If you’re looking to save money when buying a home, you may want to let only the listing agent represent you instead of having a buyer’s agent. This is called dual agency. It’s an unusual move, but one I’ve conducted three times. Overall, this strategy has saved me about $350,000.
In real estate, a listing agent is the person who lists a home for sale. With inventory down and demand up, having a listing is like winning a golden ticket. A prospective buyer normally has their own real estate agent for representation. Let’s call this agent the buyer’s agent.
An excellent buyer’s agent knows the market well in order to help their client offer the right price. The buyer’s agent should also know what type of landmines to look out for when purchasing a property. An experienced buyer’s agent is also a master negotiator.
However, the cost of using a buyer’s agent is generally half the listing agent’s overall commission. The standard selling commissions is now 5%, down from 6%. Therefore, the listing agent and the buyer’s agent each get 2.5% of the final selling price of the home.
If you buy directly with the listing agent, you may get to save up to 2.5% off the purchase price.
The Real Estate Commission Structure Invites Conflict
The 5% selling commission ultimately comes out of the seller’s pocket. For example, if a seller has a $1 million home to sell, the $50,000 in commissions is going to real estate agents, regardless of how it is split.
However, there are situations where the seller will feel terrible about paying a commission to the buyer’s agent. One situation is when the buyer’s agent is trying to make a low-ball offer. Another situation is when the buyer delays closing and throws a bunch of monkey wrenches once under contract to try and negotiate a better deal.
Selling a property is much more stressful than buying a property. Therefore, if you’re selling your home to a difficult buyer, you’ll feel extra bad about paying a commission to that buyer’s agent.
To help convince you that buying a home directly with the listing agent could save you money, let me recap my own experience trying to sell a home.
My Experience Paying Real Estate Commissions
When I sold my rental property in 2017, I agreed to pay a 4.5% total commission: 2% to the listing agent, and 2.5% to the buyer’s agent. It was odd the buyer’s agent got a bigger percentage, but my listing agent insisted she could only cut her portion of the commission to attract good buyers.
Think about this logic for a bit. My listing agent believed if I did not offer a high enough commission, buyers agents would not be willing to show a listing to their clients. Thank goodness for the internet.
I went along with the proposal because I wasn’t going to sell unless I got an aspirational price. Even though a 4.5% commission was better than 5%+, I still didn’t feel good about paying so much.
When my listing agent found a buyer, he was the only one. I was very conflicted about selling because the ideal holding time for real estate is as long as possible. However, the potential buyer offered a price $245,000 higher than my expectation.
Paid A Commission To Lose Money!
The buyer ended up delaying closing for about two weeks. Each day beyond the closing deadline felt like five days had past. As a seller, you tend to think of the worst case scenario where the buyer ultimately does not come through. If the buyer doesn’t, the entire escrow period will have been a waste. Further, having to put your property back on the market after it failed to close escrow might bring out some vultures.
After the buyer asked for a price concession after doing an inspection, I distinctly remember asking my agent, Why am I paying the buyer’s agent 2.5% to get paid less? At this moment in time, I felt foolish.
The three main reasons why I ultimately went through with the sale was because 1) My tax-free profit exclusion period was ending, 2) As a new dad, I didn’t want to deal with rowdy tenants anymore, and 3) The price was higher than I had expected. All the same, paying a buyer’s agent felt bad.
Getting The Listing Agent To Represent Both Sides (Dual Agency)
After selling my rental property, I vowed to always try and buy property directly with the listing agent to save money. I had done so with great success in 2014, despite being in a competitive bidding situation.
Given I find all my properties anyway and know my local real estate market very well, using a buyer’s agent didn’t add much value. Going through a difficult property sale also gives you important experience for buying your next property.
By buying a property without a buyer’s agent, the potential savings equals half the total commission.
For example, if the total commission is 5% and the property sells for $1 million, you could potentially save $25,000 off your purchase price. In order to do so, the listing agent would have to agree to represent both parties (dual agent) and not charge the seller the other 2.5% commission.
If the listing agent refuses to drop some or all of the buyer’s agent commission by representing you, then using the listing agent to save money won’t work. The listing agent is just greedily trying to capture more of the economic profit.
In this situation, the only way to save money with a listing agent is to have the listing agent convince the seller to accept a lower price.
The Conflict Of Representing Both Buyer And Seller
Besides saving money, the other benefit of using the listing agent to represent you is information. The listing agent can provide better guidance on submitting a winning offer because he sees the other offers. Without the buyer’s agent in the way, communication flow is streamlined.
This is where many listing agents find themselves in conflict. The conflict is the main reason why some real estate agents won’t represent both seller and buyer. Not only do they feel conflicted, they don’t have the experience to manage both sides of the trade.
I once tried to buy a property directly with the listing agent. It was a mother / son team. The mother didn’t represent me, but her son did. Given the property was in high demand, there were five offers.
The son gave me color on the competing offers. Therefore, I had an edge in writing the best offer possible. Unfortunately, the winning offer was 20% higher than the second highest offer. As a result, I did not raise my offer because it felt like too much.
In some situations, a seller may simply not approve of the listing agent representing both sides (dual agency). But again, it depends on how skilled the listing agent is at convincing the seller of the benefits.
It also depends on how high the demand is for the home. If the demand for the home is lukewarm, it is easier to convince the seller to allow for dual representation.
The Listing Agent Tends To Be More Loyal To The Seller
Please note that most of the time, in a dual agency situation, the listing agent will be more loyal to the seller. It takes courtship to win a listing, especially when there are more real estate agents than listings.
A listing agent needs to meet the seller and pitch their expertise, marketing game plan, and likely selling price. There might be multiple pitches over many months before finally winning the listing. For the seller, so much is at stake, which is why the vetting process is more thorough than finding a buyer’s agent.
The buyer who wants to use the listing agent to save money needs to be realistic. It is unlikely the listing agent will fight as hard for the buyer as he will for the seller. The listing agent will have known the seller for much longer than the potential buyer as well.
By knowing the listing agent will be biased for the seller, you will need to fight harder to get the best terms and price possible if you let the listing agent also represent you.
How To Convince The Seller To Let The Listing Agent Represent Both Sides
As of today, I have now successfully bought three single family homes where the listing agent represented me in each situation: 2014, 2019, 2020. I plan to continue buying a property directly through the listing agent in the future.
Here are the keys to convincing the seller to let the listing agent represent both sides:
1) Convince the seller you are a fantastic buyer.
If you aren’t perceived to be a serious buyer with a big down payment, great credit score, and solid financials, you will never convince the listing agent to represent you.
You must be pre-approved for a mortgage. In addition, you must show you have enough funds to pay cash for the property. Waiving financing and/or inspection contingencies help too. Finally, a real estate love letter usually helps. At the end of the day, you need to want the seller to want you.
2) Convince the listing agent you are a fantastic buyer.
Before you are able to convince the seller you are a legitimate buyer, you must convince the listing agent. The listing agent is putting his reputation on the line to represent you. If the transaction falls apart, the listing agent tends to look bad on both sides.
Therefore, you must also show proof of financials to the listing agent. You should also spend as much time talking to the listing agent as possible.
I literally spent over five hours talking to the listing agent of my current home over five visits during the middle of the pandemic. Given only private showings were allowed, we got to really open up about everything. During times of uncertainty, people tend to bond. As a result, trust is created.
You will likely never speak to or trade messages with the seller directly. Therefore, it is up to the listing agent to make your case for you.
3) Highlight the value proposition of dual representation.
The full savings potential for the buyer is the buyer’s agent commission plus any downward price negotiation. However, you can always negotiate a smaller commission discount where the seller also benefits.
For example, instead of asking for a 2.5%, $25,000 discount on a $1 million property, ask for a $15,000 – $20,000 discount. This way, the seller gets to make $5,000 – $10,000 more on the sale of the property.
The listing agent will still get paid his same 2.5% no matter what. There are many ways to negotiate how the buyer’s agent commission can get split up. You can even squeeze the listing agent’s commission in a buyer’s market.
In addition to letting the seller make more money, the listing agent can also pitch the seller on the benefits of more efficient information flow between parties. Instead of playing the game of haggling back and forth and waiting, an experienced listing agent can mediate an optimal outcome for both.
The Saturn car company was famous for doing transparent pricing.
Again, it is very stressful to sell a house. If the listing agent can extract information from the buyer more efficiently, this helps soothe the nerves. Further, by cutting out the buyer’s commission, the seller should feel like there is more economic efficiency as well.
Always Put Yourself In The Seller’s Shoes
So far, you should come away from my post thinking anything is possible. Everything is a negotiation. Most people never bother to try this dual representation route because they are too afraid to ask. But you must also know what you’re doing. Therefore, going the listing agent representation route should be reserved for experienced buyers.
However, even if you don’t have much or any real estate buying experience, if the listing agent represents you, he or she has a fiduciary duty to explain the entire process and get you the best deal.
If you don’t understand a document, a term, or a particular part during escrow, ASK. Your agent must explain everything to you so you can proceed with confidence. If you don’t feel comfortable buying at a particular price, then don’t.
Those real estate agents that get listings are likely more experienced than those who do not. After all, if you plan to sell a house, you want the best real estate agent possible for the same amount of commission.
Of course, you need to do your due diligence on the listing agent and make sure she or he has a good track record before representing you. Otherwise, the skew of the listing agent might favor the seller too much. It is hard for a dual representation agent to be completely equal in representation.
As a buyer, you must think about what the seller ultimately gets to keep. You must understand all the costs associated with selling a property. Then, you’ve got to think in terms of what the seller gets to KEEP after paying all commissions, taxes, and preparation costs.
Selling a property for a lower price doesn’t necessary mean the seller gets less. The seller only gets less if the listing agent represents both sides and doesn’t agree to cut the buyer’s agent commission by more than the lower offer amount.
Below is an example where a lower priced offer can compete with a higher priced offer. Let’s put ourselves in the seller’s shoes.
Example Where Selling For Less Can Compete With Higher Offers
Let’s say the property for sale costs $1 million and the total commission is 5%. The listing agent represents both sides and agrees to cut the 2.5% commission to the buyer’s agent to zero. The buyer offers $975,000 and the seller agrees.
If the seller sells the property for $975,000, the seller’s gross profit after paying a 2.5% commission plus 1% in transfer taxes = $940,875 ($975,000 X 3.5%).
The seller is a single man who bought the property for $500,000 years ago. He has no mortgage. Therefore, his net profit before taxes is $440,875 ($940,875 – $500,000). Once we subtract the $250,000 tax-free profit exclusion, the seller only has to pay taxes on $190,875 ($440,000 – $250,000).
Because the seller is in a high federal income tax bracket, his federal long-term capital gains tax rate is 20% and his state capital gains tax rate is 10%. Therefore, the seller’s tax bill is $190,875 X 30% = $57,262. The seller gets to keep $383,613 ($440,875 minus tax bill of $57,262).
Enter A Higher Competing Offer
Now let’s say there is another buyer of the property who offers $990,000, or $15,000 more than the first buyer. The first offer should be safe because the seller would also have to pay the 2.5% buyer’s agent commission for a total of 5% commission.
Therefore, the gross proceeds is $990,000 X (5% + 1% in transfer taxes) = $930,600, which is $10,275 below the gross proceeds of the first offer where the listing agent represented both parties and limited the 2.5% buyer’s agent commission.
But, what if a savvy buyer comes in with a higher offer slightly greater than the 2.5% buyer’s commission savings? Let’s say the competing buyer offers $1,001,000, or $26,000 more than the $975,000 offer.
What is the net proceeds to the seller? $1,001,000 X (5% + 1% in transfer taxes) = $940,940 (vs. $940,875). $940,940 – $500,000 (cost) = $440,940. Then, take $440,940 – $250,000 (tax-free profit exclusion) = $190,940. Tax bill = $190,940 x 30% = $57,282. Net proceeds to seller = $383,658 versus $383,613 net proceeds.
In other words, even with an above ask offer, the net proceeds is about the same. The seller will then have to evaluate each offer based on speed of closing, size of down payment, contingencies and other factors.
All else being equal, the seller should prefer the lower offer that nets a similar figure given there is less “economic waste” due to a lower commission amount paid. Not only is the seller agreeing to pay half the commission, the seller is also paying half the commission on a lower selling price.
Finally, the seller may be more comfortable with the first buyer because the listing agent has gotten to know the first buyer better. People do business with people they trust most. When it comes to selling a property, trust that a buyer will come through is extremely important.
A Buyer With A Buyer’s Agent Has To Pay More
When a competing higher offer finds out they lost to a lower competing offer it can be a big shock. What kind of seller would accept less? Now we know one of the main reasons is due to the listing agent representing the winning buyer.
If you choose to use a buyer’s agent that is totally normal. Using a buyer’s agent is a good idea for the vast majority of buyers. In some states, using a real estate attorney is required to transact. There are plenty of legal documents to understand and sign.
Although the listing agent should explain everything to you clearly, having a buyer’s agent and/or real estate attorney should give you more confidence. After all, if you’re going to spend a large amount of money, having an expert guide you through the process is useful. Just know that most of the time, if you use a buyer’s agent, you will have to pay more for the home.
The Listing Agent Was Trustworthy
In my case, the competing offer for my house was significantly more than the offer I was thinking of giving. Therefore, I ran the numbers to figure out how to ensure the seller netted a very similar amount.
Then I used my negotiation skills to try and win over the listing agent to win over the seller. The process took about two weeks of convincing the listing agent and another one week of waiting to hear from the seller which offer he would choose.
I was in no rush because we were in the middle of a pandemic (April – July 2020). In fact, waiting provided a nice call option to see what the S&P 500 would do. The higher the S&P 500 rebounded while I waited, the more conviction I had in buying this temporary forever home.
I felt confident working directly with the listing agent because he worked with the largest brokerage in the city. He had a good track record based on his previous listings he had on his website.
Over a five-hour period, I learned about his family, his other investments, his views about the market and so forth. He was a kind and responsive man who was struggling to raise two young kids just like me. In the end, he felt like a listing agent I could trust.
If you are an experienced buyer, the next time you try to buy a property, consider working directly with the listing agent. If you know the local real estate market well, going direct could be a winning move. It doesn’t hurt to at least have a conversation to see where things might go.
You just never know unless you try!
Invest In Real Estate More Strategically
Buying a home directly with the listing agent is a great strategy to save money. Another great strategy is to diversify your investments through real estate crowdfunding.
There is a fanning out of America as more people relocate to lower-cost areas of the country. Technology and the normalization of working from home are two key catalysts for this demographic shift.
In 2016, I started diversifying into heartland real estate to take advantage of lower valuations and higher cap rates. I did so by investing $810,000 in 18 real estate crowdfunded deals to earn income 100% passively.
Take a look at my two favorite real estate crowdfunding platforms. Both are free to sign up and explore.
Fundrise: A way for accredited and non-accredited investors to diversify into real estate through private eFunds. Fundrise has been around since 2012 and has consistently generated steady returns, no matter what the stock market is doing. For most people, investing in a diversified eREIT is the way to go.
CrowdStreet: A way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations, higher rental yields, and potentially higher growth due to job growth and demographic trends. If you have a lot more capital, you can build you own diversified real estate portfolio.
Buy Utility, Rent Luxury (BURL): The Real Estate Investing Rule To Follow
How A Real Estate Lawyer Can Save You Money, Pain, And Suffering
Readers, have you ever worked directly with the listing agent to buy a property? If so, how did it go? What were some things that didn’t help you when you went with a listing agent?
Afton Jackson says
Having a listing agent help both sides of the deal really sounds like a great way to approach a listing. This feels like the best way for me to get assistance with securing my first ever home without any problems. I’ll ask around for any home selling agencies that I can sign up with for sure.
Suzi Q says
I hired a listing agent to find me a one-story, four bedroom, 2 bath house, with a 3 car garage and RV parking. No swimming pool. He showed me about 5 houses in a year and a half. I was not in a hurry, because we already had a nice house. We wanted to sell our house because it was a two story and needed to keep the low property taxes and transfer it to the new house. We are in our 60’s, so we didn’t want the hassle of being landlords. Been there, done that. We bid on one house, but our offer was not accepted because I think the seller’s real estate agent wanted the full commission on both sides to himself. I knew this. That house needed so much work, so I was O.K. with losing it to someone else who only paid $5K more than our offer. Our agent found a house for us and we patiently waited for the seller to decide to sell the house. During COVID, she didn’t want too many people going in and out of her house (October 2020). She finally put the house on the market with our agent. We looked at it during the Thanksgiving weekend (2020) and we liked what we saw. We bid on it the same day. We paid full asking price. The woman was nice and accepted our offer right away. She had moved on to a senior community, and had a certain number in mind to make as her capital gain. At the time, we paid a fair price for the house. Our house was another matter. I was a “hoarder,” so it took three months for us to get rid of my stuff (I had accumulated a lot of stuff in 32 years) that we had to hire an estate sale specialist. During those 3 months, the market in our area went crazy high. To make a long story short, “patience is a virtue,” and “timing is everything.” We were also, very lucky. Our old two story house, in a much cheaper neighborhood, sold for almost $30K more than the house we had purchased in a much more highly regarded neighborhood. We get to keep our old tax rate and utilize the couple’s capital gains discount since we are over 55. I was told that our house could sell for $150K over what we paid for it in November. I sold my case to the listing agent almost two years ago. I told him that we were in no hurry because we already had a nice house. I also told him that if he found us the right house, he could list our house for sale as well to sweeten the deal. He charged us 4% to sell our house, as he received 4% when he sold the 1 story house to us. We felt he did well by us and the seller. We all got what we wanted.
Only commenting to say how much I’ve enjoyed reading through various write ups on your site since I found it yesterday.
Financial Samurai says
Welcome to Financial Samurai Peter! I started the site in 2009 to help folks achieve financial freedom sooner, rather than later.
Here’s a related post: Why The Housing Market Isn’t In A Bubble
I’ve bought and sold a number of properties in the NYC area and I am yet to find a real estate agent that has contributed 5% of added value to any transaction. In the age of Zillow and Redfin, I hope real estate agents go by the way of the milkman. And I say this as a licensed real estate broker myself (not primary profession).
House #1 was bought without any agents. A co-worker told me of a home in her neighborhood. The lady had just passed away and her children were readying the house for sale. We bought it and it has been of our best financial moves.
House #2 was a traditional sale bought in January 2007. Needless to say, it was a great home but not a good financial move.
House #3 we bought using the seller’s agent. We had met him several times while we searched for a new home. He knew we had financing lined up and no selling contingencies. He called us up with a pocket listing. We saved tens of thousands of dollars in the transaction. Although the seller probably could have received more money listing the home on the MLS, we were easy buyers during a stressful time in the seller’s life. Selling isn’t always about the numbers.
Top Notch! Top Notch!! says
We just did this exact thing using the sellers agent to buy the house and it saved us a lot of money and we wound up being the successful bidders! I think we saved $15 or $20K! That’s a lot of dinners out in the city we just moved to!
Financial Samurai says
Congrats! When u put it in terms of dinners, it sounds even more amazing.
Well, you think the realtor’s fees are high, but very few of them are getting rich at it. Too many realtors, not enough sales. Most of them could not live on it. Also, some sales are very quick and easy, some require gruesome amounts of time and effort, and many major efforts will even result in a sale. It tends to even out unless you are a serious top producer (and then kinda forget about having a life).
I was married to a real estate broker in the mid-1990s. Agents have a lot of expenses, believe it or not. Also, having a license to sell real estate in your state does not make you a realtor, being a realtor means paying large monthly dues to use the MLS and such. Most tend to have very irregular income. They also don’t get any holidays or weekends off. The wife had me get licensed just so I could answer the phone if anyone called and she wasn’t there.
In Florida commission was 6%, but it was 3.2% to the listing agent and 2.8% to the other agent. Don’t assume that 5% is evenly split unless you know for a fact it is.
That said, I try to avoid realtors because I am cheap. My last several sales and purchases I wrote the contracts myself (you don’t have to be a lawyer or a realtor to do that if you know what you are doing) and saved tens of thousands. Win-win each time (you have to share a substantial part of the savings with the other party, at least you should).
In Florida, once you have the contract you can let the title company do the closing. No need for lawyers, as there is in some states. Now THERE is a bona-fide scam. And it will never get fixed because the lawyers will block any and all attempts at legislation to do so, even if half the politicians weren’t lawyers themselves.
Financial Samurai says
No doubt it’s a tough industry to make good money, despite the commission rate. Simply too many agents chasing too few homes.
I think the Irony Is that if commission rates were much lower, there would be a lot more transactions, offering a lot more business opportunity for agents to make money.
Yes, the main purpose of the title company is protect each seller. So if the title company is legit and doing it’s job, it’s hard not get totally screwed. The dual agent has a fiduciary responsibility to the buyer as well, and get punished if something bad happens.
But as in life, suboptimal things happen all the time.
I don’t fault someone for wanting to spend a couple thousand on a real estate attorney for another set of eyes.
Well yes, lawyers as an option, certainly. Since I was writing the contracts I actually encouraged the other parties to review it with an attorney if they were uncertain about anything (in one case, it was an attorney selling me the property).
But in New York, where I am now, both parties are REQUIRED to hire lawyers. Which can be pretty ridiculous (and expensive, and slow).
Financial Samurai says
Yeah, that not great if required by law as some states do.
Even more reason to never sell.
Jeff VA says
It’s great that the standard is now 5 instead of 6%, but it’s still extremely high IMO.
There are certain instances or properties where a buyer agent can come in handy so I know there will be exceptions to the rule, but with the advent of sites like Redfin and public records, buyers have a lot more intimate knowledge about their respective area. Anything more than 0.5% for the buyer’s agent is too high IMO.
A seller/listing agent at least has costs that they will need to bear. It’s also up to them to sell the property at the maximum cost so there’s at least an incentive to keep the fee at 2.5%. Buyer’s agent though? I don’t know if their service warrants anything more than 0.5% at most. Or maybe even 0.25% or a fixed amount of $1,000, whichever is lower.
Financial Samurai says
Yes, when I found my property on my own in late 2004, I didn’t know better and let my agent who was gone on vacation represent me. I could tell the listing agent wasn’t very happy bc he just came in during the last second.
My agent probably made $40,000 doing nothing. I asked him for a rebate and I think he only sent me back $1,000. Lesson learned. He got lucky and I was too naive at the time.
I’ve had five transactions where I did not pay full commission.
1 – Bought an empty lot where my agent returned 50% of his commission. Received 12k back.
2 – used the same agent for a commercial real estate purchase. Received 15k back.
3 – used Trelora and paid 2500 seller commission, full buyer commission on 1.1 million home. Saved roughly 30k
4 – sent love letters for a commercial real estate property. Received a reply a year after I sent one. Wasn’t in the market but bought anyway off market direct with seller. Paid 2k for a real estate lawyer. Both us and seller saved roughly 30k together. Or rather I got a 15k discount on property price and no competition on purchase.
5 – bought a vacation home rental with no buying agent. Seller agent represented both And I believe he was very motivated and represented both well. We received a 15 K discount on the property which represented half of the commission the buying agent would have received.
I thought that #3 and #4 was the best experience. A $2500 flat fee felt right. In every other case I still feel like we paid too much money for services provided, despite saving tens of thousands of dollars.
Financial Samurai says
Amazing success! Congrats. It does get easier the more you do it.
I bought my current property using the seller’s agent (I found the listing on ebay of all places).
It was an out of state property and I just clicked on the ebay link and made plans with the listing agent. I do think the seller would have promoted my offer over any others because he would be getting a double commission. Not sure if he agreed to lower the commission price to the seller to sweeten the pot. But I was able to get the property at the price I wanted.
Ryan Samuel Dwyer says
If the seller typically pays the commissions for both agents, how does the buyer save money using the listing agent?
Financial Samurai says
The cost of using a buyer’s agent is generally half the listing agent’s overall commission. The standard selling commissions is now 5%, down from 6%. Therefore, the listing agent and the buyer’s agent each get 2.5% of the final selling price of the home.
By buying a property without a buyer’s agent, the potential savings equals half the total commission. For example, if the total commission is 5% and the property sells for $1 million, you could potentially save $25,000 off your purchase price. In order to do so, the listing agent would have to agree to represent both parties (dual agent) and not charge the seller the other 2.5% commission.
Ryan Samuel Dwyer says
In S. Cal, the standard commission is 5% and hasn’t been 6% since 1995 at least. There is an interesting phenomena regarding the agents, in that because there is a surplus of agents compared to properties listed, many agents only sell a house every one or two years. They keep the license active, have a spouse that brings in a steady income, and then get to write off a nice vehicle, lunches, dinners, clothes, boondoggle seminars, and basically have one of those ‘fake jobs’ that Sam referenced recently.
One thought is an ‘in-house pocket listing’ which involves the listing agent shopping the property within their office first, and company second. No money spent marketing, open houses, MLS listing fees, etc. The commission fee there is 4.5%. Once the pocket listing period expires, the MLS, Zillow, etc. marketing fees hit and the commission reverts to 5%. Requires trust.:-)
In my experience, it’s an either/or – either the seller agent cuts his commission or you get inside information as the buyer. The seller agent never does both. So it depends on the price of the property. If higher priced – then ask for the commission discount. If low priced to begin with, just ask for the inside info. DeLeon Realty (in the Bay Area) has this policy of where if they act as both the seller and buyer agent, they automatically go down to 2.5% total commission. This avoids the perception of any conflict of interest and is a win-win for both the seller and buyer. That’s a pretty good practice – wish more seller agents did that.
Financial Samurai says
It’s interesting, because a dual agent
has the fiduciary duty to represent both in the best interest possible. But obviously, that is difficult to do. But if there is a successful transaction, that does indicate an agreement
Jersey Shore Fan says
This strategy worked like a charm for me and my wife. For example, a seller’s agent listed a NJ beach condo one Saturday at 3pm. I immediately called the agent and told her we were not working with an agent, and by working through her, she would keep 100% of the commission. We met two hours later, looked at the condo, and decided to buy it.
There were already 20 appointments scheduled by other buyers who were also extremely interested in buying it. We ended up paying asking price and not one cent over it! Think of it this way: If the seller’s agent convinced her client to “open the flood gates” and created a bidding war on the price of the condo, she would have ended up making less in commission, because 50% of it would have went to the buyer’s agent. In this real estate market, it pays to be a “free agent” buyer!
Financial Samurai says
Excellent example! And congrats.
From the listing agent’s POV, she was able to potentially double her commission (I assume the seller asked for some discount, but maybe not). And you avoided a frenzied bidding war that sounds like it would go above asking.
A good exercise would be to calculate how much more above asking it would take for the listing agent to double her commission. And the simple answer is, double the listing price.
Ex: 2.5% commissions on $1 mil sale = $25,000. But $50,000 if she represented both sides.
She would have to sell the property for $2 million to earn $50K in commission at 2.5%, if she had to share the other 2.5% with a buyer’s agent.
Therefore, of course the listing agent would be incentivized to represent you as well! Potential buyers need to crunch the numbers for the listing agent and seller and bid accordingly. So fun!
I understand the math, however isn’t the broker doing a big disservice to the seller?
If there is a bidding war, the seller will ALWAYS make more, unless the broker reduces their commission.
ie, If the property sells for 1.1 million, the commission becomes $55,000, but the seller receives an additional $95,000.
So the broker would have to “convince” the seller to take 95K less, so they could earn 25K more. Sounds a little problematic.
Financial Samurai says
Agree. But there is generally pre-marketing that goes on before an official listing. And the seller and listing agent should get an idea of what the market is willing to pay.
Sometimes sellers want to keep it simple or not put themselves out there for the entire public and get embarrassed when they fail to sell.
The premarketing really is huge if you have a connected agent.
Sam, have you thought about getting your real estate license and representing yourself in future transactions. Seems like the best way to save the most money. I imagine you have many more transactions in your future and you have the time to get a license. Cost to get license pales in comparison to commission on 7 figure transactions.
Financial Samurai says
I’ve thought about it, but am pressed for time. A long time ago (around 2015), I consulted with one reader about buying a property. I went out and met him and toured the property. He ended up buying and has done well. I probably could act as a consultant now with local SF buyers, but again, it’s a time thing. Maybe when my kids are out of the house as I do LOVE real estate and negotiating a great deal.
By buying my last three properties without a buyer’s agent, the net result is equivalent to being my own real estate agent. People need to realize it’s not just the commission savings potential put also the price savings potential too. Lots of potential wiggle room to save!
Roy Farhi says
Great post Sam as recently a friend suggested “more skin in the game” approach of doing just this. Let the selling agent be both sides to inspire them to work a little harder for you. My next purchase will definitely be done this way.
PS maybe tired subject but love to read about all cash versus financing and when I say financing, maybe ARMs, maybe FHA, non conventional mortgages especially with 800/900 million + type houses.
No More Weekdays says
I haven’t purchased a home working with a listing agent directly but my experience working with agents both buying and selling makes me feel like they are the equivalent of the car dealership middleman in the age of Tesla direct selling. Unless there’s something especially complicated or nuanced about the property it seems like the future is fee-only agents to get properties on the MLS and let the magic of the internet handle the rest.
I couldn’t agree more. Real Estate agents are the last great “middleman”. The commission as a percentage of sales price is rediculous. It should be a flat fee. In some cases on buyers side a realtor could get payed $25,000 for about 4 hours of work… its a total joke. Realtors are like snakes in the grass…
I have a full time job as a pharmacist but do real estate on the side. It’s literally impossible to only spend 4 hours on a transaction as a buyer’s agent. Doesn’t matter if it was the first property that you showed your clients. Contracts/inspections/title/final walk-through easily take 10+ hours and that’s if everything goes perfect (it never does).
Fascinating examples! Seeing the math really helps. Impressive you were able to get the listing agent to represent you on three purchases. What a great savings. I know some agents I’ve spoken with refuse to do that sometimes because their firm restricts it but a lot of good brokers do. Great post thanks!
Tiffany Alexy says
I own a real estate firm and I am a licensed agent in NC.
First off, you’re not clearly outlining the difference between having the listing agent represent both parties (ie dual agency) versus just using the listing agent without having them represent you (seller subagency). You are not going to find many listing agents who will engage in dual agency, putting their license and reputation at higher risk, for no added financial benefit.
So thinking you will go in there and have a listing agent engage in dual agency while giving up 2.5% is foolish. If you are buying under seller subagency where you are an unrepresented buyer working WITH the listing agent, maybe you could get a commission discount or maybe you couldn’t. It also adds risk to the transaction, so the seller may not want to take your offer, especially if they are trying to buy another home or have other personal reasons for needing to get the sale closed quickly and smoothly.
Commissions are negotiable. There is no standard commission. 6% is not standard, 5% is not standard. It’s all negotiable.
It’s a very common misconception that going directly with the listing agent will save you, as the buyer, money. Penny wise, pound foolish.
Instead, hire a kick ass buyer’s agent who will represent your interests. The listing agent is working FOR THE SELLER.
Financial Samurai says
Sorry if I was not more clear. But I did address all your points in my post. It’s just very long and needs to be read thoroughly.
“You are not going to find many listing agents who will engage in dual agency, putting their license and reputation at higher risk, for no added financial benefit.”
Yet I did so with my past three real estate purchases and saved about $350,000. And it seems like other readers have used dual agency to save a lot of money as well.
How do you know you saved $350K?
We live in Florida and tried multiple times to take advantage to benefit from not working with a buyer’s agent and contacting the listing agent directly. It hasn’t worked to our benefit and we are still looking.
This time, I found an agent that lives in the neighborhood where we want to buy and told her to contact all neighbors to see if someone wants to sell without listing on MLS. I don’t want to be involved in bidding wars. An aged couple responded and my agent is now working with their agent on trying to close the deal before the start of the new school year. Hopefully it works out.
On a side note. I also tried the love letter route in the past, following the example you had given in one of your older posts. That didn’t work for us either. Either the buyers weren’t impressed or the listing agents refused to share the letter with the buyer.
So overall, we haven’t had good luck with real estate.
Financial Samurai says
Based on the discounts I got compared to the three asking prices. Last home was a $100K discount to competing offer. The one before that was about $200K below market. And this proves out based on comps and where the $ sign is versus Redfin estimate, which is already underpriced. The purchase price was so much lower that I got hounded by the San Francisco assessors office who made me prove why I was able to get a good deal. That’s a topic for another post.
Just got to keep trying. GL on your current offer!