Blog :: 11-2019

Are Buyer Agents Really "Free"?

No buyer agents are not "free".  The proof of this is the fact that the buyer's agent leaves with a check at the end of the closing.  Someone is paying for that check.  The question is who is actually paying?

Ultimately it is the buyer who pays for the buyer's agent.  Here is how it works.  

The seller of a home decides that in order for them to sell their home they need to walk away from the closing table with $260,000.  If they cannot net at least $260,000 it does not make sense for them financially to sell.

Enter the buyer.  If the buyer showed up to this home without an agent and offered the seller $260,000 then the seller would be happy.  The buyer and seller would sign a contract and the two parties would both be satisfied with the transaction.

Now instead of just the buyer, we have the buyer and their agent enter together.  In most cases the buyer will have signed an agreement with their agent to pay a 3% commission to the agent.  However, most buyer's agents will tell the buyers that the "seller will pay this fee" and not to worry.

The buyer now offers that same seller $260,000 but unlike the first scenario the offer will include a provision that says the seller must pay 3% of the $260,000 to the buyer's agent.   Where the seller was happy before, they are no longer happy.  In order to walk away with $260,000, they now need to sell their home for $267,800.  Therefore, they reject the buyer's offer and counteroffer at $267,800.  If the buyer wants the home they now have to pay the higher price.  

Assuming the buyer still wants the home, they now have paid the seller $260,000 and their agent $7,800.

Doesn't sound "free" to me. 


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    How Much Should I Pay My Agent?

    Pre-internet age, real estate agents provided more value to buyers and sellers than they do today.  In those days, agents were responsible for helping buyers locate properties and for helping match sellers with those buyers.  Now that nearly almost every property listing is online, the value agents previously provided has diminished.  

    Agents still provide a valuable service as advisors.  Agents help advise their clients through the process and are able to utilize their experience and knowledge to help relieve the stress and anxiety involved in buying or selling a home.

    The question then is "what is fair pay for an agent in this day and age?"  

    It seems like the concept of paying an agent a commission based upon the price of the home is an antiquated one.  If the sole role and value being provided is advice, as opposed to helping buyers and sellers find one another, then should the amount of an agent's pay really vary based upon the price of the home?  The advice from an agent about buying or selling a home does not change based upon the price of the home.  Agents utilize the same knowledge and experience regardless of price.  Also the time involved does not typically vary from one price point to the next.

    At Flat Fee we believe that it is time to abolish the 6% percent commission based model and for the real estate industry to adopt a fairer one.  It may not be our model of charging a flat fee of $3,500 but it should be fairer than it is today.  


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      Avoid Inherent Conflicts of Interest

      Under the current structure of most real estate markets and MLS systems, the seller of the home is responsible for paying the buyer agents fees.  In almost all cases, the seller will pay the buyer's agent a percentage, typically 3%, of the purchase price to the buyer's agent at closing. 

      This creates an inherent conflict of interest for the buyer's agent.  The buyer wants to pay as little as possible for the home and the buyer's agent has a legal responsible to look out for this interest.  However, the buyer agent gets paid more if the buyer pays more for the home.  Therefore, while it is not in the buyer's best interest, it is in the buyer agent's financial interest for the buyer to pay a higher price for the home.

      Buyers can avoid this inherent conflict of interest by hiring a firm like Flat Fee that rebates a portion of its commission to the buyer.  Instead of the agent getting paid more as the price of the house goes up, the buyer simply gets a bigger rebate check from Flat Fee at closing. 


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        Is My Home a "Good Investment"?

        Many people look at their home as an "investment".  This is an interesting phenomenon given that people do not evaluate their investment in their home in the same way they value and analyze other investments.  

        Most investments are made with the tastes and opinions of others in mind.  For instance, when you buy a stock or a piece of art you are conscious of how others value those things and what others may be willing to pay based upon their opinions and tastes. 

        In contrast, most people view home improvements, paint choices and other interior design choices solely on the basis of their own tastes, opinions and values.  This is completely understandable and one of the big reasons a home should not be viewed as an investment.  

        You should enjoy your home and be comfortable in your home.  Your home should reflect your personality.  If you want to view your home as an investment, then you would need to start making design choices based upon the opinions, tastes and personalities of others.  Living like that may be great from a financial standpoint but would be a terrible way to live in your home.  



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          Open House or Empty House?

          After decades of living in the shadows, the secret about open houses is finally coming to light.  Fewer and fewer agents are offering open houses because more and more agents are acknowledging the true purpose behind open houses.

          The big secret is that open houses are not designed to help sellers.  They are designed to help real estate agents get more clients.  Rarely is the ultimate buyer of a home introduced to the home through an open house.  Buyers are not waiting around until Saturday or Sunday afternoon to see a home with other people wandering around the house.  Buyers want immediate and exclusive showings where they can see the home unencumbered by other people.  The only people that come through your home during an open house are neighbors and busy bodies who are not serious about buying. 

          Don't waste your time fixing up your home for an open house only to help your agent get more business and new clients.  Instead leave your house empty and free of neighbors and tire kickers and have your agent focus their efforts on getting ready, willing and able buyers into your home. 


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            Why Do Sellers Pay Buyer Agent Commissions?

            Buyers have been convinced over decades of marketing that buyer agents are "free".  Some members of the National Association of Realtors continue to perpetuate this misconception in the hopes of maintaining the status quo.  Most firms charge between a 5% to 6% commission to the seller.  The firms then offer to split those commissions evenly with buyer agents or if there is no buyer agent they will keep the entire commission for themselves.  As a result, the seller ends up charging more for their home in order to offset the fees needed to pay the buyer's agent.  

            Flat Fee's model challenges the status quo in an effort to make the process fairer for sellers.  Flat Fee charges sellers $3,500.  Unlike most firms, Flat Fee does not get paid more if the buyer does not have their own agent.  Flat Fee collects its fee of $3,500 at closing when the house sells from the proceeds collected by the seller.  

            Flat Fee's clients do offer buyer agents commissions.  While we would prefer that our clients did not have to offer buyer agents commissions and would prefer that the buyers paid their own agents directly for their services, Flat Fee would not be able to compete under the current market conditions if our clients did not conform to the system currently in place and offer buyer agents a commission apart from our flat fee of $3,500.  

            There is a class action lawsuit currently working its way through the courts that may change this and allow Flat Fee to be competitive without requiring our clients to offer buyer agents a commission.  Flat Fee's clients have experimented with offering below market rate commissions to buyer agents in the past but the resistance from other firms and agents was stiff and the reactions from some agents were downright nasty.  We hope this lawsuit will bring consumers greater choice and options for using alternative models like Flat Fee's and in the end save consumers a lot of money.