When it comes to real estate, many buyers and sellers just don't understand how real estate agents are compensated.  Likewise, they often don't understand the value that a real estate agent brings to the table.

Why?

Well I think a lot of this is because many people work for companies where they get a salary...or at least a base salary (even if they get commissions or bonuses on top of that).  And, of course they assume other are paid in a similar way.  (Of course, we all know this isn't the case).

Because real estate agents generally work at a brokerage, they assume they are paid to work there, regardless of whether they make a sale or not.  They usually don't realize that the majority of agents only get paid IF (and AFTER) they close a sale.  So when they are asking real estate agents to show them a house or do an analysis, or basically anything, they often don't realize that they are asking them to "work for free."

You see the world revolves around them...and that seems to often be the case no matter who you are or what industry you're in.  Some people just don't get it...they don't ask and no one has explained it to them.

But, as the world revolves around them, they are always looking out for their best financial interests and how they can save money.  It makes sense when you really think about it, even if this thought is annoying.

So, here's where things break down, and the buyer thinks that they are being smart and saving themselves some money.  But, in actuality, they are using losing money...and making their life more difficult.

Many people think that if they cut the agent out that they will save money.  They think that they are being savvy, but in actuality they are shooting themselves in the foot. 

They figure that if they don't have a buyer's agent that don't have to pay a fee for that agent.  WRONG.

First of all, a buyer's agent is FREE.  While the buyer's agent will get compensated, the funds come from the seller, not the buyer.  For argument sake, let's assume that the compensation is 6% in total with 3% for the listing agent and 3% for the buyer's agent.  (And, yes, I know that real estate agents are not supposed to discuss commissions with each other.  But, I'm not a real estate agent).  The commission is built into the selling price (it's done in the same way as it works in car dealerships or for insurance...the car salesperson gets a commission or the insurance agent does...it's already baked into the price.

So by waiving your right to a buyer's agent, you are NOT saving money.  BUT, you certainly are waiving your right to representation.

What does that mean?  That means there is no one looking out for your best interests!  Furthermore, you are up against an experience listing agent...and their job is to represent the seller, not the buyer.  And, that means they have a fiduciary duty to get the best price and best terms for their client (i.e. the seller...and not you).

A buyer's agent is there to represent you...so that not only do you get the best price and terms, but also to make sure that this is the best home for you.  The listing agent wants you to buy THIS house.  They only get money if you buy THIS house.   A buyer's agent is a bit more objective as they want to find you the BEST house.  And, if this isn't it, they will find you a better one.  They will help negotiate the best price for you.  And, they will be with you every steps of the way.

An accepted offer on a home is only Step 1.  Plenty of other snags can do come up along the way, including contract negotiation, inspections and repair requests, appraisals (check out what happens if the appraisal comes in too low?).  And, then there's the whole rest of the process involving the title, approval to close and of course those last minute surprises that may happen at the walk through or in the last few days.  Believe me, it's so much easier (and less stressful) if you have a talented buyer's agent on your side.

Buyers who think they are savvy negotiators think that they are smarter and better negotiators than the real estate agent. This is rarely the case because this is the real estate agent's area of expertise. They know the market way better than you do.

Furthermore, buyers mistakenly think that the listing agent is going to away the 3% that they would be paying a buyer's agent. But, that's now how it works.  Why would they sell a house below market value.  No, instead, the listing agent will just pocket the other 3%, so that they are now getting 6%.  After all, the buyer's agent does a lot of work (and most buyers do not realize this).  So now, the listing agent needs to do more work to make sure all the contracts are done and deadlines are made.

One of the more common mistakes I see is when people are buying new construction.  They mistakenly believe that they don't need a buyer's agent...because they have the contractor to help them.  Now this is pretty much riduculous as the contract is like a wolf in sheep's clothing.  They are just a different form of a listing agent.  Check out this article on why you need a buyer's agent when purchasing new construction.

You'll see all the pitfalls that can happen to unrepresented buyers.  This happens at every stage from negotiations to deadlines, to inspections.  For most people, their house, especially if it's new construction is their largest investment.  It is worth it to have great representation.

A good buyers agent is worth their weight in gold.  They will save you a LOT of money.  They will help make sure the end product comes out better and is done faster.  They are looking out for you.

So, think twice before giving up your right to representation.  Don't think that it will save you money.  It won't.  It will probably cost you much more in the end.