Sunday, February 24, 2008

The elusive exclusive buyer's agent

Perplexed asked in a previous thread

"Has anyone ever used an exclusive buyer's realtor?

In this day where it's a buyer's market agents who only represent buyers should be in a great position."

And in a follow-up post:

"Here is what I found. I know of no one who has ever dealt with any of them, which is why I asked.

http://www.carlahomes.com/

http://www.dreamstreetre.com/

http://www.worldstar.com/~pdxpro/

Read the document at the lower left on the last link. It is an interesting discussion of what to watch out for."

Here's the document he's referring to, which I think is a good source of info for potential buyers:

I haven't used an exclusive buyer's agent, but I have given the subject of buyer's agents a bit of thought.

One issue I see is that if you've acted as a seller's agent and never sold a house, you don't know all the inside issues that would help with negotiation.

But I think the biggest issue is the basic principal-agent issue and misalignment of interests between the buyer and buyer's agents such as:

1. The buyer stands to benefit from a lower price, while the agent benefits from a higher price due to a greater likelihood of sale and a greater commission.

2. The buyer might be in a position to wait as long as possible for a good deal, but the agent only makes money on a sale, so is inclined to push for a sale.

Those are the two big issues I see, I'm sure there are more. But it seems like #1 could be eliminated with a different payment structure, such as a flat fee plus bonus for discount. Or a retainer plus hourly rate.

I really like the idea of paying a flat payment with a bonus for a discount, based on the amount of discount. Does anybody know of any agents using a payment structure like this? To answer Perplexed's question, has anybody used an exclusive buyer's agent and what were the results?

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7 comments:

Anonymous said...

1. The buyer stands to benefit from a lower price, while the agent benefits from a higher price due to a greater likelihood of sale and a greater commission.

In normal, non-bubble markets that have cyclical ups and downs that don't attract fly-by-night RE leeches and vultures, the agent stands to benefit from referrals and repeat business. The young couple buys a starter home or condo, then trades up a few years down the road; might refer their agent to their parents who are looking to downsize, etc.

2. The buyer might be in a position to wait as long as possible for a good deal, but the agent only makes money on a sale, so is inclined to push for a sale.

A good agent makes sure the buyer is comfortable with the sale - the first step is to ask what price range the buyer is comfortable with. Moreover, a good agent presents to the buyer properties they might not have considered but which may be unexpectedly desirable. (I think we all know how the bad agent pushes through the highest sale possible with lies to the buyer.)

But it seems like #1 could be eliminated with a different payment structure, such as a flat fee plus bonus for discount. Or a retainer plus hourly rate.

The hourly just isn't going to work. Nothing should be rushed, and an hourly rate makes it feel so. Whereas an aforementioned good agent takes a buyer repeatedly to properties, and more properties than they would have considered, there might be a severe limitation.

I don't know if a flat fee could work. You'd have to have everyone agree as the seller pays all fees from the sale price.

Anonymous said...

I have to disagree with the following comment (noted with bold):

"A good agent makes sure the buyer is comfortable with the sale [by repeatedly telling the customer that a house is a great "investment", that the value is always going to go up, that the market has stabilized, that they personally think that it's a good deal]- the first step is to ask what price range the buyer is comfortable with [and then start looking for properties that are at the very top of the range, if not quite a bit higher]. Moreover, a good agent presents to the buyer properties they might not have considered but which may be unexpectedly desirable.[See note on looking at higher-priced properties than the initial range you set.]

To deny that you and your agent have a different stake in the transaction is to not understand the relationship. Yes, agents want repeat business, but a.) most people conduct a limited number of real estate transactions over their lifetime, and b.) with so many factors at work in a RE transaction, how do you even make the case that your agent wasn't doing his or her best to get you the best price (so, really, negative word-of-mouth advertising kind of goes out the window as an effective deterrent).

All agents/brokers are working for someone else--themselves.

Anonymous said...

Wow, you really don't know the difference between "good agent" and bad one, do you, 8:07? Little clue since you probably can't figure it out - you're describing a BAD agent. My agent never said anything like what you are talking about. Have you ever even purchased a house? My agent never said anything about the investment value of the property. It's not an investment. It's our home. Nor was anything said about the market. All that was said was about finding the place we really wanted.

As to your last note, we looked at a different sort of property that was $30,000 below our price range - to see if we'd like it. Wrong again.

To deny that you and your agent have a different stake in the transaction is to not understand the relationship.

You're insinuating I don't understand the relationship? Suck a cock. I understand it perfectly. The relationship is: we are happy with the service, or we walk away/find another agent/buy a property on our own with legal assistance only.

with so many factors at work in a RE transaction, how do you even make the case that your agent wasn't doing his or her best to get you the best price

Because with the internet, you can peruse listings yourself and see for yourself what is out there and whether comparables are lower or higher? With PortlandMaps.com so readily available, you can see the true prices those who purchased properties similar to yours recently?

Perplexed said...

Years ago many professionals (architects, engineers) in the construction industry received their fee as a % of the project. Today fixed fees are the norm. Was there a difference in the services provided, in my observation no. What did happen is that the contract was written so that clients who wasted the time of professional service providers where charged extra where as in earlier days the professional absorbed the cost.

I think there should be a different business model for Realtors, but we have what we have today.

So, has any one used, or had a friend who used, a realtor who represents buyer's exclusively?

Anonymous said...

Here's the problem I have with the concept of a buyers-only agent. They aren't looking as hard for repeat business or referrals, because you will have to go to another agent to sell your home, and you can't refer anyone who's selling your home to them.

When you go to sell your home and look for a new one, usually the process goes together. You have to carefully juggle the selling process with the search for a new one since you don't want to end up either homeless or paying two mortgages. A good agent will help you with this process and more importantly is experienced with navigating it.

So the buyers only agents are just looking for a cut of whatever you're buying for. They may also be looking for the bonuses given to buyers' agents for selling their clients on a property. Strikes me as a quick buck, once and never again type of thing.

Anonymous said...

you can't refer anyone who's selling their home to the agent.. typo in post above.

allanf said...

Whatever. It ain't gonna change as long as the primary source of funds is the kick-back from the seller and it is illegal for the buyer's agent to kick-back his kick-back to the buyer.

At least in Oregon it is illegal.