Advantages of working with buyers' agents
Getting a buyer rebate on the commission
States that ban buyer rebates
Online discounters that offer buyer rebates
Some personal experiences
Making an offer through a lawyer
Making an offer directly to a seller
Secret rebates
Useful resources

Many FSBO sellers offer commissions to buyers' agents.  If their buyers use agents to make offers on their properties, these sellers must pay those agents a commission that's usually 2.5 to 3% of the sales price. 

As I've explained, though, buyers "pay" a share of these commissions in that most sellers will accept lower offers if no commissions are paid.  And though sellers are the ones who negotiate commissions with agents, buyers have a lot of control over how much they pay.  If you're willing to do some legwork yourself, you can usually "pay" a lower commission.

If you've been working with an agent, and if that agent has already shown you properties, you have an obligation to allow that agent to make offers on those properties and receive any commission the seller is offering.  Go to the Making Offers section for advice on how much to offer.

If you aren't yet working with an agent, or if you're interested in a property that your agent hasn't shown you, read on.

Advantages of working with buyers' agents

There are several advantages of working with a buyer's agent:   

• You'll often need a buyer's agent to get inside of a home that's listed by a conventional real estate agency.  Owners of such homes often don't want you to contact them directly.
• If you're inexperienced at buying property, an agent can guide you through the process.
• If you're new to an area, an agent can acquaint you with the pros and cons of different areas.
• If the property you're looking for is unusual or hard-to-find, a buyer's agent can watch the market and let you know right away if a good candidate comes on the market.
• Many first-time homebuyers will find it's a good idea to go through a buyer's agent. They tend to have lots of questions, and since they usually buy cheaper homes, the commissions their agents receive are relatively small. 

If, on the other hand, you're an experienced homebuyer and you have a clear idea of what you're looking for, you might want to scrimp on the services of a buyer's agent.  As I'll explain in a moment, doing so can save you some money.

If you choose to work with a real estate agent, make sure that your agent is a buyers' agent who is representing your interests, not those of the seller.  Some agents (like selling agents, seller's agents, cooperating agents, and sub-agents) may perform the duties of a buyers' agent, but represent the interests of the seller.  Click here to read a useful article on this. 

Try to work with just one buyers' agent.  If you allow two or more different agents to show you a house, each may claim to have been the "procuring cause" in the sale.  This puts them in the uncomfortable position of fighting over the commission.

Getting a buyer rebate on the commission

If you're an experienced homebuyer and are serious about buying, you might want to find an agent who will give you a partial commission rebate or credit.    

Partial rebates on the buyers' agent's commission are quite common, except in a few states where the National Association of Realtors has bullied legislatures into prohibiting the practice.  

Here's how it's done:  Before you begin working with an agent, call several real estate offices and ask if any would be willing to rebate a share of the commission back to you at close of escrow.  An agent will be more willing to do so if:

• You are likely to buy a house soon.
• Your price range is high.
• You've already found a house or you have a clear idea of what you're looking for.
• You can persuade the agent that you won't be a "high maintenance" client.
• You haven't begun working with another agent. (If another agent has already shown you some homes, your new agent might have to fight over the commission.) 
• You can persuade the agent that you won't be "unfaithful" by working simultaneously with other agents.

When my husband and I were shopping for a house in California eleven years ago, we told an agent that we had already sold our old house, that we wanted to find a replacement right away, and that we were looking in the $500,000 price range.  We then asked if she would be willing to rebate all of the buyer's commission in excess of 2%.  She readily agreed.  Two percent of $500,000 is still $10,000, which she'd share with her broker.  So she stood to gain at least $5,000 on the deal.  She ended up spending just two days with us before we made an offer that was accepted.  She was happy with her commission and we got a rebate of about $5,000 from her at the close of escrow. 

If you can't find an agent who will give you a commission rebate--or if commission rebates aren't allowed in your state--ask your buyer's agent NOT show you any FSBO properties.  You don't need to go through a buyer's agent to bid on a FSBO, so you can save money by looking at these properties on your own and then making an offer directly or through a lawyer.

	Without a rebate, the buyers indirectly pay the buyer's agent a lot of money to show you houses and give you advice.
	Buyers can save thousands by searching for houses themselves and asking for a buyer rebate.  If the buyers are low-maintenance clients, the buyer's agent will still be adequately compensated.

States that ban buyer rebates

Thanks to intensive lobbying by the National Association of Realtors, these states now ban buyer rebates:  Alaska, Iowa, Kansas, Louisiana, Mississippi, Missouri, New Jersey, New York, Oklahoma, Rhode Island, South Carolina, and West Virginia.  These states have "minimum service requirements" designed to discourage discount real estate services:  Alabama, Florida, Illinois, Iowa, Missouri, Oklahoma, Texas, and Utah.  For more information, see Some States Now Limit Price Rebates to Buyers from the Wall Street Journal Online.

 

Agents will sometimes express surprise and indignation when you ask for a buyer rebate, but it's a common practice.

Online discounters that offer buyer rebates

Some personal experiences 

It's sometimes hard to find an agent who's willing to go along with the rebate idea.  While driving around Northern California many years ago, I once found a lot that was listed by a real estate brokerage.  I wanted to make an immediate full-price cash offer on it with no contingencies. 

But first I tried to find a buyers' agent who would agree to rebate part of the commission back to me.  The lot cost about $200,000, so the buyers' agent's commission would come to $6,000, a steep fee for spending just a few hours filling out forms.  I called several different offices to ask if anyone would be willing to accept a 2% ($4,000) commission and rebate the rest back to me. 

No one in town would accept the deal.  Many agents acted as if they'd never heard of the practice before.  Some were a bit curt with me, as if I were asking them to do something unethical.  If I didn't know better, I'd almost suspect that these agents were party to a secret (and illegal) price fixing agreement!  I finally found an agent in a remote part of the county who was willing to fill out the forms for me.  He ended up making $4,000 for about 8 hours worth of work.

I wanted to make a full-price cash offer with no contingencies on a lot I'd found myself.  I couldn't find an agent in town who was willing to spend a few hours writing up my offer in exchange for a discounted commission of $4,000.

If you do find an agent willing to work for a discounted commission, get it in writing before you begin working with him or her.  I once got a real estate agent to agree on the phone to rebate back to me any buyer's agent commission in excess of 2%.  She later spent three hours showing us properties.  When we got home, we asked her to make an offer on a house and incorporate language about the commission rebate into the contract.  She phoned back and said she wouldn't give us a rebate and that she thought we'd just talked about a rebate without actually reaching an agreement.

She had us trapped.  We couldn't go to another agent since she had shown us the house first, and therefore may have had a right to a commission from the sale of that house.  She reasoned that if we wanted the house enough, we'd go along with the 3% commission. 

Though we loved the house, we ended up not making an offer on it or on any of the other properties she'd shown us.  We simply refused to deal with her. 

Before I became a licensed broker, I once asked a listing agent if I could get a buyer rebate by preparing an offer myself and submitting it.  She declined, explaining (a bit indignantly) that the commission is paid by the seller and is none of my business.  I then asked if I could waive the buyer agent commission so  that the seller wouldn't have to pay it. The agent didn't like that idea either. Had I submitted my offer directly to the listing agent, she would have captured the full 6% commission.

Making an offer through a lawyer

If you've found a house without the help of an agent and you're prepared to make an offer, you can save even more money by going through a real estate lawyer.  This is true whether you're buying a FSBO property or one that's listed with a conventional full-service realtor.  I explain how to do this in the next section, Making Offers.  

If I were a seller offering a 3% commission, I'd rather accept an offer of $292,000 from an unrepresented buyer than $300,000 from buyers who are working with an agent.  After I paid a $9,000 commission to the agent, a $300,000 sales price would leave me with only $291,000.

Making an offer directly to a seller

If you're an experienced buyer, you might want to download a standard "Offer to Purchase Real Property" form from the Internet (e.g., from Nupplegal.com) and fill it out yourself. Here are some tips:

• If you want to bid on property that's listed with a full-service realtor, preparing your own offer normally won't let you capture any part of the commission unless you have a real estate license.  

• You don't need to go through a buyer's agent to make an offer on a FSBO property, even if the seller has agreed to cooperate with buyers' agents.  Sparing the seller the expense of paying a commission will usually get you a sizeable discount on the sales price. 
   

Secret rebates

Some agents prefer to give secret rebates, since they fear retaliation if their brokers or other agents learn of their willingness to offer discounts.  I suspect their fears are well grounded.

Unfortunately, making the rebates secret makes it seem as there's something shameful or unethical about them.  Why would that be?  What ethical principle is violated by an agent who wants to lower prices for buyers?  Isn't competition the American way?

Though I would prefer dealing with agents who are upfront about offering buyer rebates, in some areas you may need to resort to secrecy.  I believe this speaks ill not of the agents who offer rebates to consumers, but of the agents who punish mavericks who break rank.

Useful resources:

• Cutting the Commission

Next topic:  Making offers

©Lori Alden, 2008.  All rights reserved.