Home Buying in Atlanta>Question Details

Mrtrend, Home Buyer in Atlanta, GA

Can the buyer pay the Buyer's Agent instead of the seller paying the Buyer's Agent?

Asked by Mrtrend, Atlanta, GA Fri Oct 5, 2007

The 3% typically paid by the Seller to the Buyer's Agent would to go to the Buyer instead. The Buyer then pays the Buyer's Agent a commission based on the difference between the appraised value of the property and the selling price, plus a flat fee. If the selling price is equal or higher than the appraised value, the Buyer's Agent gets only the flat fee. Example based on $400K appraised property, $1000 flat fee, 10% of difference between appraised value and selling price:
selling price of $400K -> $1,000 commission,
selling price of $350K -> $6,000 commission,
selling price of $300K -> $11,000 commission,
selling price of $250K -> $16,000 commission,
This commission structure gives the Buyer's Agent an incentive to find the best VALUE currently available on the market. The higher the appraised value of the property that the Buyer's Agent can find that matches the Buyer's budget, the higher the commission.

Would that work for any Buyer's Agent out there?

Help the community by answering this question:


Mrtrend, A county appraiser will give a value of X. A mortgage appraiser will give a value of Y. An insurance appraiser will give a value of Z. Who is correct? They all looked at the same property. You assume the county is correct. In Georgia, the county may only do assessments every 2-4 years, so how can one assume they are correct ? There are many other things not done by the county, due to the limited budget of the county to accurately place a value on a property. It could be over valued due to the owner not contesting the increase in assessments.

A good agent will look after your best interests without this complicated approach.
3 votes Thank Flag Link Fri Oct 5, 2007
I agree with some key points that Jim made...

First, I commend your desire to be innovative and reward agents who perform well. I strongly believe in compensation models that reward for results and work well performed.

I encourage you to keep thinking of alternatives, but this one isn't quite coming up a winner.

I don't know Atlanta assessor values. But, I know that towns across America typincally do not have assessed values that reflect market value or appraised values. Rather, they represent a basis from which to determine rates, tax and mill rates. Therefore, that benchmark is flawed.

List price as a benchmark is also flawed since each individual seller sets his/her price. There is not one standard for setting the list price. It is subject to the emotional twists of each individual seller.

Bank appraisal amounts are often not released until after closing, and only upon request. Agent compensation is settled at closing.

Bank appraisals often coincide with the purchase price simply to validate the value for the lender's portfolio. Today, there isn't much stretch in reaching that number, as there was in recent years. Still, if the appraiser comes up with numbers that are 40K more, he/she will most likely report a much more conservative number. Appraiser are under much pressure as a result of mortgages in crisis, and have every incentive to be extremely conservative.

So, again, I commend your efforts, and look forward to hearing alternatives from you.
2 votes Thank Flag Link Fri Oct 5, 2007
Deborah Madey, Real Estate Pro in Brick, NJ
Eliminating properties that are correctly appraised and correctly priced is the unintended consequence of your proposal.

Both Erin and I are near Sacramento California ( I have not met her in person yet.)

“Do you think using the County Appraised Value would limit the opportunities for unscrupulous agents? The goal is certainly not to turn a good agent into an unscrupulous one, but rather to reward the Buyer's Agent for his hard work on the buyer's behalf.”

I live in California, due to Proposition 13 which passed into law 1978, County appraised values here are totally unrelated to current market values.
My own home was assessed for its purchase price in 2002 at $348,000.
By 2005 the market value had grown to $650,000 while the appraised value was only increased to $360,000.
I recently received my Placer County, California tax bill. The appraised value has continued to rise, it is now $383,917. However the market value of my home has fallen since 2005 down to about $540,000.

I seriously doubt that any county anywhere in the country has the resources or the incentive to perform an appraisal that accurately reflects a properties market value.
In the rare instance that a county appraisal happened to reflect market value it would be 1. co-incidental 2. Of short duration.

Counties generally re-assess values only once a year. They do not 1. do drive-by inspections. 2. inspect interiors. 3. compare the subject property to competing properties.

Counties "appraise" property for the primary purpose of levying and collecting taxes. Determining market value for sale purposes is not of any importance to the county.

Using county appraisals as your basis is a sure way to base your calculations on highly inaccurate numbers. It is an even worse idea than offering the agent a sliding scale based on how much percent off of list price you negotiate for.

If you use list price as your basis, then you are disincentivizing your agent from bringing correctly or underpriced properties to your attention and incentivizing your agent to bring only highly overpriced properties to your attention that have the most room for negotiation (such as my seller lady in Sacramento)

I challenge you to ask yourself the following question “ Do I want to be deceived into having the appearance and illusion of having made a good bargain or do I want to make a good bargain in fact?”

I continue to admire your brainstorming on ways to reward good agents. I do not want discourage that kind of thinking!

Here a few methods of reward that I have witnessed.

1. Happy client writes unsolicited letter praising the work the agent did and sends a copy to the agent and the agents broker (boss)
2. Happy client refers friends, family, co-workers, acquaintances to good agent for their real estate needs.
3. Happy client returns to agent for subsequent transaction of sale or purchase or both.
4. Happy client sends a gift card or small present that you know agent or his/ her family member would appreciate.
5. Happy ( commercial ) client writes press release, buys media advertising praising agent and broker in public.
6+ Just because I'm out of ideas, doesn't mean there aren't more ideas out there. Anyone want to add?
2 votes Thank Flag Link Fri Oct 5, 2007
Jim Walker, Real Estate Pro in Carmichael, CA
Hello Mrtrend. Typically, the assessor's valuation of a property is not equivalent to actual fair market value. In most markets the county appraisal is lower than actual value and most sellers are not willing to sell for what the county has appraised the property for. While I heard of net listings where the listing agent's commission is determined by the difference between the purchase price and a certain predetermined price (if the ultimate purchase price is below that amount, the agent gets nothing), I have never heard of a net commission for a buyer's agent.

The other problem with your idea is that the listing agent works out total commission agreement with the seller at the time the listing is taken (part of that commission is earmarked for the buyer's agent). When a buyer comes along who wants to pay his/her own agent (but pay less for the property), it would require the modification of the listing agreement.
I personally would not be willing to work on a flat fee basis as suggested by you as the amount of work that I put in is the same no matter what the purchase price is and the liability also does not change. My compensation has nothing to do with the value of the property. If you can't get the deal that you want, don't buy at all. The value of my services is not affected by how much under value you can buy. A physician charges you the same amount no matter whether the surgery is successful or not.
Web Reference: http://www.go2kw.com
1 vote Thank Flag Link Fri Oct 5, 2007
Ute Ferdig -…, Real Estate Pro in New Castle, DE
Hmm...so you are referring to the County Assessor's value. This is much different than an appraisal! The county assessor's value often does not come close to reflecting the actual resale value of the property - the buyer's agent would often come away with nothing but the "flat fee" in many scenarios.

I just completed a transaction where I represented a buyer in the purchase of a property. The Assessed value of the property was $53,406. The property was sold for $379,000 less some seller concessions! I got my clients a great price for this property, as we were in a situation with multiple interested buyers that required some diligent negotiation.

I understand where you are coming from, but my goodness that model is pretty flawed!!
1 vote Thank Flag Link Fri Oct 5, 2007
Erin Stumpf…, Real Estate Pro in Sacramento, CA
This approach would not work in Georgia and possibly other states. Your question is based on the common misunderstanding of appraisals. The appraisal for a sale is typically ordered by the mortgage company. The mortgage company will ask for the appraiser to appraise up to the sales price, thus not appraising beyond the sales price, so the appraisal will only come in at or below the sales price. I've seen only a few appraisals that would come in above the sales price, since the appraiser is only validating the property is worth the agreed to sales price.

Additionally, your question is base on the premise that the Buyer's Agent is not negotiating in your best interest. I think that is a faulse premise or one that is very rare. A good agent will be blind to the effect on commission based on negotiating a better price. In maintaining their integrity a good agent will assist their client (the buyer) to acquire the property at the best price for their client. From my experience it is rare to find an agent that doesn't do this for their buyer.
In our negotiating, often our clients have been surprised at the reduction in costs and price that we've been able to negotiate.

I hope this helps.
1 vote Thank Flag Link Fri Oct 5, 2007
Wow....this is complex. The assessor does their own independant value which is different from the appraiser.

Commissions to the buyers agent are paid by the seller and based on the selling price. The appraiser must support the sales price and loan to value to the lender. The assessor value is usually based on purchase price.
0 votes Thank Flag Link Fri Oct 5, 2007
Pam Winterba…, Real Estate Pro in Danville, VA
Thank you all for your answers.

Mr Bill Wills, The appraised value would the County Appraised Value at the time of the sale which is public information in Georgia.

Mr Brett Dunne, Could you please elaborate on the increased risk of fraud and deception?

Mrs Erin Attardi, The idea is to create an incentive for the Buyer's Agent to look at value plays which are likely to exist in a crowded market, but overall remain rare opportunities and therefore require more work from the Buyer's Agent.

Mr Jim Walker, You are making a good point. Do you think using the County Appraised Value would limit the opportunities for unscrupulous agents? The goal is certainly not to turn a good agent into an unscrupulous one, but rather to reward the Buyer's Agent for his hard work on the buyer's behalf.
0 votes Thank Flag Link Fri Oct 5, 2007
I too am a math head.

I recently performed a competitive market analysis for a woman who has a recent appraisal for $775,000 for her house. I found that there were several properties that were more desirable in her neighborhood priced at or below $600,000. Using your method an agent could sell her house to you at $625,000 (That is $20,000 to $30,000 more than nearby houses that are more desirable) and be paid the $16,000 commission.

If one of the competing houses that was also worth only $600,000 but did not have an inflated appraisal to give to you, he would only receive $1,000.

Your proposal gives the incentive to a buyers agent to find a property like the one that has an appraisal that is way over the market value. And more importantly it gives him a disincentive to find you a home that is correctly appraised and priced.

I admire your creativity; unfortunately, your proposal works well for an unscrupulous agent, but it cannot work well for you.
0 votes Thank Flag Link Fri Oct 5, 2007
Jim Walker, Real Estate Pro in Carmichael, CA
I agree with Brett...that sounds like fraud waiting to happen!

Interesting question none the less. Why would you feel that a buyer's agent is not trying to negotiate the best possible price for their buyer? As a buyer's agent, I want you to be so happy with my negotiation prowess that you refer me to everyone you know, and then use me as your listing agent when you eventually sell the property!..
0 votes Thank Flag Link Fri Oct 5, 2007
Erin Stumpf…, Real Estate Pro in Sacramento, CA

This type of commission structure could increase the chance of deception or fraud between service providers and clients.
0 votes Thank Flag Link Fri Oct 5, 2007
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