Buying without a broker

I am a broker and I curious why you would want to buy without a broker? Do you believe there to be some benefit to this and if so what is it? Best, J-

I'm considering a purchase and have wondered the same thing. I'm thinking about buying a unit from a developer through their sales center. If I go in to the transaction without an agent I wonder if I am more or less likely (assuming I'm comfortable with price negotiations) to get a better deal? The logic here is they pay the commission and have a little more incentive. Thoughts?

I can't say it never happens.. I just don't know. But from my experience most buildings don't offer a better deal to buyer that comes without a broker. If they did, and this was known to be common practice it would have a negative effect on their relationship with the many brokers they count on to bring in the buyers. It may happen.. on the other hand.. it's usually quite helpful to have an educated broker that has experience with these deals to guide you through the process. Happy to speak with you if you don't yet have a broker. I have sold Many new development apartments.

jim123: Well, this seems to be assuming you already know exactly which line and which building you are going to buy in?

a) It depends on the developer and project. Some want their prices to be uniform and will stick to whatever their pricing is (this obviously was much more the case pre-2009). If that's the case, you probably won't get a better price going in without a broker. Also, there may not be as much wiggle room as you think depending on the deal the developer has with it's sales and marketing team: if they are getting a commission similar to what's being offered to outside brokers, that "free money" may not even exist.
b) If they ARE negotiating prices, if you find a broker with a firm which has done a fair number of frequent transactions in the building, their knowledge of how much the largest discounts being given by the developer on this project may lead to a negotiation which results in a price lower than the one where you "save" the commission. OTOH, if your attorney has done more deals recently in this project than the brokerage firm, and you involve them earlier than usual in the process (i.e. before you negotiate a deal rather than after), the attorney may have the same ability.

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If you're set with your attorney and have identified the property, your next step is to firm up your financing plan and set up your negotiation strategy. A buyer broker would possibly be helpful at this point but hardly worth 2.5 or 3.0% of the deal price. And ignore those who say it doesn't cost you anything to have a buyer broker....at the very least, not having a buyer broker means you are automatically a more desirable bidder in the eyes of the listing broker than everybody else showing up with a buyer broker in tow.

Financing is probably the most critical element of a deal right now...so number one piece of advise is spend some quality time with your banker(s) now....your ability to negotiate an attractive price in this market is a direct function of how strong your financing is in the eyes of the seller.

Things to watch out for that a buyer broker would have helped with and that you're flying solo on:
Competition from other buyers
Building issues
Comps

Good luck and let us know how it goes!

MJS
"There's a time to own and a time to lease...figuring out which is which is what makes RE fun"

Here's a thread:

http://www.streeteasy.com/nyc/talk/discussion/11382-buying-without-a-broker-what-are-the-risks

My humble opinion is this: If you're business savvy and enjoy negotiating for yourself, you definitely do not need a buyer's broker. I've bought more real estate than most people I know and I've never used a buyer's broker. (So eventually I wised up and got my agent's license ;) )

The thing is, most [seller's] agencies will assign you an in-house agent anyway, whether you want one or not, when you go to contract. You may not even meet this person. This happened to me when I bought an investment property upstate in May. They do this for agency disclosure law reasons.

In that event, the listing agent makes the same amount regardless, the fact that you didn't have a buyer's broker benefits the real estate company only, which is relevant only to agents who are partners in the company (usually vice presidents and such). So the listing agent doesn't have a financial incentive to care one way or the other, broker or no buyer's broker.

Regarding price: Will you pay less without a buyer's broker? Perhaps, the seller's broker might be more eager to knock down the commission agreed upon to get a deal. Some companies however do not allow agents to reduce commissions (my company does).

If the seller is a for sale by owner (FSBO), I think there is a chance you will pay less without a broker if the FSBO is sophisticated.

Unfortunately, the problem with FSBOs is that they tend to overprice their property in the first place, and unless you know how to handle these crazy cats, you will probably not be able to talk sense into them. In that case, if you just gotta have that apartment, you will pay over market for it, probably. And studies overwhelmingly show that most FSBOs who really want to sell eventually give up and hire a brokerage. (We're in a buyer's market and it looks from here that FSBOs are bailing like lemmings.)

I would go so far as to say it's not wise to work with an amateur FSBO without a broker if you have virtually no real estate experience yourself. Experienced parties do deals all the time without brokers, though, and it can work out great.

What can a buyer's broker do that you can't do yourself?

Well, everybody keeps telling me that all the apartments are on the Internet, there are no secrets anymore. Even the guys in my office are telling me this. OK, so why do I keep telling my eager/ready buyers about apartments they have not heard of, open houses they do not know about?

The answer seems to be I'm putting in the time doing the research for the buyers. I got buyers who are SO happy that I have the inventory they really want to see, and they sign with me, happy. I only get paid a commission if they buy an apartment on our list--if they find their apartment on their own there's no reason I should get paid.

{Manhattan real estate agent}

"In that event, the listing agent makes the same amount regardless, the fact that you didn't have a buyer's broker benefits the real estate company only, which is relevant only to agents who are partners in the company (usually vice presidents and such). So the listing agent doesn't have a financial incentive to care one way or the other, broker or no buyer's broker."

This certainly is not the case with the majority of Manhattan Brokerage houses.

"Unfortunately, the problem with FSBOs is that they tend to overprice their property in the first place, and unless you know how to handle these crazy cats, you will probably not be able to talk sense into them. In that case, if you just gotta have that apartment, you will pay over market for it, probably. And studies overwhelmingly show that most FSBOs who really want to sell eventually give up and hire a brokerage. (We're in a buyer's market and it looks from here that FSBOs are bailing like lemmings.)"

I think this is one thing which few buyer who only want to look at FSBO listings overlook: the Sellers are doing it so THEY can make the Broker's commission. So you've got a Buyer who thinks they are getting the savings on the commission and a Seller who thinks they are getting the extra money from not paying a commission. But I'll add: there's no broker to talk sense into the seller when they get an offer which they actually should accept. You often find FSBO sellers who convert to brokerage who end up selling for the same (or less) than the best offer they got on their own.

Having had several family members in the RE biz (selling new homes, not in NYC) I can tell you that buyers w/o brokers paid the same _prices_ as buyers w/ brokers but were able to get more extras (cabinet upgrades, etc.) thrown in.

People who think that they can buy a FSBO for 6% under market or sell a FSBO for full market are, IMHO, being irrational. Discussion (mostly between me and irrational (non)-seller) here: http://www.streeteasy.com/nyc/talk/discussion/8125-whats-the-right-price-for-a-fsbo

Main uses of a buyer's broker is neighborhood/building knowledge and time-saving legwork. If you already know the neighborhood and have the inclination to search yourself then the only thing the broker is offering is hand-holding.

In a slow sales market, I would definitely pound on a seller's broker to give up a point or two to close the gap on a deal.

If you are buying without a broker, just be prepared for the seller's broker to lie through her teeth to you. We tried to buy without a broker and were told by the seller's broker that we had an accepted offer. It quickly became apparent that she was playing games with us because her agency took 5 days to send our attorney the deal sheet; then the seller's attorney kept faxing copies of the contract that seemed to be intentionally illegible. When I finally called her on it 2 weeks later he said we had no accepted offer because I had broken the agreement in giving her an ultimatum to get us a legible contract!

The seller's broker was, unfortunately, a cliche of the New York real estate broker (divorced, unattractive, aggressive, heavily made-up with a false smile -- she could have been sent by central casting) and we knew she was lying to us from the get go so I wasn't too disappointing. Nonetheless, it was aggravating having to hound her every other day to get the contract sent and get her to return our attorney's calls.

We will use a broker whom we trust to represent us next time, just to avoid the aggravation of dealing with the seller's broker.

"In a slow sales market, I would definitely pound on a seller's broker to give up a point or two to close the gap on a deal"

Good advice....and definitely workable....any listing agent who can't convince her/his boss to throw in points (that would probably be co-broked to the next buyer anyway) to get a deal done is an idiot.

the main reason to NOT use a buyer's broker is the misalignment of incentives

The buyer's incentive is to buy the best place at the best price - either now, or after a year (if nothing good is available now)

The broker's incentive is to buy something as soon as possible (else they don't get paid)

Given this fundamental misalignment, a broker will never EVER tell you "you might want to wait a year - till things settle down / prices soften a little" - only your friends / family will.

So - they add limited value over a good lawyer, their incentives are misaligned with yours - so why bother?

cartman,

Don't forget the buyer's broker gets paid more if you the buyer spends more. Talk about a misalignment of interests. There are incented to have you pay a higher price. I supppose they make the most profit by getting you to pay full price for the first thing you see.