Circumventing Realtors and Negotiating Directly

In my post titled Sometimes Realtors Make Things Worse, I noted that a recent seller's agent we came into contact with seemed to hinder the process of us buying a place rather than helping it along. There were several worthwhile comments on that post, and I'd like to share one in particular with you all:

I have bought and sold homes with and without agents as well. I had a much better experience without the agent. When I sold my home, I sat across the table with the potential buyer as we negotiated face to face. No middleman trying to position a statement or manipulating information to their advantage. We did such a good job negotiating that we even made a deal for an exchange of my grill for his car top carrier. Never would have happened with agents.

The agents know that their bread and butter is the MLS. They are nothing without the database. They don't drive customers to a house. They wait until someone finds it in the MLS and visits. A recent court ruling said that realtors can no longer box out the low cost realtors from the MLS. Now everyone gets access to the database. This is going to hurt the real estate business. Six percent commissions are going away for good....and they should.

A few questions come out of this comment:

1. How do you get to the seller directly so you can negotiate with them? Their realtor is usually a roadblock, plus their names aren't always readily available. If they live in the house, it may be easier to track them down, but what if they've already moved out?

2. Is this ethical/legal to do? There's nothing forbidding you from circumventing the realtor, is there?

3. (A bit more to my specific situation) I have the email of the seller of the home I'm interested in (it was forwarded to me as part of an earlier response on an offer we made.) Up until now, all communication has gone through our two realtors. What do you think about me contacting them directly for some person-to-person negotiation? Good or bad idea? Fair to the agents? Ethical? Cheesy?

Comments

[Emily]

I really hate how you are so down on realtors here. Do you know how much BS they have to put up with. Just watch one epesode of Buy Me and you will understand. I am not an agent, but have worked with them, and they work their tails off for home buyers. In this lagging market comissions are not going to decrease, but increase. People have been talking about realtors being reduced for years and realtors not being necessary, however, everytime I watch Buy Me, and they have a person on it trying to sell it themselves, they ALWAYS end up getting a realtor. If the job is so easy, why don't people do it themselves?

[mrm]

Seems to me the only thing hindering you from buying the house directly from the seller would be the fact that they probably have a contract with the realtor basically guaranteeing that the sale will go through him/her.

In any case, who cares what's fair to the agent? It's not your job to be fair to the selling agent, it's the seller's job. IMHO you should just be trying to get the best deal possible.

You could always check public records if they've moved out of the house and possibly already bought another one. The paperwork from that purchase should be available via your county court's website. That would give your their new address and possibly a phone number.

Then again I could be completely wrong here :)

[ryan]

if you went directly to the seller, the agent would sue you. they brought you together and are contractually entitled to their commission.

the only way around it would be to wait until the listing expires, work something out with the seller, and hope the realtor didnt find out, otherwise you would be once again, sued.

if you can find a way around it, so be it. i have no love for realtors and the market stranglehold they lobby so fiercely for.

[Jon]

I'd like to point out a few things here. First, just as in any specialized field, there are good real estate agents and poor real estate agents. Just the same as with lawyers, repair people, hell, even doctors.

If you can't find yourself a good real estate agent, then yes, you're going to have trouble. Just like you'll spend an extra $400 on a $50 repair if you bring your TV to the wrong repair place.

Second, the term Realtor is a reserved trademark of the National Association of Realtors and its member organizations. Not all real estate agents are realtors. An agent is merely licensed, a Realtor is a member of the organization.

Third, the only way an agent gets paid (usually) is by making sure that a sale happens. No sale = no commission = no paycheck. A good agent will work his or her ass off to find you a good house. If you have a good agent, they hopefully know geographic areas really well. They may not drive you directly to houses (partly due to how litigious americans have become) but they'll show you houses they think are right for you. Yes, you have access to the MLS service, but they are your human filter. You're likely to bounce between 15 different houses you're not interested in that they've filtered through and already made that decision on.

Lastly, and arguably most importantly: an agent knows the law. Negotiating without an agent or attorney present is downright foolhardy. You're entering into a HUGE financial investment without some legal expertise? Are you kidding? So three months after you've bought the house you find some issues with the foundation? Was it disclosed? Is it your responsibility or the former homeowners? Did you get insurance? A home inspection? What is your recourse?

To answer your questions as posted:
1. If the seller already has a real estate agent, you will have to negotiate through them. Chances are they have already signed an agreement, and if you found the home on the MLS or through a sign the selling agent put in the yard, technically, the agent is probably owed their commission even if they aren't used in the negotiating process. Sorry, the agent isn't likely to quietly go away. They're contractually obligated to act in their client's best interest, and their client's best interest is NOT to proceed without proper advice.

2. As far as I know, it's perfectly legal within certain limits. Ethical? That all depends. If you've signed an agreement with a real estate agent or the seller has, and you try to box out the agent, you will run into both legal and ethical issues. The agent has probably put work into selling the seller's home or finding the buyer a home that they deserve to get paid for. If they haven't lived up to your expectations, ask to terminate the agreement before proceeding.

3. I would generally say bad idea. Generally. Again, if your agent isn't living up to expectations, you can try to terminate your agreement with them, but its likely you've signed a contract with a timed expiration on it, and at this point, it wouldn't make sense for the agent to back out of that agreement if you're already in the negotiating process. Ethical? That's up to your decision on ethics. Legal? Questionable, but this isn't a trial or court issue, so I would lean toward yes. Cheesy? Maybe. Does that really matter?

A few caveats to be aware of. Yes, you can negotiate a deal on your own. Don't bother securing an agent of your own if that's what you plan to do. Look for homes For Sale By Owner - they aren't dealing with a real estate agent either. They may not be able to find an agent to work with them because they're too unreasonable, or they may just be in the same line of thought that real estate agents get in the way.

In Michigan, the law states that if you sell more than 3 homes per year, you must be a licensed agent. I don't know if that applies to you or not.

Truth is, I understand the desire to save money here. This is already a huge transaction, but skimping on expert advice is not the way to go unless you yourself are explicitly familiar with the laws and regulations surrounding buying and selling homes. Agents are supposed to help you. If they aren't, they aren't doing their job.

[Jon]

I should clarify that - if you sell more than 3 homes per year in Michigan you must be licensed or have a licensed agent.

[Tim]

If you are a buyer, you do not have a contractual relationship with the listing agent. You might have one with a buyers agent, and if they found the property for you, and you signed a contract for them to represent you(not always done), you would be legally obligated to pay the buyers agent. I'm not a realtor, nor a big fan of them, but the ethical thing to do would be to pay whoever found the property for you.

On the other hand, if you have access to a Realtor.com or any online "mini" MLS system, they usually show you the name of the agency with the listing, and sometimes the agents name. If just the agency, you can just call and ask who has the listing for 123 Main st. If you find the property yourself, and go directly to the listing agent, you can usually negotiate to get rid of part and sometimes most of the buyers agent commission(usually 3%), though you would still have to pay the listing agent commission. That is because the listing agent would be entitled to "double dip" on the commission and get both buyers and listing commission. When they find a buyer in that situation, you can usually negotiate to get rid of part of the buyers commission, and the agent is happy to get 4% instead of the 3% if a buyers agent brought the buyer. There is nothing unethical about it since you found the property. And since there is only one agent involved, you would be closer to negotiating directly with the seller if you wish. Just be careful not to tell the agent your "bottom line" or other info you do not want the seller to know, since they would now represent both of you.

[That One Caveman]

You have to also remember that the selling agent doesn't pocket that 6% commission. Half of that will go to the buyer's agent and half of both agent's commissions will go to their broker. In reality, that selling agent is taking home no more than 1.5% of the sale price before factoring in all their costs: licensing, registration, insurance, MLS access, gas, and not to mention time. My father was a real estate agent, right up until the costs imposed on him by his company and the state outmatched what he made in commissions.

Real estate agents are independent contractors just trying to make a living. Trying to save a buck is ok, but to attempt to actively deny another person their livelihood is despicable. I hope you'd have more sense and honor than that.

[FMF]

To those commenting --

I'm not saying that I would/should/am thinking about going around the agents to get them out of the commission picture -- I'm sure they'll get paid no matter what. But I am asking if I should negotiate directly with the seller since his agent in particular seems less than helpful.

[sahm]

We ran into an interesting caveat when we were selling a house last year. We were under contract, but when the buyer went to get her inspection, she wanted us to pay an exorbitant amount to "fix" the problems. We had a verbal agreement between her, her agent, our agent, and us. She decided that she didn't like her agent and was going directly through an attorney (in her former state). Once she got up here, she refused to sign the revised contract. We couldn't come to terms on the negotiation, so we terminated the contract. (we were already past the original closing date) The termination agreement stated that she could not put another offer on the home unless she went through the same broker (not necessarily the same agent). She really wanted our house.

A few days later, we received another offer (more than what was originally agreed upon and "as-is") from her. The broker had found another agent within his firm to handle her. This lady was a trip. She decided she wanted to close earlier than originally planned. We showed up to close, and she had already signed the papers. Her agent was there because it had been a fiasco- she left the office in tears, all sorts of drama. I wasn't disappointed she wasn't there. Anyway, about 3 weeks later, she served us with lawsuit papers saying the hvac unit was damaged (remember contract was as-is). This was one time I was very happy to have an agent on both sides of the table. Her agent was actually one of our witnesses in court.

The moral of the story- To avoid the true pyschos out there, we will continue to use an agent. We had so many legal and ethical questions come up during our dealings with her, that we don't want to go there, again. Last we saw, she had the house FSBO. I feel sorry for the poor sucker that looked at that house. She was going to take a hit on it without any agent commissions.

[That One Caveman]

In that light, you owe it to yourself to do whatever you feel is necessary to acquire the home you wish to purchase. If the real estate agent is in the way of that process, I'm sure he'll be more than happy to let you do most of the grunt work for him. Jon is correct about potential legal issues, so I wouldn't leave the agent completely out of the loop.

[GeekMan]

Having bought and sold several (more than 2, less than 8) properties in my area over the last 7 years, I have some small experience with real estate and real estate agents. One caveat before I start though is this; real estate is local, so what I, or anyone else, says on the subject may not be true of you, your area or your circumstances. However, in my area (NYC) it is NOT necessary to use a Realtor or agent during the buying or selling process. In fact, there are very, very few buyers agents simply because almost no one uses them. Most buyers have a real estate attorney who takes care of all the paperwork for them and who is also responsible for protecting their interests during the negotiations.

All that said, in my own personal opinion, for the properties I have bought and sold in my area, Realtors, brokers and agents are a waste of money. Every property I've bought was one I found myself by perusing the local Sunday newspaper or Craigslist. I brought myself to the open houses to view the properties and I called the contact info to make the offer. When selling, I tried using brokers, with their 6 month exclusivity contracts, last minute open house cancellations, helpful advice of lowering the asking price by 10% after one week on the market even though we were already lowballing similar places, and never felt that they brought anything to the table other than greedy hands looking for a quick sale so they could move on to the next sale.

The only time working with a Realtor was helpful was in the case of the purchase of a new development. In that particular event it would have been nearly impossible without the help of the friendly and knowledgeable sales agent/broker.

In every other case, brokers and agents have done nothing, NOTHING that couldn't be done by an owner. And the owner could do it better and for FAR cheaper than 6% of the sale price of the home. For example, negotiation. My attorney handled all the negotiations and paperwork for less than $2,000 per deal. I cannot think of a single thing a broker could do that an experienced RE attorney couldn't do at least as competently, if not better. Some people might bring up "hidden" problems that a good broker will find, but how would that be any different than hiring your own home inspector (or even two!) to ferret out those problems?

Again, this is all true of my area and my experiences. However, I have a very hard time imagining a scenario where using a broker or agent to buy or sell a home is worth the costs involved. 6% is 6%, regardless of how that money is split up after being paid.

To put this another way; If you could save 6% of $300,000 by doing things yourself, how is that any different than saving 6% on your car costs by doing your own oil change?

[Mike]

With all the info out there all you need is a good real estate attorney, a real estate agent is like a nice admin assistant to have for a reasonably eduated (and willing to do ground work) buyer, nothing more. We used a real estate buyers agent because all friends we spoke to told us it was a free service, the seller/ sellers agent would pocket the difference if you did not use the service and we would receive no benefit and at times be cornered. We used an agent that came with OK recommendation from friends. I personally was totally dissatisfied with her - She got paid over $5k, i felt her services were worth not more than $600-$700. Though we spent over 4 months looking for a house, the actual days (only Saturday/ Sunday) we spent were like 3-4 at max. She had other dealings, family stuff, etc. that made her not available often too. I want to caution that not everyone has a case like ours - We were very specific and inflexible on what we wanted, some people do have their mind made up and the RE agent endlessly shows them houses for ever. We knew the house type (condo/townhouse/ SFH), area, bed rooms, baths, price, school district, kitchen type, etc. and we had finances in order. Practically any basic website could filter out what we wanted and show up only 10-15 houses in say Chicago or Phoenix or Atlanta. In fact we made up our mind from the website itself and all the other houses the agent showed were in her words "for us to get a feel", now I think it was more of "let me show I am adding value". Readers can endlessly debate this.

We are international immigrants and do not fully understand the US system and got the feeling the agent was getting impatient to make money from us as some will call "low hanging fruit". She was not at all helpful in price negotiations and at times I wondered on whose side she was. My unfortunate weakness was we fell in love with a house and did not want to see any other house after that MY ADVICE - NEVER DO THAT.

I will recommend getting hold of a really good Real Estate Attorney and a really good house inspector. That is all you need. Note: I am not getting into a Realtor vs. real estate agent debate here.

[cytoman]

I've sold our last two homes through a transaction broker. (Check your state laws, transaction brokers are not allowed in all states.) I was charged a flat $500 listing fee for access to the MLS and help with the closing paperwork. It was more hassle and work for me, but I saved $10,000 in commissions and sold both homes within two weeks. I made about $150 / hour being my own broker.

[Mike Hunt]

Lower cost will be the future business models for the realtor industry. Mark my words.

My aunt in Australia is selling her 1.2 million Australian dollar (1.1 million US dollars) house through a realtor. The cost is a fixed fee $8000 that will only be paid contigent upon the sale. The realtor is happy, $8000 is good money and my aunt is paying for a service. In the USA that will be $66,000. So the 6% is the issue that people have. If a realtor were to sell my 1.1 million dollar house for $8000 and do a good job and have it contigent on the sale, I'd be happy.

Sorry realtors, your industry is about to undergo some corrections. Having low credibility spokesperson (Lawrence Yun from the NAR) saying that housing never goes down makes you look dishonest. And the MLS was a monopoly, now that it's open you will be unable to keep the stranglehold on prices. Check out Redfin.com... an online lower cost agent (granted it's different than the full service realtor).

Overall though it's good for the consumer and that in the long run will drive more growth.

-Mike