Many buyer's agents charge fees on a commission basis. What this means for buyers is that the more they pay for their property purchase, the higher their fee will be to their buyer's agent.
I have often wondered - as you might - whether this approach is fitting for a buyer's agent service. You see, a buyer's agent service is very different to a traditional sales agent in many ways.
A sales agent should be incentivised to get the HIGHEST price for their vendor, whereas the buyer's agent should be motivated to get the LOWEST price for their buyer. A buyer's agent's fee structure ought to reflect this incentive, in the same way that a sales agent's fee structure reflects their incentive.
A sales agent provides an outcome; a buyer's agent provides a service.
To explain further, a sales agent is engaged to sell the home. For most people, the decision to sell is final, and the only variant that may alter a vendor's final decision to sell is the sales price. Assuming the vendor is realistic about the market and the likely sales price and that they are motivated to sell, a sale is a reasonably foreseeable outcome. In this sense, the sales agent provides an outcome, provided the vendor is motivated to sell and has a realistic expectation of the likely sales price.
However, the same cannot be said of a buyer's agent service, which I argue is not a provision of an outcome, but rather, the provision of a service. The service is the time and frustration that is saved, the research and advice provided, the knowledge and experience that is used, the negotiations and the legwork. The final decision to buy is not always going to flow from the work that the buyer's agent has provided, for many reasons:
- Many people who are moving have another alternative (renting) in the event that a suitable new home cannot be found.
- Securing the right home for someone at the right price is not always a given, because we cannot control what other buyers may be willing to pay for the home that is of most interest to the buyer's agent's client.
- A standard buyer's agent agreement runs for 6 months. In 6 months, life happens, and sometimes this means that people decide they will not buy. This decision may happen 5 months into the agency agreement and after considerable work has been undertaken by the agent. While an outcome (purchase) has not been achieved, the service has none-the-less been provided: time has been saved, research and advice has been provided, negotiations have been had, experience has been used, and the legwork has been provided.
Therefore, while the buyer's agent may present many suitable homes to the buyer, the final outcome (the purchase of the home) can never be guaranteed because other buyers may always be willing to pay more (than what the buyer's agent's client wants to pay / than what the property is worth etc), and buyers may decide not to buy after all. The buyer's agent's role is to protect the buyer from over-paying and from buying a "dud", so in the case of another buyer entering who is willing to pay more than what the property is worth, or in pointing out that the property of interest has many flaws, the buyer's agent has actually done the right thing by their client if they don't continue to recommend the property. Now, if this means that no purchase occurs, the service has still been provided. If a buyer's agent was only ever paid on commission for a result, you can appreciate that buyer's agents would be ensuring that all of their clients purchase (regardless of purchase price or the health of the property) - just to ensure that the buyer's agent is rewarded for their efforts.
Fixed fees for Buyer's Agents
Fixed fees work better for both the buyer and their agent. The buyer can be reassured that the agent is not incentivised to have their client pay more than necessary for their property. The buyer knows up-front what the fee will be and when it is due. The buyer's agent can potentially offer lower fees as the fee is based on the number of hours estimated to complete the service, and all service hours are paid. Most of all, the buyer knows that their agent has absolutely no incentive to recommend a dud or an inflated home, in order to be rewarded for their efforts.
Melissa Maimann is a licenced Buyer's Agent in Sydney. She assists home owners and investors alike with an affordable service that empowers you to make smart purchase decisions. Melissa's service is fast, efficient and accurate. If you need a hand with your next purchase, don't hesitate to make contact.