I get this all the time.
I was showing an apartment, a lovely two-bedroom Prewar condominium on West 98th Street. As I stood there, we already had bids and were negotiating to get the best price for my clients, the sellers.
The buyer was a nice Australian guy who was looking to buy something for his trips to New York, combinations of business-related travel and visits with his young daughter, whom he didn’t get to see often enough. One of the many downsides of divorce.
After a thorough investigation of the property and a dialogue about the low charges and why that appealed to him, his demeanor took on a different tone.
“I have a question for you,” he stated with a bit more seriousness.
“Sure, what’s on your mind?” I asked.
Am I Paying More?
“I’ve been looking around at a lot of properties over the past week or so, and I’m really struggling. Am I paying more because I’m working with a broker? Wouldn’t it make more sense to go directly to you?”
He proceeded to walk me through his thought process. Wouldn’t cutting out a buyer-side agent result in an effectively better price for the seller? Even if the price were lower, the seller would walk away with more money, right? And even if the overall broker’s commission would be potentially reduced, the listing agent would earn more than if another agent were involved.
Is he right?
First, it’s not typical that a listing agent is getting 1/2 of the commission if the buyer is not coming with another agent. There is a lot of work to do for the buyer even if the buyer doesn’t have representation. So there maybe a slight discount on commission, but even that is not guaranteed. In my experience, only the most shortsighted listing agents would be willing to take a “direct deal,” as it’s called, unless the buyer is amply qualified and adequately serious. AND if they are paying a number that works for the seller. That combination is harder to find that you might think.
We recently advised our sellers to turn down a direct buyer on a listing of ours that would have meant something in the range of an extra $80-100k to the team. Not a small amount of money to walk from. The big picture was that we did not believe the buyer was going to be easy to work with, and, more importantly, we weren’t sure the board would like their profile. Our judgement was to recommend we forego the promise of the short-term, going for the buyer we felt was a slam dunk for the coop approval process.
Would these direct buyers have been advised more thoughtfully had they been represented by their own agent? It is entirely possible they could have shown up with a very different demeanor and presentation to us with their offer. But we’ll never know.
What normally happens is something like this
First, the buyer often has no idea what he’s doing from the get go. Especially a dynamic market like today, when we’ve seen 20% swings in the market from COVID lows to today, the buyer doesn’t have nearly enough guidance on what the right price is for the apartment. He is relying on too few resources with which to negotiate, and makes an offer that’s wildly out of market- too low, usually, with terms that are not standard. Or, on the other side, the offer comes in too high. This concern about saving money by removing the middle man turns into paying too high a price.
Instead, what I’ve usually seen in practice is that the same buyers, who think they will get a better deal by removing a buyer’s agent, come in way too low. So, they not only want a better deal, but are overly optimistic about the deal they can get. And these types of offers are often dead on arrival.
But if a negotiation gets out of the gate, the buyer just doesn’t know what he doesn’t know. Especially when the property is a cooperative, the buyer has no one to guide them through the board package process, or the process of what to review in the Due Diligence documents. What ends up happening is that the buyer has no idea what’s relevant, what’s important, what’s not important to know about.
At every step of the way, the buyers, still unrepresented, miss out on having a steady hand guiding them, helping them prioritize, and identify the actual potholes in the road.
We just reluctantly brought a direct buyer to a board interview on the East Side. We have been in many situations where we would vastly prefer a buyer have her own agent, if for nothing else, to help process a board package in a timely fashion.
So Many Situations
I have seen too few situations where the buyers were sufficiently experienced and savvy to represent themselves, even at or especially at the high end. Below $1mm, there are sometimes enough price indicators where a very dedicated and focused buyer could go through the buying process on her own. But even then, negotiating against professional real estate people is akin to trading against experienced stock brokers. I would attribute success in that arena more to luck than to skill.
To sum up, most of the time, the savings may or may not even amount to 1% of the purchase price, if a buyer is trying to avoid representation to save money. In the exchange, that buyer is taking on the responsibility of getting the best price, knowing the market cold, and processing most if not all of her administrative work. My biggest questions are, “What is expertise and market knowledge worth?” and “What is your time worth?” Usually the answers to both of these lead to working with a buyer agent.