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What is so difficult to understand about buyer agency?

Here in the Savannah real estate market, and I will presume everywhere else, when a seller wants to sell a house and use a listing agent to market and sell the homes, the seller sits down to come up with a price. The seller factors in the marketing cost the listing agent charges, usually 6% of the sales price. If the listing agent is doing their job, they will spend a lot of time and money marketing this home -- There is the cost of a sign, cost of marketing in papers and magazines, cost of a website presence, cost of paperwork, cost of gas, cost in time and effort that could be spent doing something else, cost of insurance, cost of office space, cost of license fees, cost of education, etc.

Usually, the seller and agent decide what split in the commission is offered to a buyer agent who brings a buyer -- in Savannah, this is usually a 60/40 split with 60% going to the listing agent and 40% going to the buyer agent. The buyer agent represents the buyer and contracts to represent the buyer's interest in buying a home -- that basically means helping the buyer find the best home, at the best price with the best conditions, and providing the buyer with all the information they need to make an informed decsion, while keeping personal information about the buyer from the seller or selling agent -- maintaining confidentiality.

If a seller of a home decides to sell the home without an agent, the seller has less marketing costs involved and every buyer knows this, or should, so the seller should be able to sell the home for less than the seller who has to pay an agent a commission. What usually happens, though, is the seller does not market the home correctly and does not respond to buyers in a professional way, so in a competitive market the seller usually winds up not selling the home and forced to go with a listing agent and adjusting the price to entail the listing agent's marketing costs.

Marketing costs are a part of a home's sale's price. Who pays this marketing cost? Well, no one gets paid anything until a buyer buys. Since marketing costs are traditional and have come to be accepted as a cost of doing business they are added in the sale's price and factored into the average cost of homes. If sellers selling their own homes were successful and agents weren't needed, the average cost of homes would be lower. But agents are needed, because professional marketing is needed in competiive markets. Plus sellers don't have the time and patience to do all the work that an agent specializes in.

When a buyer buys, they are paying the marketing cost that is in the sale's price, and actually they have benfitted from the marketing cost because it allowed them to easily be aware of the home without looking for a needle in a haystack. But, the fact is that the buyer is paying the marketing costs.

Some people in the real estate industry believe that the buyer should pay the buyer agent's commision. This would be fine if the seller lowered the cost of their home by 3% or so to account for the split in commission. The reason these people give for promoting a split where the seller pays the listing agent and the buyer pays the buyer agent is that some believe the buyer agent doesn't earn their commission or that there is a conflict of interest if it appears the seller is paying the buyer agent. A good buyer agent, just like a good listing agent, earns their commission -- either can do a poor job whereby an argument can be made that the commission hasn't been earned, but that's another topic -- we'll assume we are talking about experienced, competent agents. Also, there is no conflict of interest since it doesn't matter to the buyer agent which home a buyer buys -- they just want to find the best home for the buyer at the best price and with the best conditions.

But, then there is the argument of why a buyer agent would negotiate for a lower price if it means the buyer agent will get less commission. It's not complicated. The buyer agent wants to satisfy the buyer so that the buyer will refer business in the future. This is the marketing cost of the buyer agent, plain and simple. When you develop a reputation for fighting for the buyer, you succeed. Not complicated at all. As a buyer agent, if I can show where I've saved buyer's money, then I have something to advertise and I can be trusted.

Even if the commission was divorced and seller pays selling agent and buyer pays buyer agent, it would still be negotiated in price and special stipulations, so it's an unnecessary complication of the commission structure. If everyone is doing their job it works just fine. I'm not sure if some agents don't like the fact that buyers have representation, or they really believe a divorce in commissions would be good for consumers, but I fail to see how it would be good good for buyers, and as a buyer agent, that is my concern. Even the few times I work as a listing agent, I still think the present set-up is best for both buyer and seller -- IF agents are doing their job.

Published Tuesday, September 9, 2008 9:18 AM by Mike Farmer


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