The Diminishing Role of Buyers’ Agents
By Michael Repka
Over the past 20 years, technology has enhanced and improved many industries. The quality of products and services has gone up, while, thanks to improvements in efficiency, the cost to consumers has often gone down. Unfortunately, real estate is not one of those industries — even in Silicon Valley, the technology capital of the world.
There is no doubt that technology has made the home buying process easier. However, the unfortunate truth is that these efficiencies have not resulted in lower prices (i.e., commissions) for clients. In fact, the average commission paid in Silicon Valley has gone up dramatically over the last 20 years despite the fact that buyers are doing much of the work that used to be done by real estate agents. Undoubtedly, agents will argue that this increase in commission is a result of home prices doubling or tripling. While true, the amount of effort required to help a buyer find and purchase a home has not doubled or tripled. In fact, the amount of effort necessary has gone down considerably.
Back in the olden days — the 90’s – when I first got my real estate license – real estate agents controlled the vast majority of information about homes available for sale. The Multiple Listing Service published paperback catalogs containing all of the information about homes available only to real estate agents. If a buyer wanted to know about homes available for sale, they could either aimlessly drive around the neighborhoods looking for “for sale” signs or engage a buyers’ agent. Generally, buyers’ agents would scout the area with the buyers in mind and inform the potential buyer of homes suitable for their needs. As a practical matter, the only way for the buyer to get a feel for the home was to visit in person, which made this “pre-scouting” by the buyers’ agent necessary.
Technology, and the court system, have changed all this. A string of potential, or actual, litigation, coupled with action by the Federal Trade Commission, compelled the various Multiple Listing Services (MLSs) around the country to make their data available to non-MLS members.
Nowadays, buyers are able to do much of the scouting on their own. Information about homes on the MLS is widely available online through websites such as Zillow, Trulia, Redfin, MLSlistings.com, and Realtor.com. These websites do a good job of providing relevant information such as the square footage of the house and lot, bedroom and bathroom counts, features of the home, and price per square foot, as well as statistical information. Online, buyers can find dozens of pictures, three-dimensional floor plans of the house, narrated videos, marketing material in various languages, and links to all of the disclosures, provided the particular listing agent produces all of this material.
In my experience as the top listing agent in Silicon Valley, I have found that many buyers initially find the home on their own. Once these buyers identify an interesting property, they reach out to a real estate agent to gain more information or to submit an offer.
Over the past 20 years, it has become much less common for real estate agents to spend the day driving buyers around to look at properties. While agents might see a property on broker tour that may be a good fit for their buyer, they often start with sending the client a link to the listing agent’s website. After the potential buyer looks at all of the pictures, the interactive floor plan, and the narrated video, the buyer may arrange to see the house in person.
How Buyers Buy Homes
There’s no doubt that some buyers continue to work with traditional buyers’ agents in traditional ways. Without question, good buyers’ agents can, and do, provide a great deal of information that goes beyond the comps and the numbers. This can be very valuable, especially to someone unfamiliar with the area. However, a lot of buyers take alternate approaches to make the transaction more efficient.
Many individual agents that work at large brokerages offer to rebate a percentage of the buyers’-side commission to their buyers that find homes on their own. Similarly, some new businesses have made this a component part of their service offering.
Going Through the Listing Agent
Some buyers believe that the best way to get a good deal on a home is by going through the listing agent. The thought is that listing agents will put their thumb on the scale in favor of buyers that they represent because the listing agent will be making more commission.
The DeLeon Team is well publicized in its stand against this blatant conflict of interest. In fact, we are the only major brokerage in the area that simply refuses to take commission from both sides of any transaction. As a result, many buyers who are not working with a real estate agent approach us directly because they know the seller will pay 2.5% less in commission, which will make the buyers’ offer more competitive.
We are proud of this approach because it makes the transaction much more cost efficient for our sellers, while preserving transparency and fairness for all involved.
Traditional Brokerages’ Responses to a Changing Industry
Some agents, and even brokerages, encourage sellers not to put homes on the Multiple Listing Service.
Instead, these agents or brokerages encourage a period of exclusivity whereby only they will have access to the information about the home being available for sale. Point blank: this is almost never conducive to getting the highest sale price. Nevertheless, some sellers agree to this disadvantageous arrangement.