Changes Afoot Among Real Estate Agents

I've been tracking several stories like this one about buyer's agents who are willing to kickback a fraction of their commission to their client. Normally, the seller pays their listing agent 6% of the sale price of the home and the listing agent pays half that, or 3%, to the buyer's agent that brings in the purchaser. What many buyer's agents are doing now is kicking back a portion of that 3% to their client to create an incentive for using them. So companies like ZipRealty offer buyers that use them 20% of their commission which works out to 0.6% of the sale price. RebateReps.com ups the ante, offering 1% of the sale price on pre-existing home sales and 2% on new construction. On a $500,000 new construction home, that's a rebate of $10,000! In effect, since using a buyer's agent costs the buyer nothing, foregoing the services of a buyer's agent when looking for a home is passing up an opportunity for free money.

Are there any drawbacks to using a buyer's agent? Not so much drawbacks, but a couple points to keep in mind: a buyer's agent will usually ask you sign a contract agreeing to use them and only them for a period of 60, 90, or more days. Making such a commitment can be hard when you are not sure how useful the agent will be or how good he/she is. Also, what happens if you find a For Sale By Owner Property on your own? Are you still obligated to pay your buyer's agent a percentage of the sale price if the seller is not offering a commission? Finally, one of the duties of the buyer's agent is to negotiate the price of the home for you. But because the agent's commission is based on the final sale price of the home, there is little incentive for the agent to try to drive the price as low as possible.

You can mitigate the effects of these question marks by going with an agent based on a recommendation and by negotiating the terms of the buyer's agent agreement before signing on to it. I am currently working with a rebating buyer's agent in the DC area whose background I can vouche for. If all goes well, I will in turn recommend him to anyone and everyone. Equally as important as going with an agent you trust is entering into a fair buyer's agent agreement. When negotiating the terms of the agreement, remember you are purchasing a service. Don't try to get something for nothing. Your agent will be working for you and he/she deserves to be compensated for it. Your goal should be to arrive at a fair agreement that allows both of you to benefit when things go right. But don't be afraid to negotiate. Most agents wouldn't be offering a rebate in the first place if they weren't flexible enough to work with you on your concerns. If you want to sign on only for a 30 day trial, ask for it. If you think you are entitled to a greater percentage of the agent's commission should you spend more than $600,000, say so. If, in your opinion, your requests are rebuffed unfairly, take your business elsewhere.

It is my opinion that agent commissions have been artificially maintained at an inflated rate for several years now. With the increasing use of technology in real estate transactions and the extent to which the prospective buyer (or seller) can contribute to the process, there is no reason that commissions should not have come down by now. This trend is only the first sign of market forces pressuring commissions downward toward the actual cost of providing the service. This is a good thing.