Buyer’s Brokers
July 4, 2008
Somewhere along the line while I was learning the tricks of the trade as a real estate Broker, I discovered that I had been working for the wrong side of the deal. A Broker typically represents a seller by getting a listing, then trying to sell it. To do this he incurs a fair amount of expense consisting of office overhead, advertising, and attracting buyers in competition with all the other Brokers.
The buyers are prone to flit between Brokers, so the first thing the salesman learns is to try to build rapport with the buyer by being available when needed, picking up lunch and drink tabs, and offering a lot of free advice about the area and the market. Hopefully the buyer will then feel obligated to complete a purchase using the Broker who has tried so hard to please him or her. The seller who listed the house if often forgotten in this process even though he is paying the Broker.
I always thought something was inherently wrong with this arrangement, then I heard about buyers’ brokerage wherein the Broker is hired by the buyer to find a house that suits his heeds at a price he is willing to afford. The neat thing about this is that the Broker’s overhead shrinks down to pennies on the dollar.
Because he isn’t looking for buyers, he doesn’t have to run any ads, answer the telephone 24 hours a day, doesn’t have to maintain an office or haul people all over town looking at homes. He can spend his time finding the house that the buyer will like.
After finding a house for a buyer, then having him “go around” me and buy the house without paying me, I started placing the buyer under contract with a non-contingent up-front fee equal in today’s dollars to $4000. For this, after spending a lot of time making sure I understood what kind of house the buyer wanted to buy, the price he was willing to pay for it, and his capacity to qualify for any needed loan, I guaranteed that I would produce at least three houses that met his needs in return for the $4000; and further, these houses would never cost more than they would have if the buyer didn’t use me as a buyer’s Broker.
Buyers are often pressured to buy houses that don’t really meet their needs. By using me as their buyer’s Broker, there would be no pressure of any kind, but if he bought a house, I charged a 10% commission against which the $4000 would apply. If he failed go buy a house, I kept the $4000 fee and we each went our ways, or he paid me another $4000 and we looked at three more houses.
Continued next time
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