part of the fees. Your right, the two agents usually split the fees from the seller.

Once again, the seller almost always pays the "broker." The one who owns the listing company. The Broker then pays his agent a commission and the selling agents broker his portion. The selling agents broker then pays his agent a commission. That's why it pays to be the broker.

[maat55]

Originally Posted by Brokemofo

Once again, the seller almost always pays the "broker." The one who owns the listing company. The Broker then pays his agent a commission and the selling agents broker his portion. The selling agents broker then pays his agent a commission. That's why it pays to be the broker.

From the seller indirectly, excuse me.

[jodi]

Wow, so many misconceptions...and so many good points as well! A little clarification from a NY point of view (I am a licensed realtor and have been for 6 years).
When you list your house with a realtor, you have to specify what percentage you are willing to share with an agent who brings you a buyer. This can be a sub-agent of your listing agent (another agent who works for you, as the seller). I have only participated in this scenario in one transaction. It is in the buyer's WORST interest and I have no idea why someone would agree to it, unless they have not been properly educated as to the alternatives (and the alternatives may be different in other states - I can only speak for NY). Basically, a buyer has a agent working with them to show houses and make the offer, but the agent is not working FOR them. Although it technically is another agent working on the seller's behalf, it also carries the most liability for the seller as they can be liable for statements made by the sub-agent, even though they are not the listing agent for the house. For this reason, it is not uncommon for sellers to refuse to offer compensation to sub-agents.
A seller can also offer compensation to a buyer's agent, a agent working SOLELY on behalf of the buyer and looking out for the buyer's best interests, with fiduciary duties to the buyer alone (NOT the seller). This is extremely common in our market. Almost all of my transaction have taken place with both a seller's and buyer's agent involved.
If a buyer is interested in a property listed by a seller's agent, they can choose to call the agent directly to view the place, make an offer, etc. That agent SHOULD, by LAW, be disclosing that he is a seller's agent at first substantial contact with the buyer, or explaining "dual agency" and proceeding only if both the buyer and seller consent. I do not practice dual agency, in which an agent has fiduciary duties to both parties. This is an inherent conflict of interest, one that I cannot resolve personally for either party, although I know there are many agent who do practice it. If I were buying, I would not consent to using a dual agent, but rather find my own buyer's agent. Howevr, I have been in this situation several times and have explained to the buyer that I am representing the seller and working for their best interests, and if they want to proceed with me, I will treat them as a "customer" rather than a "client" (in other words, with no fiduciary duties attached). If they want to proceed, effectively without an agent representing them, I will take their offer to my seller. I have closed three deals this way with full disclosure and consent. This has been in cases where the buyer already knows what they want and how to get it, and can proceed without an agent's guidance.

Just to reiterate brokemofo's point, which seems to keep getting lost , an agent is never paid directly. I can never accept money from a client. My broker is paid from the seller, who them passes down my split (which is less than 25%, after the 9% fees are paid to our parent company as well). And remember, out of my broker's 25%, she has to pay for advertising, which for a house that has been on the market 4-6 months, with multiple open houses, etc., she may be taking a loss on.

As a seller, you are only obligated to pay whatever is in your contract. If you specify, say 1%, for a discount broker, you are not obligated to pay for a buyer's agent. However, when you are contacted by that buyer's agent to show your house, they should be asking you if you are willing to work with a buyer's agent and if you are offering a commission. If your answer is no, then they need to try to get their commission from their buyer. However, if you refuse to pay a buyer's agent, then you will lose potential buyers, who can look at any other number of houses who are offering to pay their agent for them. Whether you think it's right or wrong, that is the system we are operating in and you probably will be at a disadvantage among other houses who are offering compensation. A few years back, I worked with a young couple who wanted representation from a buyer's agent. After looking at several houses on the market without finding one, they found a FSBO they liked. Before even speaking to the owners, they asked for my help. I approached the owners, who were willing to work with me, but not pay my commission. I went back to my buyers to explain the situation and told them that I would need them to pay my commission if they wanted to continue with me. They did, and agreed to pay my commission.

[jodi]

And here's a reason (not that we need any more, as so many good ones have already been given) that some buyers do prefer agents.
I am currently working with a couple from England. They just moved to the US and are not particular about what neighborhood they settle in, so long as it is within an hour from a nearby city. This gives us a range of 4+ counties and several hundred miles. For the past six months, I have been sending them periodic updates on the market to help them be familiar with prices, features, etc. when they get here. I am able to search the MLS easier for features that are important to them, such as a master bath, which do not necessarily show up on the Internet. Plus, my access is up-to-date, whereas many Internet sites have a lag of several days to a week or more. I have been talking over the US procedure here so they know what to expect. As a result, when they landed last week, they already had a list of houses they had screened over the Internet, a list of back-up houses, an appt. with their banker, and a familiarity with the market. We hit the ground running Friday and Saturday and looked at 13 houses, covering over 150 miles each day. I picked them up at their hotel and drove from house to house, with a schedule and map already printed out. I spent my gas money (over $70 so far) to do all the driving. I called every agent to set up the showings, and have called many of them back with feedback on why my folks did not like the house (which they can take back to their sellers to adjust the price, fix a problem, etc. Try getting directly from a buyer who does not have an agent). In the one instance where the seller was home during the showing, my buyers were very uncomfortable and couldn't wait to leave. The seller followed us through the house and talked our ear off about her personal life. They were infinitely more comfortable at the other showings where we could look over the house at our pace, make comments, and poke around a bit. On one house they were interested in, they made a list of questions that personally, they would have felt nosy asking, but were comfortable having me talk to the listing agent about. As a consequence, I found out why the sellers were leaving and what their time frame was.
Yes, of course a buyer or seller can do all of this themselves. But the bottom line is that most do not choose to, and you will lose some buyers if you insist on them doing it themselves.

[FrugalFish]

Originally Posted by cschin4

I don't understand this. Where I live, the real estate agent is contracted by the seller. The Seller and the agent have the contract with each other and therefore the fiduciary responsibility of the agent is toward the seller. You can hire an agent to represent you as a buyer if you choose but this is pretty rare. The buyer has no contract with the real estate agent and the agent technically does not represent their interest. But, it does behoove them in the long run to try to make everyone happy.

The agent who has signed with the sellers is obligated to see to their interests first. The second agent who represents the buyer is obligated to see to the buyers interest first. It is a two party negotiation with each party being fully represented by a professional. Do you think that it's so rare for buyers to be taken advantage of in the process of a sale that they don't need someone looking out for their best interest? Why should only the seller have protection- and why should it come from both their agent and the agent working with the buyers?

It's rather surprising (to me anyway) how much this varies around the country. My comment about the east and both agents having an obligation to the seller was just a generalization. The further west you move, the more protections there are in place for the buyer- as a general rule.

[InDebtInDC]

I don't understand why anyone would go to a doctor, or a mechanic, or a carpenter, or a lawyer.

Anything anyone else can do I can do. That is, until you go to court for a contract dispute and get slammed by the judicial system because you don't understand the law and don't have adequate legal representation.


I see people like the OP every day. They think everything is easy and they can do anything, until they get knee-deep into the legal aspect and realize it's not as as simple as they originally thought.

Realtors are like insurance policies; you think it's a waste of money until there's a problem.


This thread reminds me of a crazy driver who cut across 4 lanes of traffic without using their signal, crashed into the jersey wall, and yelled at other drivers who stopped to help.

[disneysteve]

Originally Posted by InDebtInDC

Realtors are like insurance policies; you think it's a waste of money until there's a problem.

I get your point, but I think many here have posted how valuable they found a realtor to be even when there were no problems. My wife and I certainly appreciated ours.

[maat55]

Originally Posted by InDebtInDC

I don't understand why anyone would go to a doctor, or a mechanic, or a carpenter, or a lawyer.

Anything anyone else can do I can do. That is, until you go to court for a contract dispute and get slammed by the judicial system because you don't understand the law and don't have adequate legal representation.


I see people like the OP every day. They think everything is easy and they can do anything, until they get knee-deep into the legal aspect and realize it's not as as simple as they originally thought.

Realtors are like insurance policies; you think it's a waste of money until there's a problem.


This thread reminds me of a crazy driver who cut across 4 lanes of traffic without using their signal, crashed into the jersey wall, and yelled at other drivers who stopped to help.

Your equating the realitors to the title lawyers. The title company is where most of the real security happens , not with the agent. Realitors are just high priced mechanics changing your sparkplug.

[InDebtInDC]

Originally Posted by maat55

Your equating the realitors to the title lawyers

Respectfully, I did no such thing. I was speaking in general. Most likely if you don't like realtors, you won't like lawyers, doctors, mechanics, etc. as well.

There are some things that the realtor can do for you. Keep in mind that the title attorney do NOT represent your interest. The title attorney's job is to just make the paperwork go through smoothly for the lender.

While realtors are not attorneys, they do have quite a bit more legal training than the typical layperson would.

Originally Posted by maat55

The title company is where most of the real security happens , not with the agent

I respectfully disagree. With the exception of this year, I typically buy and sell several properties a year. While not equivalent to a professional, I think I have more experience than the average layperson would.

What is your real estate experience?

What do you think happens at closing? All of the work has been negotiated before you even go to closing. Closing is just a formality to check the title and make sure all the legal paperwork gets filed.

Originally Posted by maat55

Realitors are just high priced mechanics changing your sparkplug.

Not all realtors are created equal. My realtor successfully bargained for a $25k reduction in fees for my friend who was being taken advantage of by her loan officer and title company because my friend did not speak English.

Realtors are just people. Some are good. Some are bad. You have to to know exactly what they can do for you. Most people have no idea what the realtor's fiduciary duties involve so they totally misjudge a realtor's performance.


I never use realtors to find properties. I do my own searching and browsing. I only use realtors to negotiate contracts.

[maat55]

Originally Posted by InDebtInDC

Respectfully, I did no such thing. I was speaking in general. Most likely if you don't like realtors, you won't like lawyers, doctors, mechanics, etc. as well.

There are some things that the realtor can do for you. Keep in mind that the title attorney do NOT represent your interest. The title attorney's job is to just make the paperwork go through smoothly for the lender.

While realtors are not attorneys, they do have quite a bit more legal training than the typical layperson would.



I respectfully disagree. With the exception of this year, I typically buy and sell several properties a year. While not equivalent to a professional, I think I have more experience than the average layperson would.

What is your real estate experience?

What do you think happens at closing? All of the work has been negotiated before you even go to closing. Closing is just a formality to check the title and make sure all the legal paperwork gets filed.



Not all realtors are created equal. My realtor successfully bargained for a $25k reduction in fees for my friend who was being taken advantage of by her loan officer and title company because my friend did not speak English.

Realtors are just people. Some are good. Some are bad. You have to to know exactly what they can do for you. Most people have no idea what the realtor's fiduciary duties involve so they totally misjudge a realtor's performance.


I never use realtors to find properties. I do my own searching and browsing. I only use realtors to negotiate contracts.

I have nothing against realitors or doctors or mechanics. I just don't use them for things I can do myself. I've sold two homes and bought one FSBO with no problems or commissions.

Buying and selling homes,IMO, is no different than buying and selling a car. Do you call an auto dealer to sell your used car? I don't. Do you call a mechanic to change your spark plugs? I don't. Do you call a doctor to put a bandaid on a cut? I don't.

If I needed a realitor to sell something I couldn't, I would call one. If I'm looking for a house to buy, no one know's better than me, what I want and where I want to live. I'm not trying to be aurgumentative, just practical.

[InDebtInDC]

Originally Posted by maat55

I have nothing against realitors or doctors or mechanics. I just don't use them for things I can do myself. I've sold two homes and bought one FSBO with no problems or commissions.

So noted.

Originally Posted by maat55

Buying and selling homes,IMO, is no different than buying and selling a car

I respectfully disagree. One thing that I am not proud of is that I buy and sell a lot of cars, not as investments but more like a hobby. I've probably bought and sold close to 50 cars in my life. I generally buy and sell several cars a year.

Originally Posted by maat55

Do you call an auto dealer to sell your used car?

It's on a case-by-case basis. If there are problems with the title, or if it's a difficult model to move, I would use a dealer. If it's a highly desirable car, dealers may be willing to pay more as well. For quick sales, I would definitely use Carmax.

For other situations, I would sell privately, although the decision would depend on the spread between trade-in and private sale value. If the spread isn't much, I'll just take it to Carmax to save time.

Originally Posted by maat55

Do you call a mechanic to change your spark plugs?

Again, it depends on the application. Note that I used to work as a licensed mechanic.

For most transverse 4-cylinders, or most longitudinal engines, I would change spark plugs myself. For 5+ cylinder transverse engines, longitudinal engines with tight clearance, boxer engines, mid or rear engines (Porsche, Ferrari), or weird engine alignments (VW VR6), I would definitely use a shop not because I don't know how to do the job, but because I don't have the tools or the facility.

For example, on a V8 Camaro you have to drop the engine to change spark plugs. On a V6 Camry or Accord, you have to dismantle the entire intake manifold to get access to the rear cylinder bank.

On my Dodge Ram Hemi V8, there are 2 plugs per cylinder. I can do it, but due to the ride height and how far back into the firewall the last 2 cylinders go, and with my bad back, I just can't reach that far.

On practically all mid or rear engine Ferraris and some Porsches, it's necessary to drop the entire subframe to get access to the plugs.


Even still, on a simple car like a Corolla or a Civic, improper removal and installation may damage the spark plug threads, which requires repair of the cylinder head. In the worst case scenario, you'll have to disassemble the engine and machine the head to adequately repair the damage.


As you can see, it's not as simple as you may think, and most people don't know until they get halfway into the job. A spark plug R/R usually runs somewhere around $75-300 for most cars. Considering that trying to save $75 on a simple job could cause you $1,000 to get the head repaired, I would say DIY mechanics need to be careful and follow all instructions.

Originally Posted by maat55

Do you call a doctor to put a bandaid on a cut?

I call disneysteve

Originally Posted by maat55

If I needed a realitor to sell something I couldn't, I would call one. If I'm looking for a house to buy, no one know's better than me, what I want and where I want to live. I'm not trying to be aurgumentative, just practical.

Originally Posted by InDebtInDC

I never use realtors to find properties. I do my own searching and browsing. I only use realtors to negotiate contracts.

I think we are in agreement here. I just realize that there is more to buying and selling real estate than most people make it out to be.