Buying without a broker - What are the risks?

How did you find a place?

If the owner was selling him/herself, you contact the owner. If you saw it through a seller's broker, you contact the seller's broker.

Unless its FSBO, a broker will be getting money from the seller. It is extremely rare for the buyer to pay a broker's fee.

tobytoby: There's a short, simple answer to your question, and a long, complicated one.

The short, simple answer is that you can easily extend an offer by e-mailing the listing agent. State the amount you wish to bid, with any pertinent conditions such as a financing contingency, and any limitations such as a date and time on which your offer will expire. You may improve your chances of success by presenting your qualifications, financial or otherwise, but there is some disagreement as to whether this card should be played so early.

If you're bidding on a for-sale-by-owner property, the short, simple answer is probably the only one you need. If you are bidding on a broker listing, read on.

The long, complicated answer involves an evaluation of your particular situation, and how an agent might be able to help - either by getting you a better deal, or by helping you reach the finish line, or some combination.

There is also some guesswork related to how much you actually save in commissions by NOT using an agent. The popular RE industry claim that "a buyer's broker is free" is a self-serving fiction, and an insult to buyers' intelligence. It is true, however, that you may wind up paying for the service whether you use it or not, because the full commission - 5%, 6%, whatever - tends to be baked into the deal even if there's no broker on the buy side. It's more difficult than you would imagine to get a lower price by going unrepresented.

The big advantage of not having an agent is that you become very attractive to the listing broker, who gets to keep the whole commission if you buy. That edge may get you a better price, or it may simply improve your chances of winning at your number.

The main risks of going it alone (assuming you have made a good choice of apartment) involve overpaying or missing material issues related to the deal or the property.

Full disclosure: I'm working with Keith Burkhardt on ways to improve the value proposition for buyers, so my views may be tainted by self-interest.

Clarification to the short, simple answer: if the property is FSBO, the e-mail goes to the owner, naturally, since there is no listing agent.

Call me old fashioned but I like to make my offer in person...rather than through email....but that's just me....

mjs--that's fine to start with, but you still need to present a written offer as well.

toby--more important than a broker is a good RE attorney--this is the person who will be responsible for due diligence and honing your contract should you get an accepted offer. If you have a decent attorney, you really don't need a buy-side broker, especially considering you've found the property on your own.

If the property is listed with an agent, you should contact that agent and tell him you're interested in submitting an offer. Most agents will ask for a written offer at the outset, but you might be able to begin with a verbal bid. You'll likely want to make your offer contingent on financing to avoid any nasty surprises down the road. The mortgage contingency can be used as a negotiating tool--if you're truly comfortable with going forward without it, you can tell the seller you'll dump it for a lowered price. This is the sort of thing you would, of course, need to discuss with your attorney. A buy-side broker would be completely useless here.

In response to those who might insist you should have a broker handle your negotiations, well, I beg to differ. We almost purchased an apartment last year and our broker was so timid in negotiations that the listing agent walked all over her. We couldn't dump her, of course, but I had to guide her along, telling her exactly what to say. It was tedious. And, ultimately the deal fell through.

If you are buying a coop you might want to hire an experianced broker on a consultant basis to help you with the Board application especially if the property is a fsbo. I have seen many of these direct deals fail due to a poorly prepared board application

I completely disagree with West81st street's comment that "the full commission - 5%, 6%, whatever - tends to be baked into the deal even if there's no broker on the buy side. It's more difficult than you would imagine to get a lower price by going unrepresented." My experience has been quite the opposite -- typically, when I've bid on a property without a buyer's broker, the seller's broker has been quick to offer to cut his/her commission (often by 3%).

I think you're more likely to want a broker involved in a coop purchase where navigating board requirements, etc., can be tricky. For a condo purchase a broker can be helpful as a sounding board, as a resource, etc., but is wholly unnecessary.

cgoodstein: Maybe you're right. Everything I've seen, heard and read suggests that the big brokeraage houses put great emphasis on capturing the full, unsplit 5-6% when they get the chance.

Let's also keep in mind who's paying whom. The commission is a contractual obligation between the seller and the listing agent. As a buyer, you can influence that arrangement, but you're not a party to it. I think the goal to focus on, as an unrepped buyer trying to get the best deal, is negotiating a price you're comfortable with. Leave it to the seller and the broker to decide how they divide up your money. If getting to your number requires cutting the commission rate, that's fine, but I'm not sure it's necessary or helpful in most cases for the buyer to drive that negotiation.

BTW, on my first purchase (longer ago than I'd like to admit), the listing agent made a big show of cutting his commission to close the deal, except it turned out to be mostly BS.

I can see some instances where a listing broker may be willing to reduce the commission to get the job done if there is no second broker. but, as west81st notes, there is absolutely no way you can tell. if your requirements are so flexible that there are a number of properties that seem to suit your needs (you don't mind the cookie-cutter post war, and i'm not dissing them unilaterally, i've seen some that have been redone to a relatively high standard), then throwing out a number of offers and seeing where things fall may make some sense. you won't know until closing (if i do recall all the amounts paid are available in the closing documents to both parties, west81st, correct me if the wiring is failing me).

some brokers are poxes on their houses and yours and your potential house. others are not. i have been offerred a great deal of value from my broker. and he knows me and what i want and need from him, and what i don't want and don't need from him. intelligence, humor, determination, care, and respect for my buying process (or just browsing process). that is a great broker.

I am thinking about buying a place w/out a broker. Already spoke to an attorney and it seems I am looking at about $5,000 or so if I use him. Lets double that amount to be conservative and say its $10,000. I intend to make an offer that will have two components: (i) the seller has to accept my price and (ii) the broker agreeing to rebate half the commission to me. If only one of the two conditions is accepted, the offer becomes void. On a $750,000 purchase, assuming a 6% commission, I should get back $22,500. Has anyone done this before? Any thoughts?

ukrguy: Why not just offer $722,500 and leave it to the seller and the broker to decide who gets what? By insisting that the last $22,500 comes out of the commission, you're reducing your chances of success by minimizing the paths to the desired outcome.

Another potential problem is that you're demanding a rebate from somebody who isn't working for you. The listing agent works for the seller, not the buyer, which may make the payment an illegal kickback rather than a legitimate rebate.

Illegal or not, ukrguy's little ploy sounds skeevy.

As a board member who reviews applications. Broker board application preparations for the owner are useless. You can do it yourself. In Manhattan, the buyer has a higher education than the broker. We have them do the work when you can do it better?

A seller's agent may be more likely to chose your offer over a competitive one due to the fact he will make a higher commission. In addition, the seller's broker should help you with the board package as it is in his or her best interest to make sure the deal goes through as well. Good luck.

"In Manhattan, the buyer has a higher education than the broker."

robocop, them's fightin' words. I went to school in Cambridge. With West81st, actually.

ali r.
{downtown broker}

I bought and sold 2 properties without a broker involved (sold one apt to my next door neighbor once, and bought my latest apt directly from the owner via an ad on craigslist ): NO PROBLEM AT ALL. I plan to sell this one on my own, in the future.
I did use a broker for a problem apartment once , it was defective (and expensive) and i thought that it would sell better by being represented, but after seeing the commission paid i somewhat regretted it

I had a seller's agent tell me flat out that they would take $40k off the price if I got rid of my broker. Another seller's agent told me the same for a diff property. If you are going to do it without a broker anyway, ask the seller outright if the price will improve "if you don't use your broker." you might be surprised!

ukrguy--

First, $5,000 is a very high attorney fee for this sort of transaction. $10,000 is completely out of the question.

Second, your offer strategy is flawed. Putting in a 'take-it-or-leave-it' bid, especially one that includes a highly unusual and legally questionable condition, is simply asking for a big, fat, FU from the seller. It is always better to leave room for negotiation; bullying at the outset only creates ill will and won't help you achieve your goal.

I think West81st's suggestion makes very good sense (in fact, depending on where the asking price is relative to the current market, you might want to start your bid even lower). You are far more likely to be successful in getting to yes if you give the other side at least the appearance of room to maneuver.

Front_porch is too kind. She was several years behind me, though our undergraduate years overlapped slightly. She also garnered much higher laudes at graduation time.

michael w.
{uptown geriatric}

PS to robocop: I'm not sure it really matters whether a buyer or her broker have better educational credentials. I'm sure you have a more impressive degree than the porter in your building; that doesn't mean you would do a better job of sorting the trash, or that you would even want to try.

Oops, that should be "...a buyer or her broker HAS" not "have". Ironic.

I have bought a number of times w/o a buyers broker. You do not need one.

We bought without a broker last Summer. It was the first time we bought in New York, so we had to figure things out on our own; at that time, however, we felt as qualified as anyone to negotiate the maze as the market flipped from seller's market to buyer's market. However, we decided to pursue an apartment where a very good broker was representing the seller. It worked out well. We paid less than the listed price on a condo that was priced "at the market," and we had a mortgage contingency. I'm fairly sure the seller's broker reduced his fee to the seller; the fee paid was just over 4% of the sale price. Our lawyer did the due diligence, etc., but charged a pricey fee (but still much cheaper than a broker). I agree with all who suggest reducing the price offered and letting the seller and the seller's broker work out the reduction in the broker's fee. As a buyer, you are not part of that agreement.

Question for glamma:
you posted: >>I had a seller's agent tell me flat out that they would take $40k off the price if I got rid of my broker. Another seller's agent told me the same for a diff property. If you are going to do it without a broker anyway, ask the seller outright if the price will improve "if you don't use your broker." you might be surprised!<<

Is it legal to just "not use your broker"? My husband and I have been working with a broker for 3 mos. We put an offer on an apt, counter-offered twice -- and the seller's agent then cut off negotiations abruptly. He's not allowing us to raise our bid, which seems strange -- why not allow a bidding war? (We have pre-qual letters from Chase and Bank of Am and have the financials to meet the co-op board requirements).

I'm 99% certain it's bcse the seller's agent has a buyer who has no broker, and so he will get the full 6% commission (about $45K total) instead of splitting it with our broker.

We really want this apt. Can I "get rid of my broker" now, and see if the seller's broker will allow us to raise our bid? Do we have a legal obligation to my broker? I actually found this listing (on streeteasy), but he did look at the apt with us. Or is this a moral/ethical question/obligation?

I am not glamma and I am not (by any stretch) a pro-broker poster. You can look at my history to see I am quite the opposite. That said, if you looked at an apartment with a broker, in my eyes - you can't ditch her now. That would be unethical, in my opinion. (begs the question: why would you find an apartment on your own and then invite a broker to go see it with you?)

The brokers should chime in as to whether or not the listing broker is behaving ethically/legally. I believe he/she is not. I would be more inclined to leave a note with the doorman directly for the seller and explain that communication with the broker has ceased and you'd still like to bid on the apartment. Not to cut out either broker but to simply force the listing broker to play ball with you/your broker.

He's not allowing us to raise our bid,

Instruct your broker to make the offer directly to the seller/owner. Maybe they should get rid of their broker.

Scoots - thanks for your response. In fact, we did leave a letter for the seller a few days ago, saying that we still wanted to bid and were confused/surprised that their broker had cut us off, since we are qualified buyers. Have not heard back from seller. Took a chance by doing it, but glad you think it was a good move.

I do agree that it would be unethical to cut out our broker -- I won't do it. And I think the seller's broker is behaving unethically, perhaps illegally. Doesn't he have a legal obligation to get the best price possible for the seller? Though I imagine we have no recourse unless the seller sees the light.

I invited the broker to see it with us bcse we had been working with her -- we did want some guidance wth the buying process (tho we'd already bought and sold a house upstate, so have some knowledge of the process). She'd been sending listings to us, but I always had already seen (on SE) any listing she sent. I was also forwarding listings I'd found to her, to ask her opinion. But now I realize this was a mistake, and is costing us the apt we want bcse of the commission situation.

Thanks for the suggestion, hotproperty. Good point. If our broker approaches seller, and informs her that her broker is losing her money, then we all win. maybe.

Suznyc, perhaps your buyers broker is not being aggressive enough, unless the seller's broker has been instructed by his owner to ignore any bids from you he MUST present them. Have your broker call the seller's brokers manager or head of their firm and ensure that your higher offer was presented, tell that manager that you want them to speak directly with the seller in person and get an explanation.

nycbrokerdax: Thank you for that advice. Hadn't thought of calling the manager or head of firm of the seller's broker. Thanks!

Buying without a broker - What are the risks?

This question isn't worded properly. It should really be Buying without a lawyer- What are the risks? From a legal and fiduciary stand-point, The relationship with your lawyer is most pertinent. The broker is typically working on behalf of the seller, and even both parties are with brokers the seller is basically paying the fees. While a buyer can engage a broker to work for him, my gut feeling is the upholding of fiduciary obligation is difficult to prove and/or the services hard to quantify. I've seen various certifications being advertised for buy side real estate brokers and was not impressed. In a place like NYC an individual exercising their own diligence will come out ahead. Nobody has more skin in the game than a buyer. There are plenty of great resources to check out buildings, neighborhoods, engage in price discovery and so forth.

The professional you should be stressing over hiring is a competent real estate attorney. A good real estate attorney will be worth every penny. Comparing the certification and protections a good attorney brings vs hiring a broker can't be contrasted enough...

I agree on importance of attorney in the process. We have one, just are waiting/wanting to get an accepted offer.

Riversider,
I agree. Finding the right attorney is very important. Any advice for how to do so? We were less than enthralled by ours, as he was always preaching to us about how the other side would respond to any clause we wanted to put in contracts, rather than proposing counter-arguments. We clearly had our motivations, but he didn't always want to listen to them.

I also agree with you that there are lots of free sources of information for individuals, so buyers can save aggravation and money if they do their homework. Everyone probably knows about ACRIS and DOB Web site in addition to Street-Easy. And a simple Google search can turn up surprising tidbits too.
H_B

clarification:
"counter-arguments to the other side's hypothetical responses"

>>ACRIS and DOB Web site<<

I'm not familiar, what are these used for?

What amazes me is that it took until hopeful's post for anyone to even mention this website as a reason for not needing a broker. Now that I can see everything available for buildings I like, I have no need for them to "show me" anything.

I agree with robocop. I don't need a broker to help me fill out a checklist. So what if they have a "hot" listing? There's over 10,000 to look at. I'm not that picky.

I still haven't heard a convincing argument from a broker. Does anyone want to stand up and defend their 3% fee for helping me find a building? Assume I know the neighborhood I like and know (thanks the SE) the apartments I like in my target buildings.

I dont understand all this faith in real estate attorneys. Confession: I am a non-practicing one, but did for many years. In my experience, most real estate attorneys are not so hot. For the most part, they push papar and in no way bring business judgement to the deal. Generally, I am not a broker-admirer either. You should first rely on your own homework, now made much easier by sites like this, to get a good deal. And if your lucky enough to have the advice of a good atty or good broker so much the better.

BTW, english guy, in NYS, it is illegal for brokers to share commissions with non-brokers.

Finding a good attorney is like finding a good doctor. I'd suggest a few ideas, some of which may work better than others depending on your situation.
1)If you have a lawyer you trust ask him for a referral. A second
2)Ask close friends who have gone through the process, and get specifics how the lawyer was helpful or not. The questions will help you in the screening process.
3)If you are buying through a sponsor and trust ask them for a few lawyers that have handled the other side. I had a good relationship with a salesperson who represented the sponsor of my apartment. I asked for this, but did not choose a lawyer using this method, but I can tell you in this instance, the list was a reasonable start. A broker might possibly serve in this function as well, but personally I'm biased against most traditional brokers.
4)Contact a respected lawyer who writes frequently for Times Real estate column. He may refer you to someone. Also you can contact the bar association and get help.

#1 & #2 are probably the better solutions but handled appropriately I think all could be of value..

there really aren't many good re attorneys. particularly if something goes wrong. they are churn and burn transactional beasts, generally.

dont understand all this faith in real estate attorneys.

Attorneys are like Doctors. There are good ones and bad ones. A good attorney cannot be stressed enough. Unfortunately it sometimes takes an experience with a mediocre lawyer to appreciate a good one.

"Assume I know the neighborhood I like and know (thanks the SE) the apartments I like in my target buildings."

Assume I don't need a broker. Now tell me all the reasons why I should use a broker.

"there really aren't many good re attorneys. particularly if something goes wrong. they are churn and burn transactional beasts, generally."

It's similar to the issue with managing agents: how do you get "good one's" when no one wants to pay what a good one would merit? People want to pay $1,500 flat for a closing where if something goes even slightly wrong the attorney might spend upwards of 20 billable hours on it. What "good" attorney is going to put themselves in the position of billing at $75 an hour?

But if you think transactional attorneys are bad, I hope you never have to use an L&T attorney. Bad courts breed bad attorneys, and L&T is...........

ACRIS = Automated City Register Information System
http://www.nyc.gov/html/dof/html/jump/acris.shtml
In ACRIS, you can find out who owns properties, how much they paid, and whether they have a mortgage, etc.

DOB = Department of Buildings
http://www.nyc.gov/html/dob/html/contact/contact.shtml
The DOB site shows certificates of occupancy, building violations, permits applied for and issued, etc. It has only recently been automated so some older data is missing. But it's a great starting point.

Also, www.courts.state.ny.us/ecourts/ can be useful.

The two most important things that a good buy-side broker does are to keep you from buying the wrong thing (which most agents won't do), and to negotiate prices for you, since if anything the availability of the history of listing prices makes buyers too "anchored" on the seller's territory, and makes them overpay.

Shopping is third, although often a broker will steer you to buying the right thing by listening to your needs and come up with solutions that you haven't thought of.

So is it worth $50K or $100K to keep from buying a disaster? It may not be to people on this board, but to my clients it is.

As far as attorneys go, the spectrum of competence is huge. I've personally used four real estate attorneys and two were fabulous and two were absolute f*ckups. (One screwed up my deed, for heaven's sake!) As far as clients go, I wouldn't even say that 50 percent of the attorneys that I see are decent.

I still remember when I was a seller's broker and there was a very experienced, very expensive law partner that kept her clients from buying their dream apartment because there was a stop-work order on an ALREADY CONSTRUCTED building. No real skin off my nose, because after her clients walked, I got the stop-work order lifted and sold it to somebody else -- who is still thrilled to be living there, even post-crash, and I'm closing another deal for that client. But the law partner's poor clients didn't get what they wanted, for a dumb reason, and were heartbroken.

ali r.
{downtown broker}

My financial advisor -- who gives great financial advice and I certainly trust for that -- is also a lawyer and wants to represent me in my real estate sale/purchase. Is this a good idea?

I think it's a great idea for him. He's probably not doing much biz closing RE transactions or financial planning and needs the commission.

TP: I basically defer to 30yrs on this question, but with a small distinction: On the buy side, it might work OK if you basically know what you're buying already. On the sell side, I think it's a very bad idea unless the attorney has relevant experience and an exceptional network of contacts.

TP: I just re-read your post. Did you mean that your FA would act as your attorney AND agent on the transactions, or just as attorney? If it's the latter, I don't see any conflict between the roles of financial advisor and attorney, assuming competence in both fields.

"TP: I just re-read your post. Did you mean that your FA would act as your attorney AND agent on the transactions, or just as attorney? If it's the latter, I don't see any conflict between the roles of financial advisor and attorney, assuming competence in both fields."

If that's what it is, I retract my prior statement.

just attorney. whew, i feel better. i have no way of knowing what specialized knowledge a real estate attorney needs.

I will say that I always HATE when someone chooses to use a non-RE attorney in any transaction I am involved in. they don't teach RE closings in Law School. Attorneys who do almost all Coop and Condo closings have there shit down to a well oiled machine and grind them out easily. Attorneys who don't often make big issues of things which aren't, simply because they don't understand a lot of the "custom standards and practices" and they can also cost their clients a decent amount of money by not knowing those same things.

Someone who is doing a lot of Condo work right now will probably have a much better feel for which buildings/sponsors are giving which concessions, etc 9if you end up buying from a Sponsor), what seller demands in contracts clauses/riders are currently being negotiated out which recently they used to get away with, etc.

TP, most real estate attorneys dont even know real estate law (I was an re atty, law review-nyu, top firm, blah, blah, blah)-why would you pick a non-re attorney? As usual, 30 is right. I love what Front Porch said-that characterizes many jerk attys-No business judgement.

You'll need a good real estate attorney to handle to close, negotiate and advise you on the contract etc. Other than that if you've agreed on a price with the seller you're good! This is if it's FSBO and there are no agents involved.

However, most listings are for sale by agent. The home seller has already agreed to pay 6% to a listing agent. The traditional real estate listing agent charges a home owner 6% all-in, and will keep all of it if it sells to an unrepresented buyer (hint: conflict of interest) or will share half with a “co-operating” broker if that broker brings a home buyer to close the deal.

Since you are probably looking at a for sale by agent property, you may as well try to keep some of the buyer agent commission (typically half, or 3%) for yourself. Just work with a buyers' agent who offers commission rebates like hauseit.com/home-buyer-cash-back and you can keep on average half of it for yourself to cover all of your closing costs!

At last we can shop around for buyer's commission rebates and seller's discounted access to RLS and OLR, the databases agents have access to. There's theburkhardtgroup.com/ and ilistproperties.com , both licensed real estate brokers. Hauseit.com I think farms out leads to brokers, which seems like a viable model as well.

I am a licensed real estate broker since 1987 working independly. I offer commission rebates. I'm also a mortgage broker who can pre qualify a buyer at no charge.
Ellen Silverman
Esfundingco@aol.com

thx for the great info

I have a question related to this tread. When applyiing for a coop do the brokers get copies of the original application ( which includes ssn social security numbers, bank account information, addresses etc)?

Without an agent/broker how can you be sure an application is handled properly?
Thanks

Yes, the seller's broker will likely require that you submit the board application to them for review prior to your submission to the board. This is standard practice even when you have a broker working with you. Sellers' brokers have just as much of an interest in buyers submitting a perfect package as the actual buyer. Managing agents are box-checkers and co-op boards are unpredictable, so it is best to get it right.

Dan Gotlieb
www.digsrealtynyc.com
up to 2% of your purchase price cash back at closing

Would definitely do a buyer agent commission rebate in NYC if you've already done all the legwork and just want to make an offer. I totally feel for you that it doesn't sound fair to hand a random broker 3% for doing no work for you. Where can I get a gig like that?

I'd read this fairly balanced article by Hauseit before you make a decision http://www.hauseit.com/buying-a-house-without-an-agent-in-nyc/ Good luck to you and let us know what you end up doing!

it doesn't make much sense to buy without a broker in NYC, considering it's a free service 100% paid by the seller. You won't get a 'better deal' just bc you are unrepresented, since the sellers have agreed to pay 6% to the listing agent no matter who finds the buyer.

Always funny when I hear people talk about how they want to be unrepresented so that they 'get a better deal' lol ... if you want a better deal just work with a buyer's agent who offers you a nyc commission rebate!

I'm working with a buyer's agent and starting to lose faith...
He keeps saying that he's having trouble getting viewings for me b/c the sellers' agents don't respond, don't show at appointments, etc. In a hot market where properties are moving quickly, wouldn't the sellers' agents just tend to ignore the requests from buyers' agents if they have plenty of interest from unrepresented buyers so that they don't have to split commissions?

@kblauser21 <<< We did not have a buyer's agent and really felt like that helped the seller's agent want to choose us over the competition!

Some good advice on this thread - some not so good. Real estate lawyers are invaluable (I used to be one), but not at this point in the process. A good buyer's broker will guide you through the process and help you get the home you want - and should at the same time help you pay as little as possible while achieving those goals. At RealDirect, we also give you a substantial rebate at closing. But that is only one of the ways we add value to the transaction.

Doug Perlson
www.realdirect.com