What Are Buyer's Brokers? Should You Hire One or Save on Commissions?

When a homeowner wants to sell her home, she usually will hire a realtor to sell it. Generally, 6% of the sale price will be set aside for realtor commissions.

There is a new phenomenon that has become popular: The buyer's broker. The buyer's broker is a realtor that represents the buyer. He finds homes that the buyer might like, shows the homes to the buyer, and then represents the buyer in the negotiating and closing phases.

Sounds pretty nice, doesn't it? It's always nice to have a professional in your corner, making sure you don't get ripped off. Your buyer's broker will also save the buyer from a lot of work. But who pays for the buyer's broker? Having my own broker must be expensive, right?

Well it turns out that the seller usually pays your buyer's broker commission. The original 6% commission is split between the buyer's broker and the seller's broker, with each earning 3%.

So should you hire a buyer's broker? By all means yes. There is almost nothing to lose.

However, some sellers chose to skip the realtor altogether. Instead, they list their property as For Sale By Owner (FSBO). Some FSBO's set aside a percentage for buyer's brokers, which is wise since buyer's brokers often will not show a no-commission FSBO to their clients. (Remember your buyer's broker has incentives too. They won't always align with your incentives). But other FSBO's won't set aside a commission for your buyer's broker. So if you end up liking a no-commission FSBO property, you might end up having to pay the buyer's broker commission. Theoretically a no-commission property can be 6% cheaper, since there are no brokers involved. But this doesn't seem to happen as often as you'd think. Many FSBO's don't have the best sense of the market, and often price their properties a bit too high.

Before the buyer's broker starts working for you, he probably will ask you to sign a buyer's broker agreement. This is standard, saying that if you purchase a home within a certain set of time, they will earn a commission. Not a big deal, they just want to make sure you don't use their services and then decide to cut them out of the deal. If they do the work, they deserve the commission. But this agreement also means that the broker is entitled to a commission even if they don't help with the purchase. So make sure you're sure the broker is good. Just to protect yourself, I suggest insisting on an exit. That way, if the broker doesn't do a good job, you can break the contract and get a new broker. Do not, in any situation, work with one broker when you're under contract with another. This gets the commission division extremely confusing, and could cost you a lot of money. If three brokers end up entitled to commissions, you'll probably have to pay one of them. But don't let this scare you. Simple sign the agreement, then exercise the exit clause if you decide you would prefer a new buyer's broker.

Buyer's brokers can be extremely helpful, particularly if you aren't a real estate expert. And best of all, buying a home with a buyer's broker usually isn't any more expensive than purchasing on your own.