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The “Free” Buyer’s Agent – You Get What You Pay For

With all real estate commissions typically paid from the seller’s side on a real estate settlement statement, it is common for real estate agents seeking to work with buyers to make the claim that buyer’s agents are free to the buyer. There has long been a debate as to who really pays the commission – the seller, since they agreed to pay a commission in the first place when they listed the property and because the commission is taken out of the sales price on the sellers side of the settlement statement, or the buyer, because they are the ones bringing the money to the table that the commission is paid from. This has always seemed to me to be a circular argument and it is pretty obvious in today’s real estate market that both buyer and seller receive and pay for real estate agents services.

The concept of a buyer’s agent paid by the seller evolved over time. Prior to Multiple Listing Services becoming popular, sellers hired an agent and agreed to pay the agent a sales commission when the sale of the property closed. Potential buyers worked through the listing agent to see the property, make offers and bring the transaction to a successful closing. The listing agent pretty clearly worked for the seller and a buyer wanting their own representation would have to pay for it out of pocket. When agents realized that they could make more money by sharing listings and commissions, things started to get murky. Agents working with buyers were considered to be sub agents of the listing agent, meaning they worked for the seller too. Buyers did not always know that and agents did not always behave as sellers agents. Getting to know the buyer through lengthy property searches and wanting the buyer to remain loyal to them, agents typically promoted the interest of the buyer they knew well rather than the seller they had never met, even though their legal obligation as a sub agent required that they represent the seller. In response to this problem, the concept of the buyer’s agent was born. Since there was an existing system in place of paying both agents in a transaction out of the commission paid by the seller, the newly created buyer’s agent was paid the same way.

While the buyer’s agent is typically paid by the seller, it is certainly a stretch to say that agent is free to the buyer. If a buyer’s agent is paid 3% of the sales price by the seller, it is safe to assume that the seller would be willing to accept 3% less for the property if they did not have to pay the buyer’s agent. That hardly seems free. The argument advanced by the “free” buyer’s agents is that if the buyer’s agent commission is not paid to a buyer’s agent, then the listing agent will keep it for themselves. While that can happen, it is not necessarily a given, and still does not mean that the buyer’s agent is free. The current system does make it less obvious that buyers can and should negotiate the fee they pay their agent, but it does not eliminate that as a possibility. Goddin Real Estate has been offering buyers choices in fees and services for many years. While we often get paid out of the sales price paid to the seller, we only get paid what we and the buyer have agreed up front is a fair price for our services. Usually this ends up being less than the commission offered to the buyer’s agent, in which case the difference is rebated to the buyer. Using the same logic as the “free” buyer’s agent, we could claim we pay buyers to represent them, but we don’t. What we do claim is to provide our buying clients with true agent service (representing our clients interests rather than our own) and charge fees based not on what some seller has agreed to pay us, but on what we have negotiated directly with our buyer client.

As a buyer, I would be wary of “free” buyer’s agents. They obviously don’t mind stretching the truth a little bit to make a sale and I have to believe that for most, that applies to the service and advice they provide their buying clients as well. If their compensation is based solely on what the seller has agreed to pay, it certainly seems logical to assume they would prefer you buy a property that pays a 3% buyer’s agent commission as opposed to one paying a 2.5% buyer’s agent commission, even if the 2.5% property may be a much better deal and much better suited to your own particular needs. In that situation, the buyer’s agent is not only not free, but can in fact be very costly.