In this day and age of Loopnet and other online tools, buyers (and tenants) feel like they are best suited to find and procure commercial property on their own. Often, they don't even realize who the "listing" agent is working for and mistakenly think that agent is looking out for them. Or, they assume that, since commissions are typically paid from the "seller's side," that all agents involved will actually be working against them by trying to keep the sale price inflated.
Unless the party the agent is representing is spelled out in writing (which would preclude them from representing both the seller and buyer on a single property), this can be a costly mistake. Furthermore, when an agent is "hired" to represent a buyer, that agent has a fiduciary responsibility to put the buyer's interests ahead of their own - including negotiating the price as low as possible, despite it meaning less commission. In this article, we'll explore what to look for in finding representation, and why sellers and their agents prefer that you not be represented (hint: it gives them an advantage).
The sellers’ agents make more money.
“When an agent is 'hired' to represent a buyer, that agent has a fiduciary responsibility to put the buyer's interests ahead of their own...”
It’s pretty well known that compensation of the buyer’s agent comes out of the sale price of the property (even though, with a written agreement, they have fiduciary responsibility to you). In fact, there is a common misconception that if there is no buyer’s agent, the buyer has more room to negotiate the price down by that 3% or so.
The fact is, listing agreements typically allow for around a 6% commission (which gets split – 3% to the seller’s agent and 3% to the buyer’s agent). So, even when there’s no buyer’s agent, 6% comes out of the final sale price – and goes solely to the seller’s agent. So, not only are the odds of getting their seller a better deal stacked in the seller’s agent’s favor when you don’t have a buyer’s representative, but they take home the full 6% commission (or whatever was agreed to with the seller), which means you don’t get that “3% discount” you thought you would.
Limited selection makes it more likely that you will choose their property and pay more for it.
The basic economics principle of supply and demand tells us that, if you’re not aware of all of the competition (properties available to you – supply) in the market, it makes the seller’s property appear more valuable than it may actually be.
A good buyer’s representative gives you access to the full inventory of properties out there, not just what you can find through publicly available sources. They are members of “Realtors-only” networking groups and websites, and are privy to pocket listings and off-market properties that are not available to the general public, or even many real estate investors.
Whomever controls the paper controls the deal.
“The seller's agent knows how to push you through the deal as quickly as possible, motivate you to pay more than you want to, and get you to overlook things that would give you bargaining leverage.”
There are 32 possible “outs” that potentially protect you and your money in a typical Texas real estate contract. When you have no representation, the seller’s agent has control over how the contract is filled in (unless you’re paying an attorney to do it), which means they can more easily avoid having you take advantage of those protections.
Whether this is your first rodeo, or even your 5th, they still know more tricks of the trade.
Unless you luck out and get someone who’s brand new, even the most slack seller’s agent has experience with many more transactions than you likely do, and they’ve likely had many hours of sales and negotiating training and/or mentoring. They know how to push you through the deal as quickly as possible, motivate you to pay more than you want to, and get you to overlook things that would give you bargaining leverage – all without violating the law or even the Realtors’ Canon of Ethics.
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