If buyer brokers still make their commission off of the purchase price how will I know they'll have my best interest in mind?

Asked by Roshan, New Haven, CT Thu Mar 8, 2012

Wouldn't the incentive for a broker to try and get me pay as much as I can without the deal falling through?

In addition...when my wife and I watch these homebuying shows on TV...we see a couple tell the agent what they want to spend and what their absolute max is. It seems like without fail, every couple ends up buying at or even above their absolute max. So it almost feels as if it's not in my best interest to tell my agent the absolute most we're willing to spend on a place.

I apologize in advance if this is an offensive question. I'm a 1st time homebuyer just learning about the process and this part puzzles me. And as a buyer is there anything I can do to make sure my broker has my best interest in mind and helps me get the absolute best price (like offering some type of cash incentive)?

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Michael Emery’s answer
Michael Emery, , Minneapolis, MN
Thu Mar 8, 2012
Well I must be the worst agent in the world. I advise my clients to spend less than what they're qualified by their lender. My advice is always spend as much as you are comfortable with knowing you will be making payments for the next 30 years.

I would caution you about taking home buying shows with a grain of salt. Many of them are partially scripted. And the most popular show 'Househunters' is an outright twisting of the truth. In fact the 'buyers' have already bought a home and they're being shown comparable homes. But for the sake of TV the outcome is known even before they shoot one foot of film.

And for every $1,000 more a buyer spends on a home, the agent profits approximately an additional $10 to $20. And the home STILL has to appraise, the homeowners have to qualify and the underwriter has to approve it all.

Just remember, in the end the decision is yours as to how much you should spend. And if you have an agent that doesn't understand, find another agent.
3 votes
Michael Cheng, Agent, San Jose, CA
Mon Mar 12, 2012
You're right to be concerned about the alignment of incentives. It doesn't take a professional economist to understand that when a broker's compensation is a percentage of the transaction price, typical of most real estate commission agreements, the natural inclination is for the broker to aim for the highest price.

As much as we brokers can offer rebuttals to the contrary (we're just here to help you complete a transaction that you want or we can't arbitrarily encourage you to bid up a property that won't pass appraisals), the bottomline is that you can't be sure about the true motivations of your buyer's agent. Now, most of us naturally operate with professional ethics of fair dealing, since the difference of a few thousand in the transaction price translates to a trivial difference in commissions of less than $100. Of course, to you, a few thousand is non-trivial.

So, if you want perfect alignment of incentives between a broker and yourself, you'll have create a custom incentive structure in an agreement with your buyer's agent. If structured properly, you'll feel perfectly satisfied with your broker, knowing that in any possible scenario, he's working in your best interest. But, here's the catch: it's not that easy to design a new incentive structure that works perfectly for you and is acceptable to your broker. That's one of the reasons why the current structure still exists.

In the meantime, if you work with a buyer's agent, communicate your personal preferences clearly. Your broker can only provide you with the figure you need to bid in order to win a deal. Ultimately, you hold the choice to make that bid or walk away. That choice is both a privilege and a responsibility.
Web Reference:  http://www.archershomes.com
1 vote
Maria Gilda…, Agent, Manchester, CT
Sun Mar 11, 2012
Dear Roshan,

Your instinct, keen observation, logic ,rationale and education will help you realize if the realtor is working for your best interest. An almost similar question came up in the past and I will answer it in exactly the same manner:

Being a broker of a small company whose reputation is based on client's testimonials and whose mission and goal is 100% commitment to home buyers, I will have to express with firm and strong statement that it is possible to find an agent who will put his/her clients interest in mind 100% throughout the entire process.

If your concern is about the commission on the difference between the price the buyer is willing to pay and the price the seller is willing to accept-- the amount is not significant to make the buyer's agent jeopardize or compromise the client's interest. For instance, by increasing $15000 to the offer- this difference will yield only an additional $375 in buyer's agent's commission--based in 2.5% co-broke. If the difference is in hundred thousand dollars, then your concern might be plausible. But for highly ethical agents, the $$$ sign the commission waves, although it is our source of bread and butter, takes a back seat because the innermost reward for doing the job in the best possible manner is sweeter than the dollars earned. The return is ten-fold.

Furthermore, to guide you in choosing the buyer’s agent, here are the following questions to ask:

Experience and Credentials - How long have you been a buyer’s agent? How long have you been an ABR? What other real estate designations or credentials do you hold

References - Can you share the names and contact details for three past buyer-clients who can provide references?

Knowledge – What are your areas of specialized knowledge? Which types of housing or neighborhoods do you know best?

Representation – What representation choices do I have as a buyer? What is meant by fiduciary
Services provided - Please explain how you will assist me at each stage of the transaction. Do you have a written buyer representation agreement that details our obligations to each
Compensation – How will you be compensated? If I hire you as my buyer’s agent, will I be subjected to any additional costs in my transaction?

Finding properties – Do you have full access to the multiple listing service (MLS )? Will you try to find suitable properties beyond the MLS?

Personal support – Will you personally handle all aspects of my transaction, or will I be working with assistants? Who will explain and complete the various forms, agreements, and steps
. required to reach closing?

Qualities to Consider: Honesty, Trustworthiness, Knowledge of the Local Housing Market Conditions Trends, Good Communication Skills, Assertiveness, Empathy and Confidence.

Please view this video I made for my first-time buyers. I hope you learn something from it.

1 vote
Josh McNair, Agent, Indianapolis, IN
Fri Mar 9, 2012
If a buyer’s broker did that he or she wouldn’t be in business very long. All good realtors put their clients interest first!
1 vote
Julie Traver…, Agent, Southbury, CT
Fri Mar 9, 2012
Hi Roshan, a buyer or seller agent should also work for the best interest of their clients. I show my buyers whatever they are interested in seeing no matter if the house is $20,000 or $200,000, the end decision should be that of the homebuyer. Alot goes into the negotiation process from the condition of the house to personal items to writing up the contract. That is why it is important to choice a Realtor that is experienced and
looks out for their clients. Unfortunately it is unethical and a Realtor can risk losing their license for offering any type of "cash incentives". If I can be of any further help with your home search please feel free to contact me. Julie Lucia, Realtor, Showcase Realty 203-578-5631;julie@julierealestate.com
1 vote
Anne Astley, Agent, Old Lyme, CT
Fri Mar 9, 2012
Hi Roshan

My take is with Michael, I always treat my clients the way I would expect to be treated. I always always always tell them that they are the ones who will ultimately decide how much they want to spend on a home as they will be the ones living in it for the next ???? years, I ask them do they want to spend all their vacation time at their home, only ever eat at their home...... ???? This makes buyers think twice about what they really want to spend. A great mortgage officer is also a invaluable asset to a home buyer. Occasionally people do spend more than they initally planned to on a home, especially if the home is aggressively priced and has everything going for it, paying a little more than listed price is not always bad - plus the home still has to appraise at or above offer price for the mortgage to go through. As agents we are bound by fidicuary duties and to serve you the best we can in an honest and ethical manner. I frequently work with first time homebuyers and completely understand your concerns - you should be able to feel comfortable with your agent and trust what they say and be able to feel that you can ask them anything and get a comprehensive answer to your question.

Good luck and feel free to contact me if you have any further questions.


Web Reference:  http://www.anneastley.com
1 vote
Linda S. Cef…, Agent, Franklin, WI
Thu Mar 8, 2012
I agree completely with Michael Emery and most of what the others before me have already stated. Do your homework when choosing an agent. Interview until you find one that suits you. If you do, I am confident that you will locate the perfect agent for you that you can put your trust in.

There are bad apples in every profession, but please know that most of us do what we do to help our clients. It is much more than being about the commission. And for the few who make that their priority? They don't last very long. How can they? This is a highly referral based business.

Good luck to you.
1 vote
Olivia C. Ma…, , New Haven, CT
Thu Mar 8, 2012
You should have an agent that understands your needs and should be familiar with the area you plan to purchase in. I usually do a house tour for my clients. Also a buyer agreement needs to be signed by the client and agent. Your agent should be someone you are comfortable with.
1 vote
Benjamin J S…, Agent, Middletown, CT
Thu Mar 8, 2012

This is a question I get all the time... and so I am not offended at all, and likely neither will any other agent be. Michael makes a very good, as he usually does, that the difference between $100,000 and $105,000 in purchase price means very little in terms of commission. Like around $125... depending on the split and that's before the broker (William Raveis or Re/MAX) takes their portion.

But more importantly is the fact that a good Buyer Agent's job is to make sure that you are all around very pleased with your purchase. Being a Realtor is about relationships and people, and there aren't many successful Realtors who burn their clients consistently. Realtors live on referrals, and people talk... especially about real estate or their home. Our reputation is our most important asset. Even with all the sales skills and market knowledge in the world it's impossible to be a suceesful Realtor if you aren't trusted and respected by your clients. There are and always will be those out there who are in it for the short term gain, and in real estate they tend to give the whole industry a bad name.

The bottom line, the only incentive a good/sucessful/reliable Realtor needs to have your best interests in mind is that of making sure that you have nothing but great things to say about that Realtor and your experience in buying or selling with them as your agent. I could get into things like Realtor Ethics and Fiduciary Duty but these terms don't necessary have any meaning to a client, what does is trust and respect.

Not to mention, that if you decide not to use a buyers agent you have really only two other options, use the seller's agent in a dual agent capcity. Or go it alone with a competent real estate attorney to look over your shoulder on the paperwork and field questions. (They really don't do nearly as much as an agent would.)

Best of luck no matter what you do!
1 vote
Cedric McNeil, Agent, Norwalk, CT
Thu Mar 8, 2012
Hello Roshan,

I completely have to agree with Michael. I as an agent advise on an offer price from what information and trends are happening in a given area as well as what will get you the home and keep it together from what info we get from the seller, in the end its up to you (do you love the home, can you and your family be happy in this home).

Yes, we as agents want nothing more then for our clients to get the home they choose at the best possible price. We want our clients to be completely satisfied when all is said and done. I work in the relationship business as well as the consulting and sales business. If you are completely satisfied then you will gladly refer someone else and so on and so on. We as agents don't try to make our years salary with one client, in fact we build many great relationships with families and that ultimately what builds our businesses. In the end its all about you never about me.
1 vote
Paul Harmon, Agent, Modesto, CA
Thu Mar 8, 2012
I think one of the most important things to remember when watching reality television is that though these individuals may be portrayed on the show as always spending at or above their maximum, it is important to note that they are the ones making the decision. It is the responsibility of all parties to make sure there is complete understanding when making a very large decision (such as purchasing a home, investment property, etc.). On a separate note, you'll notice on several of those shows that the prospective buyer will always meet with a real estate agent, view 3 properties and then make a decision. This is not typical in many cases. I've personally dealt with hundreds of homebuyers and there are instances where we write an offer on the first property we see; then there are times where we are looking for several months and even years before we find the right property. You want to make sure that you aren't basing your potential real estate experience on the experience of others. It's always best to be in open communication with your Realtor prior to, during and after the transaction.

How this ties into commission: Undoubtably there are people out there who believe Realtors are only out for their highest commission. There have been Realtors who have given the rest of us this name. So for all of the honest and hard-working Realtors out there, they deserve every dollor they earn! As a Realtor, there have been times when the "right property" has been the lower priced property, and vice versa. I can only speak for myself when I say my client's best interest is ALWAYS my first priority. There are often times when we are forced to take a reduced commission due to the agreement the seller has with the listing agent. So before you worry that your Realtor is working in his own best interest, have this conversation with him and go with your gut.

All the best!
1 vote
Irina Karan, Agent, Aventura, FL
Wed Apr 18, 2012
Hello Roshan,

No one can "get you" to do anything you don't want. You are in control of this process (and the market, of course).

You have to get comparable sales for the property from your agent, before you make an offer.
You will be confident in the agent that he/she knows your local market very well (it's not even difficult - have your agent predict a sold price on one of the current listings and see how close they'll get to the actual sold price - the agent has to be within 5K, if they previewed the property).
After you preview a few properties, you'll notice the trend in values (you can also check out, but not fully rely upon, Zillow.com for property valuations and trends).
You'll have a feel of how much the property should go for once you start looking - each area has sold to asking prices ratio - although it's not absolute.
You can even find out "adjustments" appraisers do when evaluating a property - so that you know you are doing the right thing.

Your agent does have ethical obligations to act in your best interests.
When interviewing agents, listen what agents tell you, and if anything sounds off, find the one who sounds right.

Important - there are two parties in the buying/selling process. The seller has a major say in it.
Depending on your market place, you might have a sellers or buyers market.
The type of market often determines where the buyer and the seller meet in terms of the price.
Just like you'll be trying to buy at lower price, the seller will try to get the most for the property.

Agents only get paid when the deal closes, and that happens when the seller and the buyer agree.
Realtor's business only grows when we get repeat business from happy clients...

Hope this helps,

Irina Karan
CDPE - Certified Distressed Property Expert
Beachfront Realty, Inc.
0 votes
The Garthman…, Agent, Stamford, CT
Tue Mar 27, 2012
This is a very good question!

We like to let the buyer know that we are looking out for their best interests by not asking what their top $$$ would be for a particular property that they may be interested in. We feel that once the negotiations move closer they will decide, based on the comparables that we gave them, whether there is a need or motivation to go higher in price. We do expect the prospective buyers to be, not only pre-approved for a mortgage amount, but also, to be comfortable with the monthly mortgage payments going forward on a sale. The final decision always lies with the buyer who we represent, not the Realtor who represents the buyer. We can try to assist in helping make the buyer better understand the property value and the financial responsibilities that will come with the purchase.

A Realtor will hope for repeat business from you in the future as well as referrals from colleagues, friends and family so it would be wise for them to work with you as diligently and honestly as possible.

A cash incentive is not necessary, and following any of the previous suggestions should
hopefully make it clearer as to what a Realtor can do to best represent you!
0 votes
Betsy Purtell, Agent, Cheshire, CT
Tue Mar 27, 2012
It all comes down ethics and the individual agent. This is why you should affiliate yourself with a buyer's agent who has a proven track record of success and many, many glowing references. Check their references.

Betsy Purtell, Realtor
Coldwell Banker Residential Brokerage
Cheshire, CT 06410
(203) 640-4440
Top Agent 2005 - 2012
0 votes
Mack McCoy, Agent, Seattle, WA
Sun Mar 11, 2012
- Wouldn't the incentive for a broker to try and get me pay as much as I can without the deal falling through?

Isn't that your incentive?

Maybe not, but, gee. If you want to buy something, you have to do something to make a seller want to sell it to you!

Dave Barry wrote a great book, Homes and Other Black Holes http://www.amazon.com/Homes-Other-Black-Holes-Barry/dp/0345394402 which has a chapter on negotiation that to my mind totally captures your position.

- And as a buyer is there anything I can do to make sure my broker has my best interest in mind

You have to tell them what that is. Usually, people come to us because they want to buy a property.

Let's move out of real estate and make an analogy to the fine art market. Four Matisse sculptures come on the market, and you hire an agent to buy them. They come on the market for $200M. Just pretend you have the money. Your agent earns nothing if you don't buy them, and you don't own them if you don't buy them. Can you see how you share the same interest?

- when my wife and I watch these homebuying shows on TV

Psst: they're scripted.

All the best,
0 votes
Daniel, , Baton Rouge, LA
Sun Mar 11, 2012
and by the way, there HAVE BEEN several realtors, builders, appraisers and lenders who have been prosecuted for fraud ! Always in life BUYER BEWARE!
0 votes
Daniel, , Baton Rouge, LA
Sun Mar 11, 2012
LOL, the last time I checked, You are an American! You do not need to anything that YOU DO NOT WANT TO DO.

Also, as an American capitalist, you live in a society that is prone to seperate you from your cash!

YOU, and only YOU can decide what you are willing to pay for a property! Do not sign a contract with a Realtor! Nope, Don't, Nada! You do your own research. Ask questions, Hire your own building inspector, NEVER USE the Realtors "guy"

Ask family and friends for their opinion - good luck
0 votes
Phil Zimbardi, Agent, Orange, CT
Thu Mar 8, 2012
You have every reason to be concerned. Unfortunately you won't know for sure until it gets to negotiation. In my opinion, i would keep your max price to yourself either way. Personally I work with mostly investors and getting the purchase as low as possible is the only option.
0 votes
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