As a Listing Agent, I Used to Think Buyer Agents Were Overpaid, But Not Anymore

Fourteen years ago, when I started listing homes, I thought that buyer agents got too big a share of my listing commission.  I would list a home for, say, 5.5%  or less (in order to win the listing), but be locked into giving 2.8% — more than half — of that listing commission to the agent who brought the buyer.  Once I tried offering 2.5%, but found that fewer agents showed my listings, so I went back to 2.8%.

Here I was, spending money and doing most of the work — listing, advertising, holding open houses, printing brochures, buying the signs, paying for the showing service, and so much more — and an agent who does little more than show the listing and write the contract gets more than I do at the closing table!

I don’t feel that way any more, especially after representing many buyers in this two-year-old seller’s market.

As in the past, I earn roughly half my income from working the buyer side of transactions, but it can become a long, drawn-out process, showing scores of homes and writing many contracts before reaching a closing table and getting paid my commission.  And the lower the listing price, the longer and more frustrating the process, because those are the listings which attract the most bidders.

Sure, there are those occasional transactions which come easy.  Maybe I spend one day showing a few listings, write a contract, and I get my buyer under contract.  More typically, however, I’ll show 10 or more homes before I write the first offer, lose out to a higher bidder, show more homes, submit another losing offer and maybe repeat this cycle a half dozen times before getting an accepted offer. 

Don’t get me wrong — for every two or three difficult buyer transactions, there is a straight forward one to make up for it, but if it weren’t for those occasional easy transactions, I don’t know how a buyer’s agent could survive financially — or emotionally!

Sad to say, the struggle to capture a home against competing buyers is particularly hard for our veterans who take advantage of zero-down-payment VA loans.  Just this month we are closing two transactions for buyers using VA loans, and it was a long, hard road for both of them.  FHA buyers, who can borrow 96.5% of the purchase price, have it nearly as hard.

The reason is that sellers wisely accept cash offers or offers using conventional loans (with 20% or more down payment) over buyers taking advantage of these government loan programs.  The reason is two-fold — over and above the obvious element of financial strength.

Both reasons have to do with appraisal. In this seller’s market, it’s not uncommon for homes to sell for more than their appraised value.  A cash or conventional buyer will usually agree — and even insert it in their contract — that they won’t demand a price reduction if the appraisal is low.  A buyer who is putting nothing or 3.5% down may not have that luxury.

More importantly, though, both FHA and VA appraisers make their appraisals contingent on certain health and safety repairs about which the buyers themselves may not care.  Included are such things as scraping and repainting trim with peeling paint (no bare wood is allowed), or installing hand rails on stairs.  As much as sellers may want to “support our veterans,” you can see why they choose cash or conventional buyers over FHA or VA buyers. 

Remember, agents are only paid at closing, and often a buyer’s agent will put in months of effort, show countless homes, write several contracts and never see a paycheck because the buyer gives up.  All that work for nothing!  That’s another reason I no longer think buyer agents are overpaid.

Published Jan. 21, 2016, in the YourHub section of the Denver Post and in four Jefferson County weekly newspapers.