Home Buying in Glastonbury>Question Details

MRTCPA, Home Buyer in Connecticut

I don't understand why folks say that the buyer's agent is free for the buyer?

Asked by MRTCPA, Connecticut Thu Feb 19, 2009

From what I can tell, the buyer is paying 5% to 6% more for a house because there is an agent involved. On a $500k sale with a 5% agent commission the buyer pays $500k and the seller receives$475k. Without an agent, the buyer could pay $475k and the seller would receive the same $475k. I'm not a real estate professional, but it seems to me the buyer is the one actually paying the commission. Is there something I'm missing? Thanks.

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Your reasoning is correct (don't listen to real estate "pros" because that is how they make money). However, don't get a buyers agent only if you have the time and brains to research the market yourself.

However, you are forgetting that when a house is listed with an agent (sellers agent), they usually have an agreement that each a sellers agent and a buyers agent will get 3% commission. You are trying to get rid of the buyers agent to save extra 3% to the sellers (and thus reduce the price for yourself). However, most often the sellers agent wouldl then try to KEEP entire 6% of the commission for writing you an offer (dual representation). That way you are not winning at all.


The best solution is to do your research but find an agent to write you an offer. Have an agreement with her that she will rebate you a percentage of her commission at closing. So if she gets 3% on a 500K house, you will get 5K for using her, and that way you will have someone who will be liable in case there is an issue and the agent did not do her job properly.

Good luck!
3 votes Thank Flag Link Fri Feb 27, 2009
I'm not a real estate agent, but I don't agree with your analysis. It's a fairly simple logical argument to show why I disagree:

If your supposition were true (the buyer is paying the real estate agent since the seller receives money net of the real estate commission), then the following must also be true:

The buyer is paying off the seller's mortgage(s).
The buyer is paying the seller's transaction taxes.
The buyer is paying the seller's property taxes up to the day of the sale as well as the property taxes after taking possession.
The buyer is paying for all improvements the seller has ever made to the home.
The buyer is paying for all repairs ever made to the home.
The buyer is paying for the seller's increase in asset value.
The buyer is paying for the seller's original construction costs.

Isolating the real estate commission as an added expense to the transaction, while ignoring all of the other costs the seller has elected to incur since the home was built, is faulty logic.

If the supposition that a real estate commission increases the cost of the home to the borrower is true, then all expenses born by the seller in the trasaction as well as all construction, repairs, and improvements have likewise increased the cost of the home to the buyer.

The logic of the supposition breaks down when ALL costs born by the seller that result from the sale of the home are deducted from the seller's gross proceeds because once those costs are deducted, the only thing left is the seller's cost of the original unimproved lot.

In other words, you're expecting the seller to offer the home for exactly what he or she paid for the vacant lot since the decision by the seller to incur mortgage debt, build a house, improve a house, repair a house, and hire a sales professional to sell the house have all contributed to the difference between the original cost of the lot and the price you have negotiated with the seller.

The obverse of your supposition would also then be true: If the elimination of the real estate commission results in the ability of the seller to accept a lower price, then the elimination of the seller's other elective decisions: to build, to borrow, to improve, and to repair would result in a further price reduction back to the original price paid by the seller for the vacant lot.

I don't know about you, but I wouldn't want to participate in a market in which sellers would be required to give away all improvements of a vacant lot to a buyer becuase the buyer felt that the seller shouldn't recover costs to build and improve, costs to borrow, and costs to sell.

But then again, I will gladly purchase any house you have to sell for exactly what the orginal lot cost you, since your decision to build, borrow, improve (and perhaps hire a real estate agent to sell) resulted in you trying to collect a higher price from me as a result of those decisions, and by your supposotion I shouldn't pay for those decisions.

I'm not trying to annoy... I just can't fathom the argument that the decision of a seller to hire a professional to sell a home is somehow detrimental to the buyer since the logic of such a supposition is so obviously flawed.
3 votes Thank Flag Link Sun Feb 22, 2009
Most first time home sellers don't realize the work that goes into listing, marketing and selling a home (especially in THIS market). When they try selling their home "For Sale By Owner" and are not successful, they then look to the professionals to determine the actual Fair Market Value of their home and the best forms of marketing it. When the property sells and the seller pays the agreed on commission (half of which goes to the listing broker which is split with the "listing agent", then the other half goes to the buyers broker and is split with the buyer agent), the commission comes out of the sellers proceeds (if they're fortunate enough to have any). If the buyer pays "Fair Market Value" for the property, they aren't paying the commission, the seller is. If it was a seller's market, the seller might be able to sell FSBO and forego paying a commission, but often times, they don't now the true value of their home and are either asking too little and end up leaving $ on the table, or ask too much and then it doesn't sell.

I like the comment Amanda made about hiring an expert. I don't do my own taxes, because I don't know all the laws and would certainly miss deductions that I didn't know I could take, so why not leave it to the experts!
3 votes Thank Flag Link Thu Feb 19, 2009
I think what agents mean by that is that you, as the buyer, aren't paying out of pocket and aren't paying the fee directly to the agent.

Most homes on the market are sold using agents so the fee is built into the market. Just because a home is for slae by owner, doesn't mean you get a price reduction - the seller makes the money.

And just because you work with the listing agent, doesn't mean you get a huge price reduction (50% of the total commission). The listing agent has an agreement with the seller for a certain commission and perhaps they'll give you some sort of a deal but what you miss out on is all the advice, the guidance and the experience of a real buyers agent which can ultimately cost you more than what you saved.
3 votes Thank Flag Link Thu Feb 19, 2009
Actually, the seller is paying the comission with the money the buyer is giving him. You are looking at the question the wrong way. For Sale By Owners typically get about 16% less for their homes than one sold by a Realtor. In actuallity, that 6%, makes the seller 10% more. Most home buyers like the to employ a Realtor who knows the market help them find the best deal on the best house. Sure, some folks drive around aimlessly hoping to just come across the deal of a lifetime. It doesn't really happen that often.

In a market this tough, it doesn't make much sense to try to sell your house by yourself, then make 10% less than you would by using a Realtor. Also, when your house is listed, you have 100's or thousands of Realtors helping to sell the home. If you list it yourself, there is one person trying to sell it. You. Some people win the lottery I guess........
2 votes Thank Flag Link Thu Feb 19, 2009
Since the house you are interested in is listed with an agent, the commission structure is already set in the contract. So, because of that, you are not going to gain any benefit from NOT having a buyer agent to represent you. The seller has agreed to pay a full commission of 5 % or 6 % already. So, as a buyer, you are not paying any direct commission.

Agents are here to professionally help you make one of the biggest purchases you'll make in your lifetime. We take pride in what we do and we continuously are educated to make sure we have the best knowledge to represent you.
2 votes Thank Flag Link Thu Feb 19, 2009
You are correct. It is a myth that the seller pays the fees since it is the buyer who is purchasing the home. Without agents, you could get a 5-6% discount on the house and the seller would still get the same amount of money. So on a house worth 1MM....without agents you could buy it for 950k. THe seller would get 950k with or without the agent.
2 votes Thank Flag Link Thu Feb 19, 2009
That is not necessarily true. This particular situation you are stating, the seller does not have the time, expertise or desire to market their own home. Basically, I see them as folks who know their limitations and know when to call in the experts. Experts cost money. I could do my own taxes, but I don't know enough about that process to take on the task myself. I want it done right...so, I hire an accountant.

The sellers agree to what the amount of commission at the time the listing is taken and therefore agree to pay (out of their share) the commission. That is why many of the agents here are saying it is free to the buyer.
2 votes Thank Flag Link Thu Feb 19, 2009
I agree 100% with what Shirley wrote in the last response. Homes being sold directly by their owners are rarely priced 5%-6% less than if they were using a Realtor. Most FSBO's have a market analysis done by a local Realtor then price their homes at the price recommended by the agent hoping to keep what would have been a commission.

I have seen too many cases where people purchased directly from a seller and overpaid for the homes they bought. When they turned around and tried to sell they were double-hit by the initial overpayment and the declining market values.

With that said, by having an agent represent you as a buyer, you are having a professional representing your best interest to avoid such a scenario. A good agent will find properties that should appeal to you and meet your needs, will do a price comparison to determine if the home you like is worth the asking price, will advise you and recommend a realistic starting offer, negotiate the best deal on your behalf, will re-negotiate over any home inspection issues, and can assist you in finding reputable lenders, home repair specialists, movers, etc.

Many buyers refer to various websites to see what homes sold for thinking that will give them a good idea of home values. What they don't see is the fact that the sale included a significant credit refunded to the buyer to offset the buyer's closing costs quite often padding the purchase price by thousands of dollars.

In Connecticut's statewide MLS system, any credit given is to be noted in the information in the system at the time the listing is closed out. Even if the listing agent fails to enter this information, an experienced agent should be able to tell if a credit was most likely included in the purchase price recorded.

So, unless you see a home truly priced low for the local market and the home's condition it's safe to assume the home is no bargain. Even if you continue to believe you are paying the commission, you shouldn't underestimate the value of the services a good Realtor provides for your protection.
Web Reference: http://www.JeanneAllard.com
1 vote Thank Flag Link Mon Mar 2, 2009
I actually did exactly what buyer 1 suggested to you in my last home purchase. I did the research to find the home, previewed it on my own, then had the agent submit the offer, show up with us for inspection, and do the paperwork. We split his 1/2 of the commission which was 1% each. That particular house had a 4% (2% to seller agent, 2% to buyers agent) commission which is common in California due to such high real estate prices. At the closing of escrow, we received a check for 1% of the sale from my agent.

If you do your own research online, and can get to open houses on your own, I highly recommend doing what I did to save some money. It is also really nice to get cash at the end of the transaction to help with moving expenses , setting up a new house, etc. All that stuff adds up on TOP of your down payment and closing costs, which in this market, you should have the seller covering your closing costs.

When I sold the place, I used an aquaintance I trusted who was a local real estate agent, our dog walker, and lived she on our street so it was easy for her to show our house at a moments notice. We used a 4% commission again, but this time, the buyers agent got a 1/2 percent higher commission, which looking back was unneccessary. We were fortunate our place sold in 1 week, but that was Jan of 07 right before things started to crumble, and our home was located in a very desirable westside LA beach community.
1 vote Thank Flag Link Fri Feb 27, 2009
I noticed a lot of lengthy answers. Cliff Notes: Seller predetermines listing rate before the house is marketed, whatever it be it is going to be paid whether a buyer agent is involved or not. Don't get me wrong, buyers do come out of pocket to pay fees associated with obtaining the loan, paying the appraiser, home inspector, attorney. But when I get to closing, it is customary (in Greater Hartford County) that a check be cut to me and handed to me by the sellers attorney.
0 votes Thank Flag Link Wed Oct 14, 2009
Technically the seller is one that pays all commissions, it all comes from the selling price, which is provided by the Buyer. The Seller ends up with sales price minus commissions. There is not fee for a Buyer to buy with an Agent.
0 votes Thank Flag Link Wed Apr 29, 2009
To Phil in CT, Yes its legal to give back money to anyone "IN" the transaction in CT. Just needs to be on the HUD at closing. You can't do any side deals. - Fred
Web Reference: http://ctflatfee.com
0 votes Thank Flag Link Mon Mar 2, 2009
Most FSBO (for sale by owner) listings I've seen do not price their homes 6% lower because they are selling them without an agent's assistance...they are pricing them at the same price homes with agents have set and hoping to pocket the extra money. They certainly aren't looking out for the buyer. That's why we say the buyer's agent is free for the buyer. You're going to pay the same price...or close to it...so why not have someone to protect your interests and your investment?
0 votes Thank Flag Link Fri Feb 27, 2009
It is perfectly legal in California.

sorry, I don't know about Connecticut.
0 votes Thank Flag Link Fri Feb 27, 2009
I don't believe buyers can receive a 'kick-back' on the commission unless they are licensed (in which case, they would simply take the entire buyers side). This is because it is illegal to receive a commission on the sale of a house unless you are licensed, buyer or not.
0 votes Thank Flag Link Fri Feb 27, 2009
By asking the initial question, I was neither suggesting that Agents don't offer a valuable service to both buyers and sellers (they do, and they should be compensated for those serivces), nor was I suggesting that the inclusion of an Agent into the selling process is somehow detrimental to the buyer. I was simply questioning the ascertion that the buyer's agent is free for the buyer.

Thanks for the dialogue...
0 votes Thank Flag Link Fri Feb 27, 2009
A house is worth exactly what someone is willing to pay for it and nothing more. Closed transactions where there was a seller willing to sell and a buyer willing to buy are generally the yardstick by which we measure the value of a home. When a real estate professional evaluates the price of a home for a potential seller, they don't do their research and say "well, the last home in your neighborhood sold for (x), so we'll pick that price and add in 6% for my commission -- it's already factored in to the asking/selling price. Similarly, if a buyer comes to a seller without a realtor, they don't get the benefit in the form of a price break. The seller (if the property is listed) has already agreed to pay the commission. As far as fsbo's (for sale by owner) are concerned, they are often priced much higher than what the actual market value is. Everybody (including realtors when they are evaluating their own homes) thinks their home is worth more than actual market value. It's a fact of human nature. If you want to pay fair market value (in today's market) choose a realtor who practices real estate on a daily basis (not a part-timer) and who specializes in the area that you're looking in. You'll be glad you did!
0 votes Thank Flag Link Sun Feb 22, 2009
A realtor can represent your best interests and make sure you are protected in all aspects of the sale. The fee is paid for by the seller, unless you have a signed buyer's representation agreement which assures the agent will get a fee. You are always better off with the representation of a professional, and if it is of no cost to you, why not find a great realtor ?
0 votes Thank Flag Link Sun Feb 22, 2009
A home is worth the same to a buyer regardless of whether it is listed with a realtor or not. The commission is just an advertising cost to the seller. As a buyer's agent I never charge a fee to my client. They get a veteran agent who has negotiated over 500 real estate sales. You might think that buying an unlisted home without any realtor would be the best deal but sellers don't sell themselves in order to give the buyer a discount. They want to keep the saved commission money for themselves. There is NO down side to a buyer using a good realtor to protect their interests. In fact, my negotiations should result in the buyer saving lots more money than if they tried to manage a purchase on their own.
0 votes Thank Flag Link Sun Feb 22, 2009
Sorry for some reason I couldn't embed the video here is the link: http://video.yahoo.com/watch/236116/1822225
0 votes Thank Flag Link Sun Feb 22, 2009
The seller won't lower the price because an agent is not involved, they are pocketing the extra money. Not giving it to you.

How accurate do you think the seller will price the home without an agent? If they use Zillow, it might be overpriced by $50,000. Then you would check Zillow since you like to do it your self and you would come up with the same wrong price. Then you get an appraisal and find out its 50,000 less the seller says he won't sell for that amount, get a better appraiser or the deal is off

Besides the fact that the seller is doing it himself to avoid all of the disclosures those RE agents use, it would be bad if he had to disclose that there is a sinkhole, how can you market a sinkhole..

So you buy the house it falls in a sinkhole...How much have you saved...LOL...LMAO

See Video San Francisco House Collapses Into Sink Hole @ Yahoo! Video
0 votes Thank Flag Link Sun Feb 22, 2009
Yes your missing the fact that the seller would have NO BUYERS without a listing agent, nevermind a $500k buyer. How many qualified buyers do you think come out of a Newspaper / Craig's List ad? They'de actually be lucky to get $450k, esp. not knowing anything about real estate pricing and/or negotiating. Now when you list with an Agent, you open the doors to hundreds of buyers, one or some of which is willing to pay much more than the others.

Ok, so lets say the seller listed with an Agent at 4%. The Listing Agent will give the buyers agent 2-3% for bringing the buyer (the agent who actually sells the house). However, if a buyer comes unrepresented, the listing agent may keep the full 4%. Either way the seller will pay the 4% and net the same amount.

At the end of the day, the seller needs to find that perfect buyer who loves the property the most. And you usually don't find that buyer without a large pool of buyers from the MLS, Realtor.com and offering a buyers agent a commission.
0 votes Thank Flag Link Sun Feb 22, 2009
If the seller, in your scenario, accepts your $500,000 offer (paying his agent $25,000 commission)... and he owes the bank $600,000...

The seller gets $500,000 from you... pays the bank $600,000 and then pays his agent $25,000.

now, without any derogatory comments about how "stupid" the seller might be... who's paying the commission then?
0 votes Thank Flag Link Thu Feb 19, 2009
Alan May, Real Estate Pro in Evanston, IL
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