Is working with the listing agent penny wise but pound foolish?

I believe there are two misconceptions related to buyers working unrepresented with the notion that this will save them money. First, you must assume that the total commission will be less this way, and second, you must believe that a buyer’s agent has no effect on the negotiations. If either one of these assumptions is wrong, not only will you not save money, it could easily cost you.

Let’s tackle the issue of commission first. When a seller lists their house, they agree to pay the listing agent an agreed-upon commission (let’s say 6%). It is then the listing agent who offers a commission to buyers’ agents via the MLS (let’s say 3%). When there is no buyer’s agent, typically, the listing agent will simply retain the entire commission. If the listing agreement between the seller and the listing agent states that the commission will be reduced in this scenario, this is known as a variable rate commission, and this fact must be disclosed to the buyers, so unless you have been informed of this, you should assume it is not the case. And even if it is a variable rate, it rarely is by the total amount of the buyer’s agent commission. Typically, when we list a home, we do a variable 6/5 or 6/4 commission, meaning if we sell it without a buyer’s agent, we charge the seller 5% or 4% instead of 6%, but never do we reduce it to 3%. So even with a variable rate commission, the savings are 1 or 2%.

Now, let’s address the 2nd assumption here, which is that a buyer’s agent has zero impact on the price you pay. We have already established the potential savings, so a buyer’s agent simply needs to help you negotiate 2% better in order for you to come out ahead. I’ve been in this business for 20 years, and I’ve heard Realtors describe their job in many different ways, yet in my opinion, there really only is one job description that justifies a percentage of the home price, and that is “Professional Negotiator.” Many buyers are successful in their own lines of work and therefore think they are capable of negotiating for themselves. This reminds me of an old adage from the legal profession that says, “an attorney who represents himself has a fool for a client.” This same principle applies when buying a home. Now I know what you are thinking, in this unprecedented seller’s market, there is no room to negotiate, and oftentimes you have to pay above asking. This is true, and in a situation like this, having proper representation could likely mean the difference between success as the winning bid vs. losing the house to another buyer. In this scenario, you will need to search for another suitable home and will likely pay at least 2% higher for a comparable home in another months’ time. Not to mention all the other potential costly pitfalls you can avoid by having someone who does this every day look out for you. A roof, an air conditioner or heater, a seawall repair can all exceed 2% of the purchase price. The listing broker has a fiduciary obligation to the seller, and aside from the facts he/she is legally obligated to disclose to you, he/she would be breaking that obligation to their client if they helped you get credit for such items.