Friday, January 17, 2014

How (Not) to Pick a Real Estate Agent and Live to Tell About It

Hey Man...wanna buy a house?
I'm bald. Wanna know why? One of the reasons is that every time I hear a real estate broker say his services are "at no cost to the buyer" I pull my hair out. I now have a big bald space ringed by hair (which got gray as well). Give me a sackcloth and I'd look like a friar.

But back to the topic at hand. For a full rundown on who pays the broker, check out this link. It's for both buyers and sellers. And this link has some ideas on how to choose a broker if you're a buyer.

Anyway, here's the problem. The buyer's broker will say the seller's broker pays him. It's technically true. The seller's broker (aka listing agent) has a compensation contract with the seller. To participate in MLS listings, sellers' agents have to agree to split the commission with buyers' agents. House sells, seller pays seller's agent, seller's agent pays buyer's agent.

Does that mean the buyer isn't paying his or her agent? You tell me. As buyer, your money makes the whole transaction transact. Is your broker really representing you at no cost to you? Kind of, sort of, and not.

Say you're buying a $300,000 house. The seller is paying a 5% commission to the seller's broker, and the seller's broker splits that with your broker, or $7,500 each. Question: Can you write into your offer, "Buyer's broker to receive $5,000 and the purchase price will be $297,500?"

Nope. Both brokers will tell you that the compensation arrangement comes from the seller, as explained above. Compensation can't be written into a buyer's purchase offer.

Okay, say you. Can you write, "Commission to be 4%, with purchase price to be reduced by $2,975?" Nope again. See preceding paragraph. The compensation contract is with the seller, not you.

So do you, as buyer, have no dog in the compensation hunt? Yes, you do. Try this: Threaten to cancel your offer if you don't get what you want, and watch everyone scramble to keep the deal together.

The difference between a lie and B.S. is that a lie understands that truth exists, while B.S. does not. If you're a buyer and your broker tells you he'll represent you at no cost to you, it's technically not a lie. But it's definitely B.S. Do you want a bullshitter to represent you?

In all of my years, the best real estate agents never told a prospective buyer that the broker's services were free. That's the one you want. You'll live to tell about it and you'll both be happy, do well and lead prosperous, fecund lives.