Sunday, June 8, 2008

Would I get a better deal from a builder without an agent since they don't have to pay the agent?

This is a very good and valid question to ask; after all, if a buyer can avoid the 3% or so paid to the selling broker, shouldn’t the buyer be able to negotiate for that much less? At first glance, it would seem like a good assumption to make.

As much as this seems to make sense, this is not the way it works in real estate. The reason has to do with how the commission for selling is set aside, which is pre-determined as I explained in the section titled Agent Compensation. A builder generally does not sell their properties directly; they either enlist the services of a broker or have sales agents of their own. These agents have the best interest of the builder in mind, not that of the customer. This should be obvious; after all, when you go to buy a car, you don't expect a car salesman to work in your best interest, do you?

If a customer walks in without an agent and purchases property, the agent acting on behalf of the builder (the listing agent) is entitled to the full commission, instead of having to split it with the buyer's agent. It is not passed on to the buyer as one would think. Of course, one could argue that the listing agent would be more inclined to sell the property to such a customer even at a lesser price as he/she can get a bigger commission. However, the flaw with this argument is that it is the seller/builder that has to accept the offer, not the listing agent. The listing agent has to present all offers to the seller, and it is entirely the decision of the seller to accept, reject, or make a counter offer. So the question of an agent willing to lower the price for a customer without buyer representation is nothing but a myth. Not only that, by choosing to go at it alone, you have thrown away the wealth of knowledge and experience that an agent can help you with. Do you know how to protect yourself from unforeseen circumstances? Who do you turn to when you have problems? Just because a buyers agent is paid from the sales commission set aside by the seller, doesn’t mean that the agent has to look out for the best interests of the seller. An agent has to work in the best interest of his client and that is determined by one of the two documents a buyer chooses to sign; Exclusive vs. Non Exclusive agreement. If you want your agent to work with your best interests in mind, choose to be a Client by choosing the Exclusive agreement as opposed being a Customer with the Non Exclusive agreement.

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