Getting Paid To Buy a House
Two years ago we bought a house for the first time. When the process was done, our real estate agency paid us nearly $3, 500. If we had done things slightly differently, we might have got almost twice that amount back. Buying a home can be expensive and daunting, but getting money back at the end makes it a bit sweeter.
When someone sells their home with a real estate agent, they agree to pay a a large percentage (up to 6%!) of the sales price as commission. The selling agent takes half of the commission, and pays the other half out to the buyers agent. The person selling their house incurs a large transaction cost, the buyer thinks they get a free service(they didn’t, it’s worked into the price), and the agents get rich.
As a buyer, if you work with an agent who is willing to give you part of the commission they receive, then you can benefit from the sellers loss. Here it is nicely explained in a graph from the Department of Justice
The Department of Justice care about this because the real estate industry has been known to abuse their monopoly in multiple countries in order to keep their commissions flowing, and has lobbied in many states to prevent the practice of buyers receiving commissions rebates since it would eat into their profits.
If you’ve ever been curious why real estate agents haven’t vanished like other middle men (think travel agents), it’s because they exist at both sides of the transaction: If you try to sell your home without a sellers agent and try to avoid paying any commissions, buyers agents can have their clients avoid you; if you skip using a buyers agent, the selling agent will still gladly take the entire commission from the seller. Other middle men like travel agents and car dealers don’t have the power to control the market by representing both buyers and sellers and so the internet has been helping to eliminate them, reducing transaction costs and increasing efficiency, while real estate agents profitably hold on. What other industry gets away with skimming 6% off the top of every transaction?
As a buyer you can profit from this mess by working with an agent that will rebate you part of the commission. If you can’t beat them, join them. Choices include:
- Redfin – Major markets nationwide
- Hungry Agents – Major markets nationwide
- Places – Bay Area
- Findwell – Seattle
- Many Local Agents – Around the country
We used Redfin as first time buyers and the experience was great. If you are as clueless as we were going into the process, I recommend reading the entire Home Buying Guide they put together, even if you don’t plan on using Redfin as your agent. It details everything in the home buying process, mortgages, mortgage brokers, making an offer, etc.
Redfin has a strong presence in our West Coast market, and the agent we worked with was quite knowledgeable. A Redfin agent can take you to see houses, like a traditional agent, but we found it was much more efficient for us to find the houses that we were interested online ourselves and attend the open houses on our own schedule. The agent stepped in when we were ready to make an offer, and the help was appreciated as that part was all new to us.
The agent didn’t offer any direct advice on how much to offer for each house. Her advice came down to “offer what you are comfortable with, but no more”, which is probably good advice in general (we appreciated the low pressure approach), but not always helpful in a hot market. We did end up offering not more than we were comfortable with, and the agent helped us with suggestions to make our offer more attractive (removing certain contingencies, including a rent-back period). Our offer got accepted and it wasn’t the highest bid, so she must have done something right.
Completing the offer and entering escrow with Redfin was a straightforward process. This is where I really appreciated working with an online team-based agency. Almost everything was handled online, by email, and with electronic signatures. This process was very smooth, and the extra hand-holding they provided did make me feel better.
We would think of using Redfin again and do recommend them to others, including first time home-buyers. The rebate Redfin gives you is based on a sliding scale, and I think it’s possible to find agents who will rebate you a larger percentage. If we where in the market for a house again, we might first check Hungry Agents to see if we could find an agent who would rebate a larger portion of the commission. Hopefully if enough people did the same, there would be a race to the bottom in transaction costs that would benefit everyone!