5 Key Factors that Will Help You Understand the Importance of a Buyer’s Agent

Every new real estate investor soon comes to grip with the realization that the purchase of a property can be a daunting and sometimes complicated process.  Does everything start with the actual offer on the property?  Sadly, the answer really starts much sooner.  Before you ever purchase a property, you need to be able to determine if the property in question is the best property and if the price you are willing to pay is the best price.  Assuming that it is the right property, the price then becomes even more important.

It’s entirely possible that you have heard of a “buyer’s agent” and been a little confused.  Many new real estate investors mistakenly believe that if you automatically call the number on a listing sign, you will have an agent that will work in your behalf.  Nothing could be further from the truth.  That agent has signed a contract to work for the seller and to do everything in his or her power to represent the seller.  Nowhere in such listing contract does it say that the listing agent will work to represent the purchaser of the property.

It’s time to understand just how important a good, well-qualified, and knowledgeable buyer’s agent can be.  The term “agent” comes from the concept of “agency” which generally means an action or intervention to accomplish a certain result.  Thus, a buyer’s agent refers to the action of purchasing a property for the benefit of the buyer.  When you engage a buyer’s agent you are engaging someone who is going to work for you, negotiate for you, and stand in your best interest.

As a real estate investor, you should ask yourself if you really need a buyer’s agent.  In order to answer that question, step back a moment and ask yourself these three questions:

  • Do you want to lower the purchase price of the subject property?
  • Are you confident that you can negotiate the best purchase price possible?
  • Do you know who is representing you in the transaction?

Once you answer those questions, you will probably come to the conclusion that you might need additional help to secure the best deal.  That help can come through a well-qualified buyer’s agent.  If you are ready to become a better real estate professional who secures the best deals, you need to consider the following factors about a real estate buyer’s agent.

 

Key Factor #1 – Understand the Benefits of Using a Buyer’s Agent

There are major benefits a real estate investor can receive when using a knowledgeable and well qualified buyer’s agent.  The only real negatives generally appear when an investor has chosen an agent who is not knowledgeable or qualified.  With that caveat in mind, let’s look at several ways a buyer’s agent can benefit you, the purchaser of the property.

  1. Locating the best property. The first thing you need to do is to decide what type of property or real estate strategy you are going to pursue.  Are you going to search for “fix up property”, “potential rental property”, “raw land”, or some other type of property?  You need to determine exactly what type of property you are searching for.  Once you have done this, you will need to pass on this information in specific detail to your selected buyer’s agent. (Later in this article, we’ll discuss how to find and identify a good buyer’s agent.)

Your buyer’s agent needs to be able to distinguish between your wants and needs.  You should let the agent know exactly what you are trying to accomplish.  When you do this, your buyer’s agent will schedule appointments to view the properties and should be able to provide you with advance information regarding both the properties preliminarily selected along with critical facts about the neighborhoods.

  1. Negotiate the offer. This is a major benefit for you, the purchaser of the property.  The buyer’s agent will act as a third party and eliminate uncomfortable situations between yourself and the seller.  Keep in mind the fact that the listing agent of the property is contractually bound to represent the seller of the property.

The buyer’s agent can suggest appropriate starting offers and terms that might be acceptable to the seller.  In all likelihood, these terms might not be the price and terms that the listing agent is offering.  A good buyer’s agent will have researched other sales in the neighborhood and be prepared to have reasons for the price and terms you are offering.  This negotiation is generally made directly between your buyer’s agent and the listing agent.  Once the offer is accepted, the buyer’s agent can help and assist in drafting up the final closing documents.

  1. Recommend and find other real estate professionals. Depending upon the exact strategy that you will be employing, it is very possible that you might need the help of a well recommended contractor, mortgage broker, real estate attorney, appraiser, property inspector, mover, or other professional.  Your buyer’s agent should be knowledgeable about these individuals and be able to provide resources to help close and finalize the purchase of the property.  Having this information in a timely fashion will help you overcome obstacles that often appear when purchasing property.  It may be something in the home inspector’s report, be an appraisal problem, or some other setback.  When you have knowledgeable experts at hand, you are in a position overcome setbacks or obstacles that derail your investment strategy.

SEE ARTICLE: How to Convert Stumbling Blocks into Stepping Stones

 

Key Factor #2 – Understand the Difference Between a Buyer’s Agent and a Seller’s Agent

You must not believe that the buyer’s agent and the seller’s agent are one and the same.  They are not. When you use the seller’s agent (the listing agent) to negotiate on your behalf, you are positioning yourself in an untenable situation.  The buyer’s agent is working for the purchaser of the property, while the seller’s agent (the listing agent) is working for the seller.  Yes, you want to buy the property and yes, the seller wants to sell the property.  The difference is that you want to purchase the property at a price and terms that make sense for you, while the seller is trying to maximize the sales price on the same property.  In most cases, these goals are not the same.  The seller’s agent is bound by fiduciary responsibility to represent the seller, and not you.

Who do you want representing you?  Do you want the seller to know the absolute highest price you will pay before you even present the offer?  If you elect to use the seller’s listing agent to negotiate for you, you have already lost the negotiation issue.  Let’s take an example from the real world.  If you owned a rental property and your tenant was injured while repairing his motorcycle in your garage and sued you because your garage didn’t provide enough safety equipment, would you want the tenant’s lawyer representing you as well as your tenant?  I’m sure the answer would be a resounding “no”.  The same thing is true when negotiating with a seller.  You don’t want someone bound to and reporting to the seller to be representing you, the buyer.

 

Key Factor #3 – Determine How to Find a Good, or Even Great, Buyer’s Agent

Before you look for a good buyer’s agent, you must decide if you want to use one.  Once you make this decision, you must become very selective in the process.  What you don’t want to do is to choose someone who is not qualified or knowledgeable.  You want to find someone who understands the role he or she will play in the property purchase.

The first thing we recommend is that you immediately disregard the listing agent as a potential buyer’s agent.  The listing agent is legally bound and responsible to the seller of the property.  With this being the case, how can that individual represent you as a buyer’s agent?  You can be choosy when selecting the buyer’s agent.  You may receive recommendations to use your sister’s uncle or some family relative.  While it is difficult to say no to these type of recommendations, it is usually wise to do so.

What you are looking for is someone who truly understands the role of a buyer’s agent and is prepared to fulfill the responsibilities that come with this opportunity.  You can search online for “buyer’s agents” in your specific locality.  It is also possible to get recommendations from other friends who have purchased property using a buyer’s agent.  We suggest that you get several recommendations and then interview these individuals and find out how knowledgeable they are.  During the interview process, try asking these questions of each individual:

  1. Do you accept listings? If the agent does accept listings, this means that he or she is automatically working for the sellers of those properties.  Great buyer’s agents specialize in working with buyers and don’t accept listings from sellers, thus avoiding conflicts of interest.  If the agent accepts regular real estate listings, the agent is basically saying that he or she is working as a dual agent.  Does this sound like what you want?

A final note about agents who work as “dual agents”.  It is not illegal to have an agent work on your behalf as well as for the seller of the property, but when you do, you are competing against yourself.  When an agent agrees to show you a property where he or she is the listing agent, that is exactly what you are doing.  Many real estate professionals have found it more profitable to contract with a buyer’s agent and have that agent contact the listing agent.

  1. What type of properties do you specialize in? In order to increase your success in real estate, you need to find a buyer’s agent who both understands your specific real estate strategy and has had experience in finding these properties.  When your buyer’s agent has past experience, the learning curve will be shortened.
  2. What neighborhoods do you specialize in? You want to find an agent who is familiar not only with the type of property you are interested in, but, knows the area very well.  Hopefully, you will find an agent who has both the experience as a buyer’s agent, but also has experience on a personal basis.
  3. Are you working part or full-time? You need to understand from the beginning how much time the individual will have to devote to scheduling and showing you properties.  If the agent is working only part-time, ask very specific questions as to the availability he or she will have to working with you on your schedule.
  4. What references can you provide? You would be well-served to have references from other real estate purchasers who have used the agent.  You might also ask for references from other professionals like appraisers, mortgage brokers, or home inspectors.  Once you get a list of references, follow through and talk to each of them and ask their professional opinion of the agent.

 

Key Factor #4 – Understand How the Buyer’s Agent Gets Paid

The first question that often comes to mind is “Who pays the buyer’s agent?”  In most cases the fee paid to the buyer’s agent comes from the actual sale of the property.  When the property owner lists the property, he agrees to pay a real estate commission of 5 to 6 percent of the purchase price of the property.  The fee is paid through the listing broker and is generally split 50/50 between the listing broker and the buyer’s agent broker.

Most people say that the seller is paying for the buyer’s agent because the money for the buyer’s compensation comes from the sale of the property.  When you analyze the situation more closely, you recognize that the actual money comes from the payment made by the purchaser of the property to the seller.  Yes, it comes from the seller, but only after the buyer has actually paid the money to the seller.

Professional buyer’s agents have a contract they sign with you, the purchaser, of the property.  This is done when you engage the professional buyer’s agent and is called and Exclusive Buyer Agency Agreement.  The contract between yourself and the agent specifies what he or she will do on your behalf.  Before you sign such an agreement, make sure that you are satisfied with the agent.  The buyer’s agent will work for you.  You must be satisfied that he or she is just what you want.

The agreement is generally for three to six months and can be cancelled by yourself if you are not satisfied with the agent.  Many of these agreements have a clause that states you will pay a minimum amount (often $2,500) from any purchase arranged and negotiated through the buyer’s agent.  This fee comes from the listing commission paid through the seller of the property.  In the case of properties offered “For Sale By Owner”, the fee could be paid separately, or the buyer’s agent may get the seller of the property to pay the fee.

 

Key Factor #5 – Understand the Role of a Credible Professional Buyer Agent

There is an organization that is known as “The National Association of Exclusive Buyer Agents” and is known as (NAEBA).  This organization is a membership organization of buyer agents.  The organization selects agents who don’t accept listing contracts with sellers as the listing contract makes them responsible to the owner and creates an immediate conflict of interest.

You can search for the best buyer’s agents in your specific area by using a search engine and searching for the terms:

  • Real Estate Buyer’s Agents
  • Buyer’s Agents
  • Professional Buyer’s Agents

Try matching the terms with your specific locality and you will find buyer’s agents in your area.

A final word to the wise.  There are always two parties to a real estate transaction – the buyer and the seller.  As a buyer, you want the best price possible on the best property available, according to the best terms you can negotiate.  Consider strongly searching out a knowledgeable and professional buyer’s agent to accomplish your goals.