What Are Buyer's Brokers? Should You Hire One or Save on Commissions?

When a homeowner wants to sell her home, she usually will hire a realtor to sell it. Generally, 6% of the sale price will be set aside for realtor commissions.

There is a new phenomenon that has become popular: The buyer's broker. The buyer's broker is a realtor that represents the buyer. He finds homes that the buyer might like, shows the homes to the buyer, and then represents the buyer in the negotiating and closing phases.

Sounds pretty nice, doesn't it? It's always nice to have a professional in your corner, making sure you don't get ripped off. Your buyer's broker will also save the buyer from a lot of work. But who pays for the buyer's broker? Having my own broker must be expensive, right?

Well it turns out that the seller usually pays your buyer's broker commission. The original 6% commission is split between the buyer's broker and the seller's broker, with each earning 3%.

So should you hire a buyer's broker? By all means yes. There is almost nothing to lose.

However, some sellers chose to skip the realtor altogether. Instead, they list their property as For Sale By Owner (FSBO). Some FSBO's set aside a percentage for buyer's brokers, which is wise since buyer's brokers often will not show a no-commission FSBO to their clients. (Remember your buyer's broker has incentives too. They won't always align with your incentives). But other FSBO's won't set aside a commission for your buyer's broker. So if you end up liking a no-commission FSBO property, you might end up having to pay the buyer's broker commission. Theoretically a no-commission property can be 6% cheaper, since there are no brokers involved. But this doesn't seem to happen as often as you'd think. Many FSBO's don't have the best sense of the market, and often price their properties a bit too high.