Also, put yourself in the shoes of your realtor who has worked for you for over two years without any compensation and ask that question again. I think you'll know the answer.
You need keep in mind that proceeding on your own means you are on your own, and FSBOs often overlook details that will cause problems, and some intentionally misrepresent a property, thinking they can get away with it. If they are moving out of state, it seriously compromises your remedies.
Make sure the FSBO provides you with a Seller's Disclosure and that you will know where to find the seller after the closing. Make sure that you also get an option period of 10-14 days, during which you should get the home inspected.
Remember too that the FSBO's only motive is to save the broker's commission, and you can use that in your negotiations. The problem is that you will not know whether the house is priced right (it certainly would not be reasonable to ask your agent's advice), and the FSBO will not easily concede the purchase price you may have been able to get on a property you bought through your agent. Then again, many FSBOs end up with less than they would have, had they sold through a broker--15% on average.
If this does not result in a contract, the right thing to do in the future is to ask your agent to contact any FSBOs you come across instead of scheduling your own viewing. Most FSBOs will cooperate with an agent on a one-time showing basis.
On the other point, actually I am in favor of everyone paying their own way in the deal (as I've written below). However, I've yet to find the stones to be the first to take a listing for 3% to be paid to me, the listing brokerage, and advertise in MLS 0% compensation offered to buyer agents (i.e. that the buyer is expected to pay their buyer's agent for representation.) I think it's crazy, now that Massachusetts has all but killed off subagency, that sellers are still paying buyers' agents to negotiate against sellers interests...
I agree with the other posters here. There are a few issues at hand. The biggest issue is your level of risk. Part of my job (any REALTOR's job) is to help buyers/sellers assess their level of risk. When you enter in to a transaction with a FSBO that doesn't cooperate with the MLS, your level of risk goes up. The seller may not be adhering to legal guidelines about a variety of issues surrounding a property sale. I've encouraged my buyers to get me involved when they find a FSBO. I don't know what your contractual agreement is with your agent, but, generally, there is a way to make sure your agent's commission is part of the purchase price, just like in an MLS cooperating transaction. You have hired your agent for their level of expertise to help you navigate the tumultuous waters of a real estate transaction. My opinion is, generally, buyers need agents even MORE in a FSBO transaction, just to make sure their best interests are protected. Being an EXLCUSIVE buyer agent, my way of getting my foot in the door with the FSBO is to say, "I'm not trying to list your house, I'm only bringing you a buyer, which is what you're looking for." Give your agent a chance to do the job you hired them to do and protect your best interests. You'll be glad you did.
While the industry seems to have the buyers convinced that sellers pay commissions, that's couldn't be further from the truth. Since the buyer is the one who paid for the house, gave the money to the seller, from which all the commissions, and other seller fees are paid from, you the buyer paid for everything.
The fact that this is a FSBO doesn't change that fact. The fact that the seller has told you they will not pay commissions also doesn't change anything. All you're now looking at is that the price you've agreed to needs to have your buyer's agent commission added on top of the purchase price.
Say you've offered $194,000 and the buyer's commission is 3%. Look at this house as though you had agreed to a purchase price of roughly $200,000, from which will be paid the buyer's commission of 3%. As was answered previously, your lender will have no problem financing the buyer's commission.
In fact, your best circumstance to make this a smooth transaction and make sure your buyer's agent feels they are working for something of value, is to get an agreement ahead of time that you want them to help you negotiate the best price, on top of which you will add their commission for their effort.
If you want to avoid any potential pitfalls with your lender, negotiate your best price with the seller, then add an amendment once you have the house under contract, that increases the sale price to account for the agents commission, AND adds the agents commission to be paid out of escrow.
Everyone's happy, seller got what they wanted, your buyer's agent got paid for all their work, and in fact, if you did a good job at negotiating, one could argue that you got the house for less than market since there was no seller side commission paid to a listing agent.
Good luck, hope you enjoy the home.
It sounds like you have a good Realtor that has worked hard for you. Remember finding the house is really the easy part! Negotiating a fair price and making sure that the proper contingencies are added based on the specific property can save you in the end. Are you prepared to renegotiate price after the inspection if you find there are problems? Usually having two people that are emotionaly attached to the property negotiating directly can lead to problems.
There are several ways to approach this and still have your agent have the chance to be compensated.. The best thing would be to tell your agent what you are looking at and let her approach the seller with possible solutions. Good Luck!
Door to Door Realty
Or the buyer could make the offer himself or with the help of an attorney. Or the seller could tell the buyer that if he wants representation, he can pay the agent himself. This isn't an absolute issue, there is more than one possible scenario.
Buyers have the right to buyer representation. Buyers that opt to go it alone, unless they've been through the process enough times to understand the risks, act foolishly. It would be absolutely wrong for the buyer not to use a buyer's agent to protect his or her interests.
I understand why the seller was hostile towards the idea of paying the buyers agent. You saw the house without the agent first, and then brought the agent to the house to try to negotiate a commission for someone that did not help find the house. I know a lot of listing agents that don't like splitting commissions with buyers agents when the buyer found and visited the house on their own before the agent became involved. It would be wrong to expect the seller to pay a commission in those circumstances.
Also, make sure you write your commission check to the agent's office, and not to the agent. The agent has an ethical responsibility to report that commission to his broker and share the funds.
Now having more info about your situation, I'll add some things to my previous answer. First and foremost, to be fair, there doesn't seem to be new information that would allow your expectations to be reset with respect to what your agent should be earning on this or any home you intend to purchase. To now come to the conclusion that 2%, or $10,400 is a lot to pay your agent because it's somehow appearing to "come out of your pocket" is not new information. Respectfully, you should have known that 2 years ago. Your purchase of any home had commission in it, and quite frankly, this purchase has less commission than the other homes you were looking at because only your agent is getting paid and not a listing agent. As I stated before, and it is fact, had you purchased a home that was listed by an agent, YOU would be paying something more along the lines of $25,000 to $30,000 in commission. The fact that the seller took your check and paid the agents commission doesn't change where the money came from.
So to now say that your agent doesn't deserve the $10,400 in commission simply because you perceive it's somehow now coming out of your pocket, is totally unfair on 2 fronts. First, they had the patience to work for you for 2 long years. In this business, they should get a purple heart award for lasting so long. Many, many agents would have simply given up. Second, you're paying less than 1/2 to 1/3 the commission you would have paid and now you don't think that's deserved?
My apologies for sounding harsh, but really, are you considering not paying your agent? I would hope that reasonableness and integrity would step in here and prevail. They clearly earned it from what you've told us.
Now on to the legal issue of a buyer representation contract. If your agent was acting on your behalf, and you allowed your agent to continue to act on your behalf, and you acted as though they were, then you probably have something called "implied agency", which doesn't take a contract to enforce, at least not in most states. "implied agency" is simplistically a relationship between a client and an agent where both parties are acting as if there is an agreement in place, even if one is not in writing. Should you sadly choose not to pay your agent, it seems they would certainly be within their rights to enforce an "implied agency" agreement. But again, I would certainly hope it never came to that.
Good luck sorting all of this out,
But you might say the following, which for all practical purposes is equivalent: "I'd like to offer you $509,600 for your house. One of the reasons I am not offering you more is that I intend to pay $10,400 to my buyer's agent from my own pocket -- but this detail need not concern you. Your take will simply be $509,600, and you will have no obligations to pay an agent anything. However, before rejecting my offer as too low, please consider that many buyers have legal or ethical obligations to agents, and buyers who do not will feel entitled to at least a 2% discount on the price versus comparables (because they are paying lawyers and appraisers and/or otherwise doing the buyer's agent's work themselves by hunting for houses on their own). Bearing this in mind, I feel that $509,600 is an excellent net price for you and that, in today's market, you are very unlikely to get more."
I did call my Realtor and told her about my plans.
She went with us again to see the house. The seller got upset initially and reiterated that he wants to sell directly and not pay commission. My realtor simply said that we are there just to see the house for now. Privately my agent told me that she wants 2% of the sale price. 2% is $10,400 and sounds like that's will have to come out of my pocket if i end up buying the house. Honestly, $10,400 is a lot of money. I am sure if I hired an attorney i would pay a lot less and protect myself just as well.
This was more an ethical issue.
To answer another questions posted here.
>>Did you sign a contract with your agent? I don't think i did.
if so, when does it expire? if i did..I am sure it expried by now
>>Have you contacted the FSBO home owner yet?
Yes. We saw the house by ourselves first time without the agent being involved.
There are plenty of ways to make sure everyone is treated fairly and ethically here.
First, tell your agent exactly what's going on. She'll have a number of strategies. For instance, as Jeffrey suggests (if the house will appraise), bump the offer up to cover the FSBO paying the commission. So you pay a bit more, the FSBO pays the commission, and your Realtor earns her commission.
In addition, though, your Realtor should be involved to help protect you. First, she ought to run the comps to make sure that the house is a good value. (Lots of FSBOs overprice their homes.) And, as the other responses noted, there are many other ways that she'll protect your interests.
Hope that helps.
In an Exclusive Right to Represent contract situation, the buyer signs a contract with the firm that offers buyer agency representation to the buyer. The contract states that the buyer will pay, say, 2.5% of the sale price as commission to the firm offering buyer agency representation. The good news is that the buyer's agent is, almost always, paid what the buyer owes to the buyer's agency BY THE SELLER from the seller's proceeds.
The seller gets the proceeds and pays the commission, not the buyer. The proceeds belong to the seller, but the seller has agreed to pay the commission to the listing agency, and the listing agency has agreed to share it.
It is the seller that pays the commission to the agencies, not the buyer.
Actually, I am in favor is listing homes for 3% and have the buyer pay for their own buyer representation. In what other area of life, except perhaps payment of court-mandated attorney's fees by one party in a lawsuit, does someone who hires another to perform a service not pay their own way?
What I do is ask the FSBO how they set their asking price. If the answer is through review of recent on-market and sold comparables, I tell them "Just checking, but the on-market and sold comparables you used to set your price are all from sale by owners, right?" Of course, they say that no, they used real estate agency listings and sales. I then say "Oh, so you are using the prices of commissioned listings and sales to set your list price?" Of course, they say yes. I then say, "So, you're trying to sell at a price that assumes you are paying a commission, but you are not?" If you are not, why would a buyer want to?" Of course, they pause here and say yes. I then say, "Well, I calculate that a fair asking price would be 5% less. I'll speak to my buyer about making an offer in that range."
Finally, you have been using the services of your buyer's agent for quite awhile. The short answer is, you need the representation and the ethical and decent thing is to compensate your agent.
a) offer to pay your agent directly
b) negotiate in your offer a clause which gets your agent paid at closing.
Remember that while your agent did not "find" the house for you, there is likely a lot of work your agent will have to do to walk the unrepresented sellers through inspection, purchase and sale, walk-through, final municipal meter readings, smoke inspections, etc...