Bringing in a Buyer Broker After Viewing a Property?

the question for the buyer is whether a broker is worth 3% of the closing price, because presumably the buyer can get the sell-side broker to cut a deal with him for the commission he'd be forgoing if the buyer brokers-up.

it is hard for me to believe that a buy-side broker (who is wrongly incented to close the deal at a higher price, anyway) is worth 3% in today's more transparent online market. i am open to counterarguments though.

well first off, most listing agreements do NOT simply shave off 3% for the seller if its a direct deal. Maybe 1%, but most full service firms will not go anywhere below that.

Second, in my opinion, a buyer broker's job is NOT to send listings, it is to evaluate the property, do their own pricing on it, know how it compares to current market and competition, know how it compares to past solds, make sure the buyers money goes towards permanent features that pay off at resale, advise on bidding strategy, and advise on negotiations.

Thats the meat of the buyer brokers service, again in my opinion. Especially important for first time buyers who are unfamiliar with the marketplace, or what priced right should mean for any specific product given the condition, location, light/views, monthly expenses, etc..!

But thanks for offering your take on the topic! Your NOT ALONE!

what is ethics?

shlomo

This happened to me as a first time buyer.

I thought I did my homework on type of properties, neighborhood/locations, crime rate, school, lender & Mortgages, the market, and on and on.....

One seller's agent emailed the listings over and spent 3 hours showing me a couple of apartments. When I saw one that I liked, I figured it was a good time to bring in a trusted professional to give me some feedbacks and help me with the negotiation process.

When the seller's agent realized that I brought in a buyer's agent, boy... did I learn a BIG lesson!!
I never knew that there were so many "protocols" in working with seller/buyer agents.
The whole home buying process itself is complicated enough. Now this??
Seriously, is there a "How to work with NYC RE brokers" manual for the first time buyers that I can add to my homework?

I know people say if I do my homework/research right, I do not need a buyer's agent.
But the problem for me as a first time buyer is that I am not sure if I actually do my homework/research right!
There may be things/information that I overlooked or not aware of simply because I did not know they were things to look out for!
And I hope that a trustworthy buyer's agent would be able to point out these things to me.

Does the buyer's agent deserve 3%? If the agent lead me to the right decision of the biggest purchase I am about to make, then absolutely yes.

My question is: does a seller's agent who spent a few hours with me and who did not have my best interests at heart deserve the whole 6% for me not to bring in a buyer's agent?

Noah, Is there a reason the seller's agent would prefer to give 3% to another agent rather than (indirectly) to the buyer himself? Does the seller's agent somehow lack authority to reduce his commission and make a deal like that -- even if the buyer threatens to otherwise bring in an agent?

Eric - a topic I really shouldnt be discussing, but if you are a seller at some point, you will see. The listing agreement lays out the commission structure so before the apt is listed, the seller knows what the terms are in both situations. Given competition, most firms can offer a slight discount should the firm procure a direct, no buyer broker, that buys the property. But it is NOT 3%.

In short, most deals are NOT structured so that if there is a buyer broker, its 6% and if there is not, its 3%.

Many first-time buyers, and probably others, are very naive in thinking that their buy-side broker works for 'them'. As mentioned above, both buy-side and sell-side brokers have a strong incentive to get you to bid the highest possible price. My buy-side broker advised to me to offer 'full ask' on a UWS apartment, a classic 6 on RSD. Over his strong objections, I submitted a bid at 7% below ask ... and got my offer accepted. Voila ...

Chris - there is truth to your statement and there are buy side brokers out there that dont care about the product you buy or the price you pay, just their cut.

But to be fair, their are also buy side brokers out there that really do put alot of work into their buyers, tell them why some properties are way overpriced, and others a good deal and try their best to get the lowest price possible.

But obviously your broker was not one of them. I know plenty of brokers that only care about their cut, have a volume approach to sales, and do a ton of business that way! Not my place to stick my head in though and tell them how I feel about it.

Thanks Noah. What I did in this case is the following:

1) I withdrew my accepted offer (prior to contract, naturally)
2) Fired my buyer's broker
3) Hired a new buyer's broker (she had no problem with any of this, by the way)
4) Re-submitted my bid (this time at 8% discount to ask) 3 weeks later
5) Offer was accepted.

It is of course helpful that classic 6 apartments on the UWS are not moving that quickly anymore ...

Being a volume broker without regard for your client's best interest is not a good business model in this market - just my take on this.

Noah, Thanks for the info. Inefficiencies linger.

"Being a volume broker without regard for your client's best interest is not a good business model in this market - just my take on this."

I agree completely!!

Thx Eric!

This definitely happened to me at the Court Street Lofts in Brookly/Corcoran. I had gone to an open house and when I came back to look at a specific apartment, they told me that since I had signed into the open house without a broker that I could not bring one in later, and said THIS WAS CORCORAN POLICY.

I did not bid.

Jen

Can any experienced brokers here tell us first time buyers how to avoid this situation in the future?

Say I do not have a buyer's agent at the moment since I am only shopping around. However, I would like to involve a buyer's broker after I find something that I would consider to purchase.
By then, I have already established contacts with seller's agents either via private viewings or open houses and fill out those forms they have at sites.
What can I do so that the seller's brokers won't give me hard time about it?

i've seen many instances where a buyers broker provided a great level of service which saved me time and money during my purchase process. Often a buyers broker may know the building better than the sellers broker. They may know not just the apts currently for sale in the building, but also the last six months of closings (with actual closing prices) and any related pricing trends. The good ones know the intricacies of the school disctricts of the area for example on the west side, south side of west 72nd is a good school, north side of west 72nd street is just an ok school). They probably know how to negotiate better than you as they do it for a living and can really help you evaluate your options and show comparable apartments that fit your tastes in the same neighborhood. I'm sure some are just out for the quick buck, but many provide a very real service, one that is based largely on referrals. For the largest purchase of your life, i highly recommend finding a good one.

anon - sure. If you KNOW that you will want to bring in a buyer broker, then when you go to OH's and are browsing, write in some broker's name, any broker, just find one online if you have to, on the sign up sheet.

That way the seller broker thinks you are working with someone. If you want to come back later, obviously with a diff broker that you now choose, simply tell the seller broker you switched buy side brokers! At least it wont be a shock to them because they knew you were working with a broker from beginning.

Thank you..Thank you...I personally am going through this right now and it is very frustrating dealing with the other agent. My client contacted me after visiting a new development open house. They were confused about the process and fees. I have been 200% loyal even knowing I may not get a commission. I am now going to use this to my advantage. I am sincerely greatful for this blog!!!! Thank You ;o)

anon - excellent! good for you and hopefully you get rightfully rewarded!

Let's make this simple: make it easy for the buyers do hire (and fire) whom ever they choose.

The reason this is always an issue with agents is because of money and not what's in the best interest of the buyer. Moreover, listing agents should NEVER represent potential buyers of their listing. Dual agency is a no no. How the hell can you represent a buyer and then go back and hammer YOUR seller?

Brokers often tell their agents to simply stay neutral in a dual agency transaction. Stay neutral? So, I the agent will earn a double commission for pushing paper?

Jen, if you don't bring in your buyer broker to any NEW DEVELOPMENT open house/sales office, the only way you can work with one is if you pay their fee yourself. New developments work that way. It's not even enough to sign your broker's name when you go to a new dev site. He or she has to accompany you there, at least for the first time, unless you get it from the sales office in writing that you can bring in your broker after the fact and the sponsor will pay him/her the comission. Re-sale apartments are a different story where you can sign in his/her name and be represented by him/her while s/he gets paid by the seller.

If an agent or broker has an agreement with the seller for 5% 6% or 10%the seller is required to pay that commission be it direct or a co-broke deal. Yes some agents/brokers do and can discount if it is a direct deal but that isn’t the issue. They have an exclusive right to sell, are owed the agreed commission and must co-broke if the buyer wishes!
I am going through a similar situation where an agent is actually refusing this. As Noah sate it is in the Code of Ethics and these were created to protect the buyer first timers or not!
Brian

Ok, here's my situation. I started with one buyer's broker. We verbally bid on a property; our broker advised us to bid full price, we didn't and we didn't get it. After that the broker disappeared. Didn't hear from him again for 3 months. In the meantime I found another broker who has really worked for me. We are still considering the property we first bid on, it is a new construction still on the market 6 months later. We might consider a new bid, but are hesitating because we feel like broker #2 has worked really hard for us and if we do go ahead, we would like her to do the negotiations and get the commission. Is this ethical or must we use broker #1 to resubmit? Thanks for your advice.

Chris, after firing your original broker and hiring another, did you incur any liability to the first broker? Did he come back and try to claim the commission?

thanks

The problem is that some seller's brokers are never getting 6%. They may for example, be getting 3%, so, if they split their commission with a buyer's broker they each get 1.5%. (For some brokers that may not be enough to run a profitable business) Truthfully the lower commission rate benefits the seller- ie; more money in THEIR pocket. The selling price is generally NOT discounted- that's arguably a fantasy.
Anyone can use a buyer's broker, however if the selling broker is working on a discounted commission rate as described above, then they may refuse to split their commission, and rightly so. What you all are missing is that the buyer can pay his/her buyers broker for their representation themselves! That is perfectly ethical- the sellers broker does not have to split their commission with a buyers broker. Also some sellers want to deal with their selling broker- someone they trust not some joker (the buyer's broker) glomming on and being soooo helpful (usually they are full of sh*t!!) that they deserve 50% of the selling brokers commission. You don't know what the selling broker's commission rate is and that is a matter between the seller and his/her broker. As long as the seller is apprised by his broker of how they will handle co-brokering (or not co-brokering) it's okay!! Remember you, as a buyer can pay a broker to represent you- Nobody can and will stop you!!
All the misinformation about this system benefits large brokerage firms and forces sellers to pay a full 6%- So many people do not understand the basics of how this works. YOU CAN ALWAYS USE A BUYERS BROKER EVEN IF THE SELLERS BROKER WILL NOT SPLIT A COMMISSION WITH THEM- THE BUYER CAN PAY FOR THEIR SERVICES OUT OF THEIR OWN POCKET! If you are a buyer and are paying your own buyer's broker ANY seller's broker will be more than helpful to you. The sellers broker does not have to split his commission unless this is how they do it, either by company policy or on a case by case basis. I hope this hard to explain reality is more clear now.

Anon - most transactions here in Manhattan are with the bigger firms, not discount firms, where the commission structure is 5-6% for co-brokered deals. Sure, some deals are with discount firms, but majority are with Elliman, Corcoran, Halstead, BrownHarriss, etc.. as the sell side firm.

You are right though, the buyer CAN pay the buyer broker a fee for their services and in fact I see this model gaining traction as the NYC market slows.

On the subject of the common commission structure, incentives and level of service provided, I've never understood why commission rates aren't regressive in RE. I say this naively because I figure there must be a good reason for it, as it's fairly standard practice. Let's say I'm on either side (buyer or seller) of a $400K property in a soft market like the current one, and my broker is currently dedicating most of his or her time to my deal. What incentives are there to continue the same level of dedication when he or she is suddenly asked to work on a $1.5M deal?

I'm not saying flat fee is the answer, but I just feel that when I bought my condo in 2000 my broker broker was competent, helpful and knowledgable but my lawyer did most of the heavy lifting when it came to closing time, and his flat fee was small by comparison.

This seems to be relevant in the current market, where price points weigh much more than before compared to marketing, guidance, etc. Any thoughts on this?

Aren't we talking about NY State here???? I hold a NY State license and was taught quite clearly about dual agency. The state exam even had questions about it. You need to explicit permission from both the buyer and seller to do it. In addition, you can't get blanket approval for it. It has to be given for each individual instance in which it occurs. Forget about ethics for the moment. We are talking about breaking the law!!!! Perhaps Noah could dedicate a blog post to dual agency along with how to contact the appropriate authorities when your Broker screws up, or worse, screws you.

Can someone tell me:

1) As a buyer, at what point are you legally bound to stick with a buyers-broker you've been working with? After s/he tells you about the listing? After you acknowledge him/her as your broker, at an open house? After you put in an offer through him/her?

Judging by some of the responses here, it looks like you can ditch a buyer's broker, even after you put in an offer through him/her.

2) Also, what's the procedure for ditching a buyer's broker and doing the deal with no buyer's broker at all?

Thanks for the very useful blog post!

Condos are also popular for those entering or are in the midst of retirement when the children have grown up and moved out and there is less of a need for all that space in a large family home. Condos are full of advantages for older people seeking to absolve themselves of total residential maintenance.

You find the house and want to buy the decision for a few days, the broker knows that you run the risk of losing the house. If you are inclined to complicate your offer with clauses that may make the contract unattractive to the sellers, the agent may ask you to consider some modifications.

Searching for that perfect dream home that is not too big but not too small? Are you an individual looking for your first home or a couple seeking the right size home for the two of you? Condominiums are the perfect new-age home for anyone wishing to upgrade from renting an apartment but are not at the point where they want to invest in a whole house if it is only for himself or herself or for one more person.

If you do not know anything about the real estate or the mortgage industry, seeking the help of a reputed mortgage lender or broker is a wise decision. But that doesn't necessarily mean that you have to do only as he says. Before taking a mortgage, make sure that you know at least the basics of the way the system works. This way, you'll know when someone tries to take advantage of you. Learn in advance about interest rates, best payment terms and the art of negotiation before going to a lender or broker.

While I agree that a buyer has the right to use a buyer broker, as an agent I had a situation where a buyer came to my open house near the end. He liked the property and asked if he could send his wife over to see it. I agreed to wait so she could come through (they had kids at home).
They both really liked the property and wanted information on the pricing, at which time I set an appointment and showed them other comparable properties (at their request) and provided them with a CMA and we returned to see the property again. They said they wanted to move forward on buying the property. Great. Then they announced, out of the blue, they had a friend who was a new agent they wanted to "help out" by having her work as their buyer agent. I informed them they were welcome to use their friend, but that they would need to pay her commission, as at this point I was procuring cause. Long story short, we negotiated the purchase with me handling both sides. I neither violated license law nor violated any ethics.

Fantastic real estate blog post! Pictures are worth thousands of words, it’s nice to see the attention to detail from your end. Thanks

I think another reason fees are not being paid and free months not offered is that prices have come down. Apartments are moving but part of the reason is that prices came down to a point at which they will move.