Buyers' agents get
big commissions--usually 2.5 to 3% of a home's
sales price--for helping people buy homes.
But in most states, you can capture some of that
commission simply by asking your agent for a
rebate. And you can capture even more of
it if you search on your own for a home and use
a discount broker or lawyer just to help with
rebates are quite common. When my husband
and I were shopping for a house in California
many years ago, we asked our agent 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.
possible to get an even
better deal. Thanks to the Internet, it's
now easy to shop online for homes and there are
many discount real estate brokers who rebate all
but 1% of the commission back to buyers.
commission can be tricky, though. A simple
mistake can cost you thousands of dollars.
In this website, I'll tell you about the traps
some agents set to prevent you from capturing
the commission. I'll also give you some
tips about how to shop for a home.
Pros and cons of
searching for your own home
real estate commission, of course, isn't a free
lunch--to succeed, you'll have to take a more active role in
buying your house.
Here are some of the pros and cons of this
the commission can help you qualify for a
more expensive house. Many buyers are
limited by their cash savings, which has to
cover the down payment and closing costs.
Many lenders will let you use your cash
rebate towards closing costs, and some will
let you use it towards your down payment.
If your bank requires a 20% down payment, a
$10,000 commission rebate could let you buy
up to $50,000 more house (assuming you
qualify on other grounds). If your
bank requires only 10% down, a $10,000
credit could buy you up to $100,000 more
agents have an incentive to steer buyers
towards homes that offer them higher
commissions or to boycott homes listed by
agents who provide commission discounts.
(Though doing this is unethical and a breach
of fiduciary duty to the client, the Wall
Street Journal reported in an
August 2005 article that, to its
knowledge, neither the National Association
of Realtors nor state real estate
commissions have ever sanctioned an agent
for this breach of ethics.) By searching for
homes yourself, you may be exposing yourself
to more opportunities.
- It's often
easier to shop for homes if you're not
accompanied by an agent. Agents are trained
to sell and many of them will try to
downplay the negative features of a house.
- Agents who
work with buyers are sometimes legally bound
to represent the seller's interests.
If so, they have a duty to pass along to a
seller any useful information they learn
about a buyer. Though agents in most states
are required to disclose to all parties
exactly whom they represent, buyers
sometimes don't get the message.
Click here to read a useful article on
helping you negotiate a price, a buyer's
agent may not have your best interests at
heart. Buyers' agents have an incentive to
encourage buyers to bid high, since the more
a buyer offers for a house, the more likely
the offer will be accepted. Higher offers
also result in higher commissions.
agents have an ethical and fiduciary
duty to put their clients' interests
ahead of their own when showing
properties. I'm sure most agents
are honest, but they have a powerful
incentive to guide buyers towards
listings that offer higher commissions
or bonuses. That so many sellers offer
high (over 2.5%) commissions to buyers'
agents reveals a widespread belief that
commissions can make a difference. As a
buyer, this should alarm you.
- Your state
might not let you do it. 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
agents might not let you do it. As
we'll see later, agents in small towns
sometimes put up a united front against
commission rebates, even though this sort of
price fixing violates antitrust laws.
- If it's a
hot market or you're a picky buyer, you may
do better with a good full-service buyer's
agent. Unethical listing agents
sometimes wait a few days before posting
their more desirable listings on the
Multiple Listing Service (MLS) so they'll
have a chance to pitch these listings to
their favorite buyers or their friends'
favorite buyers. This practice of
having "pocket listings," of course, is bad
for sellers since it limits the home's
exposure. But it's great for the
favored buyers who get first pick at the
estate agents have access to more and better
information than you do. They can
usually search more efficiently than you
- If you're
a first-time buyer, you may need some
handholding. A good agent can answer
your questions and offer useful advice.
- If you're
buying a cheaper home, the commission will
be smaller. It might not be worth the
trouble to capture some of it.
easier to get inside homes while shopping
with a real estate agent. If you want
to capture the commission, you'll be able to
go inside homes only after you've narrowed
down your list of properties to just a few.
will show you how to take charge of the buying
process yourself so you can capture some of the
commission for yourself.
Learn how commissions work.
This information in this website is offered free
of charge as a public service. I make no
representations or warranties about its accuracy
or completeness. My advice may not apply to
your situation or in your state. I shall not be
liable for any damages resulting from the use of
ŠLori Alden, 2008. All rights reserved.