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I see no reason why a buyer's agent would fail to get the Smiths a home they can afford under my proposal.
Look more broadly.
How does it serve the BUYER to be sold at a price in the outer limit of their affordability?
Undersell a bit. Wrap up that deal in a contract that will walk itself through the appraisal and
loan process and get to closing without the hand-holding that keeps the agent from selling 4 other
homes during that same period.
How does it serve the BUYER to be sold a home at the outer limit of their affordability?
The salesman who wants to sell that more expensive property needs to find a better heeled buyer.
It doesn't, but it can still serve the salesperson. Look at all the underwater homes right now.
Salespeople, especially looking at the results from the past several years, should not be paid on a commission basis but what the true worth of filling out blank forms.
This sounds like an excellent compensation model if you hire an agent to buy you a toaster available at a number of different locations. It sounds terrible for buying houses.
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OP, why would you choose to work with a salesperson, when you should easily be able to engage a broker?
Why be sold when you could be consulted?
Why assume that agents press the price point, when it usually is the buyer who moves things into a higher price range? Buyers who cannot find what they want in the current inventory are the ones who say, "Let's raise the ceiling on the search." And they are the ones who call me about the house that is 5% to 15% over the hard cap they have given me, which cap I respect.
If you want to leave a mark on the market, find a mission in buyers paying their agents directly, without the artifice of passing funds through multiple sets of hands, and across the table to return to their buyers agent, with the ability to plainly finance buyer agent fees in the mortgage as a buyer expense on the HUD1 just as we do now with the listing agent fee with the buyer agency fee included and earmarked.
Cutting the "Buyers agency is free" crap would do more people more good than playing games with a commission as now commonly constructed.
That was actually part of the point. It's hard to tell agents apart, because all of them will claim to be good and ethical (indeed, this is a signaling problem). I figured a good test would be to present this scheme. A good, ethical agent would understand that it is fair and agree to it. We ran far away from any agent that either claimed their services were free or complained that we weren't trusting them enough. We lucked out in that we found an agent who had already been thinking about how to implement this cleanly, and I'll ask them if they have any ideas about how to do this in Oregon.
We're still curious to see how it would work in practice and also interested in creating a template for other buyers and agents to use. If our agent understands the standard scheme is backwards, there are probably other agents who do as well. That's part of why I want feedback.
I'm good and ethical and I probably wouldn't agree to it. I am sure that there are agents that would agree to it.
The problem isn't the "current scheme." The problem is the unwillingness of buyers to pay for their own representation and the lending environment that prevents it in some cases. If buyers were willing to pay for their own representation, they would think long and hard about whom they hire. Right now, most buyers think of buyer agents as a "free" service, and as such tend to think more about what kind of toothpaste they want to buy rather than the quality of the service provider they picked.
Real estate agents seem to have a bit of an image problem, and I think the culprit is the conflict of interest with buyers created by the compensation scheme.
No, it is because some agents are either average at best or poorly trained. There isn't a single state in the US where the licensing training requirements are adequate enough for what this profession entails. That is the source of the image problem.
Consumers have access to information like never before and realize that they don't have to be stuck with mediocrity. Since they are in the same position as you, that they don't know how to tell a good agent from a bad one, they sometimes default to no agent.
Well, you're getting the same resounding raspberry you received when you presented this stinker of an idea in the Austin forum. What does that mean to you?
I am an experienced, ethical and effective agent with 20+ years in the industry and a bevy of great reviews, happy past clients and a steady referral stream. If upon our initial consultation you presented this "scheme" and made it the centerpiece of your agent selection process, that beeping noise you'd hear coming from the back of my skull would be my flake radar on red alert. I'd pay for your coffee, wish you the best, and get on with my day as fast as I could because it would be apparent to me that you're more interested in testing your academic theories than you are buying a house.
But if you find an agent who's game, more power to the both of you. I just don't personally know any producing agents who would make it past the glassy-eyed stage of your explanation. They would rightly wonder if you'll properly be able to select a house without running it through some sort of cockamamie spreadsheet calculus.
Sorry, but this is the definition of "analysis paralysis" and "focusing on the wrong thing". Most buyers just want someone good to help them find the right house, and they are happy that the service is free to them.
OP, why would you choose to work with a salesperson, when you should easily be able to engage a broker?
Why be sold when you could be consulted?
A buyer's agent is supposed to work with my best interests in mind. Whether or not they are an agent or a broker, they are supposed to be a salesperson selling my offer to the listing agent.
Quote:
Originally Posted by MikeJaquish
If you want to leave a mark on the market, find a mission in buyers paying their agents directly, without the artifice of passing funds through multiple sets of hands
...
Cutting the "Buyers agency is free" crap would do more people more good than playing games with a commission as now commonly constructed.
I agree, and wish most agents would admit this as well. Indeed, the way I framed this when I made the post looking for agents was to ask which agents would be willing to be paid by the buyer.
But directly paying an agent more money for more expensive house still misaligns incentives.
No, it is because some agents are either average at best or poorly trained. There isn't a single state in the US where the licensing training requirements are adequate enough for what this profession entails.
In general, economics is not a fan of licensing requirements. The textbook example is taxicab medallions. It's typically a way for suppliers to constrain supply and increase price (kinda like oligopoly or collusion). Properly competitive markets allow competition on price and quality.
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