On a few occassions in my real estate career, I’ve come across some customers and clients who believe that they will be better off finding a new home without a Buyer’s Agent. They believe that if they go directly to the Seller’s Agent with an offer, they’ll get a much better deal, and will be able to negotiate a lower price than with a Buyer’s Agent.

Should you hire a Buyer’s Agent?

In some cases, with the right background information, access to all sold homes in the area, the ability/experience to do a market analysis on a home, and negotiation training, a person might be successful with this theory. However, in most cases, this tactic could be quite costly. Most consumers, even the very intelligent, well educated, thorough buyer who enjoys doing the research themselves, can miss very important details that an experienced agent deals with on a daily and weekly basis.

To help sort out whether a Buyer’s Agent is right for you, I’ve outlined a few facts:

1.  THE COST OF BUYER AGENCY:

In MA, the seller always pays a commission to the Listing Agent, of which some or half (most of the time) is offered to a cooperating Buyer’s Agent. Having a Buyer’s Agent is free to you. This wasn’t always the case. However, in recent years, real estate agents have made it easier for the consumer, and Buyers now have the choice to be represented.

2.  Will the Seller’s Agent reduce their commission?

Sometimes, buyers think that the Seller’s Agent will reduce their commission if they don’t have to pay a Buyer’s Agent. However, this couldn’t be further from the truth. The seller and the Seller’s Agent have a signed contract for the agreed upon commission, regardless of whether the Buyer’s Agent is used. Often, the seller has already considered the commission when listing, and the Listing Agent expects to receive the entire amount. It’s somewhat of a bonus to receive both sides of the commission. However, it’s also twice the work. Occasionally, a listing agent will reduce their commission a small amount (a couple of thousand at best). In those cases, often it makes no difference if there’s a Buyer’s Agent involved. I’ve seen commission reduced with and without a Buyer’s Agent.

3. A Sellers Agent’s fiduciary responsibility is to the Seller only.

Seller’s Agents are under an obligation to get the highest possible price for the home. S/he works for the seller only, not the buyer.

So, let’s play out a scenario that often happens in these cases: A house is listed for $800,000. The listing agent does a market analysis for her client, and determines that the house is worth $750,000 or less. However, the seller is adamant that he list the home at $800k, believing that his brand new kitchen in which he spent $50k should clearly add more value to the home. A buyer comes to the open house, loves the home and new kitchen, and decides to put in an offer. The buyer logs onto one of those well known real estate sites that claims to do a market analysis for you, and gets an estimate of $775k (these sites are more often than not, inaccurate). He decides to offer $770k, knowing his top price is $775k, since he doesn’t want to overpay. After a few counter offers, the seller agrees to the price of $775k as long as the Seller’s Agent is willing to take $5k out of her commission.

In this case, the buyer believes he’s been a savvy consumer, receiving a great deal without the help of his own agent, and even convinced the listing agent to reduce her commission. In reality, the buyer has overpaid by $25k.

You might think that this is fictional, at best. But I can tell you that, as a strong seller’s agent, I’ve seen this happen, and been on the seller’s side of things to see it happen. Of course, the seller and his agent are celebrating.

Let’s go back to our scenario: The buyer now needs to get financing. His lender hires a professional bank appraiser to determine the value of the property. The buyer is planning to put down 20% of the purchase price (20% of $775,000 is $155,000 – a $620,000 mortgage), believing that this will prevent him from having to purchase mortgage insurance. However, the appraisal comes back, and the buyer learns that the property is only worth $750k. The bank then decides that, in order to do a conventional loan and avoid mortgage insurance, the purchaser would only be allowed to take out a loan of $600,000. Now, not only is the house no longer a great deal, but the buyer has to come up with an additional $20,000 in order to purchase the property. And to make matters worse, at this point, it’s too late to bring in a Buyer’s Agent!

4. How can a Buyer’s Agent Help You?

So, this leads me to my next major point: only a Buyer’s Agent will do a Market Analysis for you to determine the home’s market value. A seller’s agent might provide other area ‘on market’ listings that appear to be comparable properties. However, remember that the Seller Agent’s fiduciary responsibility is to the seller only. So, the Seller’s Agent is going to only provide comparables that support the listing price. On the other hand, a good Buyer’s Agent will do a detailed analysis of the home to make sure you’re not overpaying, and will negotiate a fair price. In the previous example, had a Buyer’s Agent negotiated with the seller’s agent, the buyer would have known upfront that the house was only worth $750k. So, going into negotiations, the Buyer would be able to make an educated decision about the following: a. when to put in an offer b. how to present the offer so that it’s not offensive and c. if the seller wouldn’t budge on price, the buyer would have the option to walk away, knowing that they’d need an extra $20k to make it work with their financing!

5. Only a Buyer’s Agent will:

a. Recommend a home inspector.
b. Remind you when your home inspection deadline is about to be up.
c. Help you renegotiate should the home inspection reveal problems (structural or otherwise).
d. Keep your bank/lender up to date and on track for the loan commitment.
e. Know how to keep your deposit safe.
f. Research whether the home had permits for any work done.

This is one of the largest items you’ll purchase in your lifetime. Why would you take a chance of overpaying, especially in today’s Buyer’s market? Trying to do this yourself so that you can negotiate a lower price could actually do the opposite. Why would you take a chance?