First time home sellers looking to save money always seem to think that a For Sale By Owner buyers agent commission is a misnomer. We’ll explain this this article why a buyers Realtor is still relevant today despite the advent of popular property search websites and what you can still do to save on commission.
What Is a Buyer's Agent in NYC?
A buyer’s agent is a representative of a home buyer who assists in all aspects of the home buying process, from searching for properties, organizing tours, to submitting and negotiating an offer and guiding the buyer all the way to closing day. A buyer’s agent exclusively works for and represents the interests of the buyer versus a listing agent who may be representing both parties under dual agency.
Even though 98% of all home buyers today start their search on the internet, 90% or more of all buyers still end up being represented by a buyers Realtor in NYC.
That’s because there are over 50,000 licensed real estate agents in the NYC metro area, all of whom are potential buyers’ agents offering what amounts to a free concierge service. What New Yorker doesn’t have at least 5 real estate agent friends they can go to?
Furthermore, the rise of popular consumer property search websites has not diminished the role of buyer’s agents, it has only made their jobs easier. Just because a first time home buyer most likely begins his or her search on the internet does not mean they’ll turn down the free services of an experienced buyer’s broker to hold their hand throughout the process. Furthermore, many working New Yorkers are so busy that they still rely on their buyers Realtor to search for and send them listings that perfectly match what they’re looking for.
Why Is a Buyers Realtor Important for Sellers?
A buyers Realtor is a home seller’s friend because the buyer of the seller’s home will most likely be represented by a buyer’s agent. As a result, it’s critically important to engage these buyers agents who represent 90% or more of all property buyers in NYC.
The importance of buyer brokers increases as the price of the property for sale increases. That’s because wealthy buyers, luxury home buyers, investors and foreign buyers of NYC property are almost universally represented by agents.
These types of buyers are generally either savvy enough to know that the services of a good buyer agent are free, or simply don’t have enough time to search on their own. Learn more in our article on how to sell a luxury home For Sale By Owner in NYC.
Therefore, wouldn’t it make sense for you to offer a For Sale By Owner buyers agent commission for the sake of option value? A typical For Sale By Owner buyers agent commission may make complete sense if the international all cash buyer a buyers Realtor brings you is willing to pay 10% above your asking price. If however, you decided against offering any For Sale By Owner buyers agent commission or even if you offered too low of a For Sale By Owner buyers agent commission, you may never hear from that buyer’s agent or his client at all.
Keep in mind that as a For Sale By Owner or Agent Managed FSBO seller, you’ll never have to pay the commission you offered to buyers’ agents unless you close with a represented buyer. Furthermore, you’ll never have to accept an offer just because it meets your asking price. If you don’t like the fact that you’ll have to pay a For Sale By Owner buyers agent commission on a represented buyer’s offer, then simply counter at a higher price to make up for the For Sale By Owner buyers agent commission.
Who Pays the Real Estate Agent in NYC?
As you’ve probably figured out by now, the services of a buyers Realtor are always free. In fact, home buyers in NYC are almost always free agents and exclusive buyers agents and Exclusive Right to Represent agreements are almost nonexistent in New York City. This is because of the extreme level of competition between the over 50,000 licensed real estate agents in NYC for home buyers.
However, just because formal contracts are virtually nonexistent between buyers and their agents does not mean buyers are not relying on the services of their agents.
Since buyers are never expected to pay commission, it must be obvious that a buyers Realtor will not work for free. As a result, a buyers Realtor will never show a For Sale By Owner property that is not offering a For Sale By Owner buyers agent commission.
Furthermore, even if a seller is offering a For Sale By Owner buyers agent commission, it must be properly co-broked in the local MLS for it to be contractual and credible. Otherwise, a FSBO seller promising to pay buyers agents in the description of his or her For Sale By Owner listing will not get a second look from a buyer’s agent representing a real buyer. That’s because the buyers Realtor runs a real risk of being cut out of the deal (i.e. the buyer could just Google the address and realize that the property is being sold direct by the owner), even if the seller agreed to sign a custom FSBO commission agreement.
So not only is it highly risky for a buyers agent, it’s also more work to sign an one time showing agreement for each FSBO property they show. Why bother when over 96% of all properties on the market are properly co-broked in the local MLS by other agents?
For Sale By Owner Commission to Buyer's Agent
While there is no standard For Sale by Owner commission to buyer’s agent, there are average commission rates that brokers with access to the local MLS can easily verify. The average buyer agent commission percentage will vary depending on which part of New York your property is in. From our experience, the average buyer agent commission percentage in New York City ranges from 2.5% to 3%.
However, we have seen multiple instances of buyers agents protesting when the co-broke is lower, such as 2%. The buyer agent commission percentage can be lower outside of New York City, for example if you’re selling a home FSBO in Westchester.
For example, it’s common to see 2% buyer Realtor commission on the HGMLS which covers Westchester NY. In the same vein, it’s common to see lower buyer Realtor commission averages in eastern Queens or Long Island which is covered by the Long Island MLS. Lower commission rates outside of New York City can partly be explained by the fact that listing brokers don’t usually have to show the property, but instead rely on lock boxes to let buyers Realtors and their clients in.
While it’s important to disclaim that commissions are negotiable for sellers before signing an Exclusive Right to Sell listing agreement, it’s equally important to understand that buyer broker compensation is not negotiable once it is listed and contractually co-broked in the local MLS.
Remember that the whole point of listing your home on the MLS (RLS1 for NYC customers) is to offer a credible, contractual offer of commission to buyers’ agents so they will not hesitate in showing your home. As a result, you can’t haggle on the commission after it’s been listed in the MLS. Whatever commission is listed is contractual, and if you do change the commission offered, it will only apply to buyers agents who inquire on the property after the change has been disseminated. The previous rate would still apply to agents who had already inquired on the property.
1The RLS stands for the REBNY Listing Service, and is effectively the NYC Multiple Listing Service (MLS).
Why Is the Buyer Realtor Commission Not Included in the 1% Listing Fee?
Sellers who have signed up for our Full Service for 1% listing service will only pay 1% in seller’s broker commission when the buyer is represented. However, it’s important to understand that you will have to compensate the buyer’s agent as well. The 1% commission to the listing broker is not split with the buyer’s broker.
As previously discussed, it is in your best interest to offer a market rate buyer Realtor commission in the MLS (RLS for NYC customers) so buyers’ agents will show your property.
Therefore, your total cost for our 1% for Full Service listing option will be 1% commission to the seller’s broker, plus whatever you decide to offer to buyers’ agents.
If your full service listing broker finds a direct buyer, you’ll save even more money by having the 1% seller broker commission waived.
In the case of a direct buyer, your listing broker will only take the buyer Realtor commission on offer. This can amount to 50% or greater in savings on a traditional, full service listing.
Please understand that a direct buyer is worth on average 2.5% to 3% on any other listing in New York City. As a result, it simply wouldn’t make sense for your listing broker to do double the amount of work (representing both the buyer and the seller) yet feel like they are shooting themselves in the foot by taking less on their own listing.
Waiving the 1% seller broker commission for a direct buyer aligns everyone’s incentives in the least expensive manner. Your listing broker will be incentivized to find a direct buyer because they will earn more, and by doing so you will also save on commission!
Disclosure: Hauseit and its affiliates do not provide tax, legal, financial or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, financial or accounting advice. You should consult your own tax, legal, financial and accounting advisors before engaging in any transaction. The services marketed on Hauseit.com are provided by licensed real estate brokers and other third party professional service providers. Hauseit LLC is not a licensed real estate broker nor a member of any multiple listing service (MLS).