When you start looking for your first condo you hear about listing brokers and buyer’s brokers and dual agents. So, what does all of this mean to your condo search?
When you visit an open house, the person who shows the apartment works on behalf of the seller. He can be the listing broker, or in legal terms the Seller’s Agent, or a person engaged by that Agent to assist in showing the place. In either case their undivided loyalty is to the seller. While they have to deal with you, the potential buyer, with honesty and in good faith, they do not represent your interests. This is important to understand.
Does this mean that you should consider having your own broker, or in legal terms, a Buyer’s Agent, someone in your corner whose job it is to represent your best interest? Most real estate professionals would say yes, but there are still some things for you to consider.
Is having your own broker going to cost you a lot of money? Normally, not. Typically, the buyer’s agent splits the commission on the sale with the seller’s agent, so you do not have to pay anything. For example, if the commission that the seller pays at the closing is 5% of the selling price, his broker gets 2.5% and your broker gets 2.5%. But, as always, read the fine print in any agreement you sign.
So, what’s the downside to having a buyer’s broker? Look at the situation from the selling broker’s point of view. If he acts as the only broker in the deal, in legal terms as a Dual Agent, he keeps the entire 5% commission. If there are two equal bidders for the condo, one through a buyer’s broker and one directly through the seller’s broker, which one do you think will get the deal? In a tight market, with bidding wars, that is a consideration.
Using a dual agent may also impact the price you pay. A recent article in Wall Street Journal reported a study that found how depending on the age of the listing, you may pay a premium price or get a bargain. If the listing is new when you buy, you pay a premium, if the listing is about to expire, you may get a discount to comparable properties. The study also found that dual agent properties, on an average, sold faster and at a slightly lower price than comparable properties.
In some states, for example in New York, if you are working with a dual agent you will be asked to sign a disclosure form that explains how the broker’s loyalty is divided between the buyer and the seller. If there are problems in closing the sale, you may not be assured that your interests were protected.
Should you sign an Exclusive Buyer’s Agent Agreement? An exclusive broker relationship is for a specified period of time, during which you agree to only work with that broker and make any offers through that broker. The upside is that the broker will work extra hard on your behalf, knowing that you will not make an offer through another broker at the last minute. The downside is that if the broker is not very good, you are still stuck with him for a period of time. What this means is that if you go the exclusive route, you need to check out the broker extra carefully, before you sign on the dotted line.
Having you own buyer’s broker makes for a more efficient search. Rather than randomly wondering to open houses or looking for listings online, working with a broker who has access to a huge number of listings and the ability to slice and dice through large databases, will increase your chances of finding a condo that meets your exact criteria.
All things considered, should you have your own broker? Our answer is yes. As a first time buyer, you need to work with someone you can trust and whose total loyalty is to you.
At what point in the process should you retain your own broker? General advice is that you should have a broker in your corner preferably before the second visit to the property, but definitely before making an offer.
I’d definitely use a broker in NYC and also get a buyer agent commission rebate too (1% cash back why not). Then I’d never sell and pay transaction taxes. Hold to maturity asset for sure.
“General advice is that you should have a broker in your corner preferably before the second visit to the property, but definitely before making an offer.” Can you elaborate on this? I hear that listing agents might have issues with buyers’ agents trying to become involved after they’ve already made “first substantive contact” with the buyer directly.
Also would like your thoughts on a buyer agent commission rebate in NYC. I am planning on doing it via Hauseit which is popular in new york. Any thoughts on this? Seems extremely useful for any home buyer in the city.
We have no information about Houseit in New York City. It seems to be a company that operates in Toronto.
Anyway, if you are looking to buy a co-op or condo in NYC for the first time, you will save yourself many sleepless nights if you have a broker who is on your side. That said, the listing broker does not like to share her commission, so she may steer the seller towards a buyer who does not have a broker.
If you do not use a buyers broker and ask for 1% to be rebated to you, in the tight NYC market you’ll be on the losing end immediately. The listing broker may not like to share fees with buyer’s broker, but at least one will make their work a little easier because an experienced broker in buyer’s corner will steer the buyer through any snags that inevitably develop.
Even with the potential downside of losing the deal, we still recommend using a buyer’s broker for first time buyers unless they have friends or family members well versed in buying real estate in the city.