Should You Hire a Buyer's Agent? | Pros, Cons, and New Rules
The NAR Settlement has drawn attention, sparking discussions about its implications for homebuyers in real estate. At the heart of these discussions lies the fate of buyer agent commissions. Anticipated are two significant rule changes, pending approval, poised to reshape certain aspects of the homebuying process. Firstly, there's the expansion of buyer compensation advertising beyond the MLS, potentially transforming how buyers interact with property listings. Additionally, the proposed requirement for a buyer's agreement before property viewings aims to provide clarity and protection for both buyers and agents. But what do these changes mean for homebuyers navigating the market? From the potential benefits of comprehensive buyer consultations to the added paperwork and considerations, there's much to take into consideration when buying a home in Huntsville, Alabama.
Homebuyers and NAR Settlement: What's New
You've probably seen the headlines about the NAR (National Association of Realtors) Settlement, and you might be weighing the advantages and disadvantages of using a buyer's agent. Let's discuss what this settlement means for buyers. There are two significant rule changes expected to emerge from the settlement. It's important to note that the settlement hasn't been approved yet, but it appears likely to receive approval. These are the two key points to focus on.
Firstly, buyer compensation will be advertised outside of the MLS. This means it could be promoted anywhere, with broker websites being the most probable location. There may also emerge third-party portals such as BuyerAgentCommission.com, but we'll have to wait and see. Either way, the compensation is going outside the MLS.
Secondly, the major change, which I see as a positive for consumers, is the requirement for a buyer's agreement before viewing homes. While I acknowledge that the additional step and paperwork might not necessarily be viewed as a benefit, I believe that what truly benefits consumers is when buyer agents take the time to slow down the process and conduct a thorough buyer consultation. This involves guiding them through the entire process from A to Z, providing an estimated closing statement, outlining the cash needed for closing, and offering tips and strategies for succeeding in this market. Once again, I think this rule change could greatly benefit buyers going forward.
Why Buyer Agent Commissions Are Here to Stay
There's been talk in the headlines about the disappearance or reduction of buyer agent commissions, but I find that scenario highly unlikely. My main reason for this belief stems from the Northwest MLS experiment conducted between October 2019 and March 2022, which lasted about 2.5 years. Essentially, this experiment allowed sellers to offer either zero commission or any commission they preferred to a buyer's broker. Over this period, 99.3% of sellers continued to offer a buyer broker commission, with 94.5% offering a co-op commission exceeding 2%.
Another reason I doubt the disappearance of buyer agent commissions is a recent survey conducted by 1000Watt. According to the survey, 70% of respondents still believe it's worthwhile to pay a real estate agent to assist with purchasing a home. Most people prefer not to pay for services on an a la carte basis. Sellers, for instance, wouldn't want to pay $500 for an open house to attract buyers, and buyers wouldn't want to shell out $100, $200, or $250 every time they visit a property or for viewings, inspections, etc.
Furthermore, many buyers may encounter obstacles if they attempt to handle transactions themselves. Engaging an attorney to draft a contract could incur fees ranging from $1,000 to $1,500, and attorneys, motivated by billable hours, may not prioritize streamlining the process. Delays in contract drafting, especially in multiple bid situations, could result in losing out on a desired property. Additionally, fees may escalate with each interaction, and if the buyer doesn't secure the home, they've essentially invested money without any tangible outcome. Most consumers prefer the simplicity of paying an agent upon successful completion, which aligns with the commission-based model. Consumers appreciate paying for results, making the commission model more appealing than a pay-as-you-go approach. The compensation must be adequate to attract competent agents and cover the risks associated with providing unpaid services.
Pros of Hiring a Buyer’s Agent
Let's explore the pros and cons of hiring a buyer’s agent.
One of the significant advantages of hiring a buyer's agent is representation. You have to ask yourself whether you want someone who has a fiduciary duty to get the highest price possible. This is often the case when dealing directly with the listing agent who may not also represent your best interests. If they're merely a transaction broker, focused on paperwork and compensated by the seller, their goal remains getting the highest price possible. Having someone negotiate on your behalf who prioritizes your best interests is crucial.
Another benefit is assistance in making informed decisions by considering both the pros and cons. While most people buy a home every 5 to 10+ years, experienced real estate agents assist buyers and sellers in transactions every month. Their wealth of experience enables consumers to make better decisions and potentially save money.
Navigating the home inspection process is also easier with a buyer's agent. In Alabama, we operate under a ‘caveat emptor’ principle, which means "buyer beware." Although manageable with professional guidance, there are nuances to consider. Knowing when to conduct a home inspection, interpreting the report, understanding negotiable aspects, and identifying areas beyond the inspection's scope require expertise. A real estate professional who deals with this daily can offer invaluable assistance.
Additionally, a buyer's agent can help navigate the paperwork efficiently. We handle this paperwork daily at Matt Curtis Real Estate, having helped over 7,000 families buy or sell their home. We know the best terms to use and when to use them to secure the best deal for you. If you attempt this process alone, you may need to hire your own attorney, which could result in additional expenses and potential complications due to their lack of experience in consumer transactions.
Furthermore, a buyer's agent can assist in locating homes. While many people search on platforms like Zillow and Realtor.com, a licensed real estate agent often has access to off-market properties. At Matt Curtis Real Estate, we have access to numerous off-market properties that haven't been listed yet. Working with us provides early access to these properties, potentially giving you an advantage over other buyers in the market. With the knowledge and expertise a buyer's agent provides, you have the opportunity to secure a better deal and navigate the market effectively, avoiding overpayment by solely relying on a listing agent.
Cons of Hiring a Buyer’s Agent
One of the downsides is the investment in a buyer's agent. Naturally, you get what you pay for, but selecting the right agent can save you money, while the wrong one could end up costing you. When you examine the agents across the Huntsville MLS, which comprises over 5000 agents, unfortunately, approximately 2,300 of them have only sold 0 to 1 homes in the last 12 months. That's nearly 46% of our local agents. Sadly, some agents may not provide the level of service worthy of the commission you pay them, so this is definitely a drawback. It's crucial to ensure you find the right agent.
How can you do that? You can check their sales records and reviews, which you can find on platforms like Zillow. There are various websites you can visit, but Google is particularly useful for checking reviews. Simply search for "top real estate agents in Huntsville, Alabama," or "real estate agent reviews in Huntsville, Alabama," and you'll find reports on who provides top-notch service, often earning five-star ratings. While one downside is the cost, hiring the right agent can ultimately lead to savings in the long run.
Another consideration is that home values aren't likely to decrease. Even if you opt not to pay a commission and try to navigate the process on your own, what does that mean for you as a buyer? It suggests that the seller likely pocketed additional profit, which doesn't necessarily benefit the buyer in terms of the home's value.
If you're contemplating selling your home this year, stay tuned for my next video discussing the pros and cons of offering a buyer concession.
Posted by Matt Curtis on
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