On Brokers

If you're buying a house -- do you really need a broker? What are the pros and cons to having one?

So I'm planning on going thru my apartment-buying process without a broker. Why? Well -- because it may save me money. (haha, I'm being so Asian right now.) But seriously. When you buy property, you don't actually pay your broker out of your own money. Then how does the broker get paid? Out of the commission of the place you're buying.

So what is a broker/agent? Really these two terms are interchangeable. In the simplest world, brokers/agents help you get rid of or get a property. Selling agents help you do marketing, prepare materials and listing, negotiate deals, and basically everything necessary to sell your property. Buying brokers help you find properties, get historical papers, notify you of legal issues, and basically help you buy (or rent) a place.

For simplicities sake, I'll refer to selling agents/brokers as agents and buying agents/brokers as brokers.

So why is it easier to drive a bargain without a broker?

Say a seller puts their property on the market. If the owner is selling through an agent, they usually agree upon a range that the property can sell for and certain percentage (anywhere between 3-10%, even 15% for some agencies) of the selling price will go towards the commission pool. For example, say there's a house that is valued at $950K. The seller is optimistic and works out with his agent that they will place the property on the market for $1M. They also agree that the actual price that they sell for is flexible since the market sucks that much and the seller really needs to unload the property. Say the seller and the agent have also agreed upon 10% for commission, provided all services are completed satisfactorily. This means that the commission bucket could be around $100K.

Then, say a buyer then comes along with a broker and wants to purchase a property, the buying broker and the agent usually split the commission. So in our example, the agent would get $50K and the broker would get $50K.

However, if that buyer didn't have a broker, and bought that property for $1M, the agent would get the full $100K because he doesn't have to share it! That $100K is twice the amount that he was previously expecting from the sale of this property!

So, if the buyer without the broker decides that he wants to drive a solid bargain, he can ask the agent to talk to the seller for a bargain. The agent now is much more willing to ask the seller to lower the price of the house to $900K because even selling at $900K, the agent is getting $90K in commission (instead of $50K when he sells it to a buyer with a broker). Furthermore, when there are competing offers, the agent will also usually favor the offer from the buyer without the broker. The agent can then persuade the seller that the buyer without the broker is better b/c of the agreement on selling date, how fast they can move through the process, or other fine print in the contract.

It may be a little, but it also may be a lot. Once, my family purchased a place for almost 15% cheaper... my dad swears it's b/c they didn't have broker.

My reasons for when you should go into the market without a broker:
-when you're buying a previously owned property
-when you've got time before you have to buy
-when you're willing to let a couple nice places go by (b/c the agent wouldn't accept your ridiculous offer)

Reasons you *should* have a broker:
-if it's the first time you're going through the process, or have seen the process
-if you're scared of legal work - there's paperwork involved. if you're paranoid, it may be helpful to have the broker there for professional help. However if you're buying in the state of New Jersey, you're required to have lawyers on both ends to look over your papers -- so you may be ok without a broker to look at it for you. Legal assistance in exchange property deeds is different state to state
-when you're too busy to do the research yourself and want someone else to take you around to view places