How Does A Buyer’s Agent Get Paid?
FEBRUARY 3, 2019
Are you thinking about buying a home but not sure whether you should use a buyer’s agent? You may be wondering, what does a buyer’s agent do, how much do they cost, and why should I use one?
Step 1: Helping you determine your budget
A buyer’s agent’s first goal should be to help you determine your budget. If you are planning on using a mortgage to finance the purchase of your new home, your buyer’s agent should introduce you to a trusted lender who will pre-approve you for financing.
Step 2: Narrowing down the options
Once you have a budget in mind and are pre-approved for financing, the next step is to prioritize what you are looking for in a home. Are you interested in a particular number of bedrooms or bathrooms? Do you prefer a certain style of architecture? Are you open to older homes built in previous decades or do you only want to consider homes built in the past 5 years?
After these questions are answered, your buyer’s agent should determine what you are looking for in your ideal neighborhood. Do you prefer an urban, suburban, or rural neighborhood? Are you looking for a neighborhood that is family-friendly with a great school district or are you interested in a neighborhood filled with young professionals and a great nightlife?
Now that your agent has an idea for your budget and preferences, they will search for available inventory using a system called the Multiple Listing Service or MLS. This system will allow your agent to see all of the available listings currently on the market and help them filter listings that meet your criteria. Your agent will then send you a list of between 10-20 listings that meet most of your preferences. When you review the list of homes, you should keep track of which ones you would like to tour and let your agent know so that they can set up a private showing on your behalf.
Step 3: Scheduling private showings
Your agent will then accompany you to each private showing and as you are touring the property, a good agent will point out small details you should take note of such as the condition of the HVAC. A good agent will also help you make the right decision. For example, if you have a dog and one of your ‘must-haves’ is a fenced in yard, don’t get discouraged if a particular home’s yard does not have a fence. Perhaps the home meets all of your other criteria and at the end of the day, adding a fence is a fairly straightforward and inexpensive upgrade you can make if you decide to purchase the home.
Step 4: Making the right offer
At this point you’ve found a home that you love! How do you know what price you should offer the seller? What if there are other buyers interested in the property? This is where using a buyer’s agent becomes extremely important. Your agent should first determine what a fair price for the property is, independent of the current list price. They should use recent sales in the neighborhood and choose comparable homes with similar features and characteristics at which point they should determine the average price per square foot of those homes. Making a good offer goes beyond the offer price. Are you offering to pay cash or will there be a financing contingency? Do you include a contingency stating that you must sell your current home first? How are you going to split the closing costs?
Step 5: Navigating the closing process
Assuming your offer is accepted, your agent’s final task is to help you through the closing process. They should make sure that the inspection comes back clean and they will work alongside the title company to ensure everything goes off without a hitch.
How much does a buyer’s agent cost?
In the United States unlike other countries, the buyer’s agent is compensated from the commission that the seller pays. Taking a step back, when you sell your home, traditionally your listing agent would have you sign a listing agreement where the total Realtor commission amounts to 6% of the sales price of the home. This 6% commission is split evenly with 3% going to the listing agent and 3% being offered to a buyer’s agent to incentivize them to bring their clients to the listing. This means that as a buyer, there is no out-of-pocket cost to using a buyer’s agent to help you through the process.
Why should I use a buyer’s agent?
Using a buyer’s agent is important because the stakes are so high. For most families, purchasing a home is their single largest investment and while hiring a Realtor who is a friend of the family can seem like a good idea, it’s important to make sure they are experienced. We suggest hiring an agent who has successfully completed at least 15 transactions in the past 12 months.
We also advocate interviewing multiple agents so that you can get an idea for what services they offer. For example, while nearly all agents will have access to the same inventory via the Multiple Listing Service (MLS), some firms, such as Felix Homes, offer a free moving service so that you don’t have to go through the hassle of hiring a moving company or, even worse, taking the DIY approach.