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 the paperwork. 

Commission 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. 

Nowadays it's 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. 

Capturing the 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

Capturing the 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 approach:

Pros:

• Capturing 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 house.
• Buyers' 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 this. 
• When 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. 

Buyers' 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.

Cons:

• 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 Online.
• Local 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 better listings.
• Real estate agents have access to more and better information than you do.  They can usually search more efficiently than you can.
• 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.
• It's 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.

This website will show you how to take charge of the buying process yourself so you can capture some of the commission for yourself.

Next step:  Learn how commissions work. 

Disclaimer:  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 this content.  

©Lori Alden, 2008.  All rights reserved.