Why Homebuyers Shouldn’t Bank On Saving $10,000 by Not Working with a Buyers’ Agent as President Biden Recently Suggested
In a recent speech about lowering housing costs for American families, President Biden said:
“In addition, last week the National Association of Realtors agreed for the first time that Americans can negotiate lower commissions when they buy or sell their home. (Applause.)
On a typical home purchase, that alone could save folks an average of $10,000 on the sale or purchase.
I’m calling on Realtors to follow through on lowering their commissions to protect homebuyers.”
That probably sounds pretty amazing (and official) if you’re a potential homebuyer!
Unfortunately, for both homebuyers and agents, it’s not accurate.
It’s unfortunate for buyers because it’s unlikely that the recent proposed settlement he’s referring to will actually result in $10,000 savings for them, because achieving those savings would depend upon a lot of factors. Yet it sounds like a slam dunk promise. It’s unfortunate for agents because those remarks make it sound like commissions were never negotiable until now, even though they already were. And it sets unreasonable expectations for homebuyers that agents will potentially be blamed for not helping them achieve. For starters, $10,000 may be a nice round number, but it’s also a random number. He didn’t provide any basis for that amount, and even if he did, there are too many variables for him to be able to make that claim. To be fair, he said “up to,” so that could allude to the savings being anywhere below that amount. But the reality is, buyers could easily focus on the $10,000 as an actual amount to expect.
How much you could possibly save depends upon many factors.
So, in order to avoid confusion, let’s take a look at 6 variables that make it impossible to claim that a buyer will save an average of $10,000 when purchasing a home:
1. It depends upon the commission amount typically being offered to buyers’ agents
While people outside of the industry often believe that commissions are a “standard 6%,” they’re not. (According to Statista, the average real estate commission hasn’t even reached 6% since 1992, and they vary from year to year.) More importantly, the portion of the commission offered to a buyers’ agent varies from one area of the country to another, and from one house to another in your local market area, and even depends upon the current market conditions. So there’s not even a specific commission amount you can use to begin doing the math accurately.
2. It depends upon the price range you’re buying in
The “average” buyer varies from one area of the country to another, and from one area of a state to another. So, for example, you could be buying in a higher-than-average price range for your area, but if it’s less than the “average” home prices the $10,000 amount was based upon, that amount of potential savings is unlikely.
3. It depends upon you not working with a buyers’ agent, and representing yourself
The President’s statement suggests that the agents’ fees will be cut by $10,000 on average. While commissions may seem “high” to those outside of the industry, many agents don’t even come close to $10,000 commission checks on average. In many cases, based upon the $10,000 number, you’d actually have to get a buyers’ agent to agree to pay you for the pleasure of helping you! Unless you can negotiate with a buyers’ agent to agree to work with you for an extraordinarily low fee, or for free, the suggested savings would have to be achieved by not having to pay a buyers’ agent for their services.
4. It depends upon you negotiating the best possible price for the home
Saving $10,000 by forgoing the help of a buyers’ agent also hinges upon you truly understanding what the market value of the home you’re attempting to purchase is, and successfully negotiating the best possible price for it. You could easily lose as much money as you’re trying to save (or more) by not knowing values well enough, or not negotiating as well as an agent would on your behalf.
5. It depends upon you even successfully buying a house
In order for savings to be achieved, you need to have successfully purchased a home. In many areas of the country competition is fierce between buyers. There are too few houses for sale, and more buyers than there are houses to choose from, which creates bidding wars. It’s often difficult for buyers to have their offer accepted with an amazing agent representing them, so competing on your own against other buyers represented by agents could be even more difficult. (This becomes even more of an issue if a seller and their listing agent have more confidence that the deal will go from acceptance to the closing table without a hitch with a buyer who has an agent representing them, versus one who is unrepresented and doesn’t know the process.)
6. It depends upon you not costing yourself money by making mistakes throughout the transaction
It’s also possible to cost yourself thousands of dollars during the process of buying a home by not knowing what to do, or not to do in certain situations. The most likely aspect that could cost you money is in relation to any home inspection issues. Not recognizing something you should ask the seller to repair or replace, or not successfully negotiating for it, could cost you even more than you might be trying to save by not having a buyers’ agent represent you.
So, keep those things in mind if and when you hear anyone claiming you can save $10,000 (or any other amount) when you buy your next home. It may sound appealing to avoid working with a buyers’ agent for the promise of that much savings, but the representation of a great buyers’ agent is likely worth more than any amount you could save.
Think about it this way…
You can save money on the cost of a lawyer if you go to court by representing yourself. That might be fine if you’re just going to fight a traffic ticket. But if you’re going to court to sue someone else who’s represented by a lawyer, you’re probably not going to fare so well. You’d want someone who knows the process, and can get you the best results possible.
Same goes for when you’re buying a house…
It’s a large purchase, typically the largest one anyone makes, and not knowing what you’re doing can cost you more than the amount you could possibly save by not hiring a buyers’ agent.
So, rather than focusing on potentially saving money by not hiring one, focus on hiring the best one you can to help you negotiate the best results possible when purchasing your next home.
The Takeaway:
President Biden recently claimed that homebuyers could save an average of $10,000 due to the terms of a recent commission lawsuit settlement.
Unfortunately, it’s inaccurate and misleading, because there are several factors that make it impossible for that amount of savings to be guaranteed. Variables such as commission rates, property prices, negotiation skills, and market conditions, and the knowledge and skill sets of a particular buyer impact any potential savings.
Hiring a skilled buyers’ agent often outweighs potential savings. So, rather than focusing on potentially saving money by not hiring one, focus on hiring the best one you can to help you negotiate the best results possible when purchasing your next home.
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