Wednesday, May 2, 2007

Buying a House? Here's a Way to Save a Fistfull of Cash

Hot on the heels of Iggy's House (previous post Iggy's House) trying to shake up the real estate market on the seller's side, it's sister company BuySide Realty is trying to mix it up on the buyer's side. It's a pretty radical approach and something that I can guarantee will be fought tooth and nail by brokers everywhere.

Here's how it works. John is selling his house, he hires an agent, Bob, to show his house to people, list it on the MLS and negotiate. John's paying the broker a commission of probably around 5 or 6% for his services. What a lot of people don't know is that commission gets cut in half if another agent comes along representing a seller in the transaction. No so good for Bob, but John doesn't care because his house is getting sold at the same price and the more people out there looking for buyers the better. This buyer's agent commission fee is the reason why real estate agents love for you to sign that form that says they are representing you looking for a home.

BuySide Realty (and I'm sure as I write this other people are drawing up similar business plans), lets you keep the majority of the buyer's agent commission fee, 75% to be exact. Let's do a hypothetical. Say you are in the market for John's home which is selling for $250,000 and he is paying his broker a 5% commission. The total commission John pays is $12,500 and Bob will keep that if you aren't represented by an agent yourself. If you were represented, your agent would get around $6,250 for their services. If you do a little more legwork and find the home yourself then you can keep 75% of the buy side commission or $4,687.50. I don't know about you, but sounds good to me.

I know that I will get at least a few emails about the indispensable services that real estate agents provide and how buyers using the service will be left unprotected. I don't dispute the fact that agents offer valuable services, but the market has changed. I think the service and others like it are valuable because 1) there is a lot of market research out there now even if imperfect like Zillow (previous post Zillow) 2) real estate agents can't warrant the habitability of homes or conduct inspections for the buyer 3) the buyer is doing the leg work finding properties 4) BuySide provides an agent for the process even if the agent provides reduced services.

BuySide Realty
Image: Creative Commons Karen Apricot