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
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.
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
- 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
Getting a buyer rebate on the
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
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
- 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
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
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.
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
examples of the
buyer rebates you could get from some discounters, assuming the seller
offers a 3% commission to the buyer's agent:
All but 1% of the buyer's agent's commission, or $10,000
on a $500,000 house. (Northern California only.
Disclaimer: I own this company.)
75% of the buyer's agent's commission, or $11,250 on
a $500,000 house.
A rebate of 1.5% of the sales price assuming a 3%
commission, or $7,500 on a $500,000 house.
All of the buyer's agent's commission in excess of 1.5%, or $7,500
on a $500,000 house. (Buyers must pay a $200 fee to
1% of the sales price or $5,000 on a $500,000 house.
20% of buyer's agent's commission, or $3,000 on a
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
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
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
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.
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.
Next topic: Making
Alden, 2008. All rights reserved.