Recently, my wife and I were house shopping and we decided to make an offer on a condo in the Westside. It was advertised for $345,000, but we thought we could get a better deal by contacting the seller's agent first. It wasn't the first time we tried this trick, we had previously bought our house in Fresno with only one real estate agent, and it worked out great. So we threw out a low-ball offer of $325,000 for the condo and, to our surprise, the seller's agent was very eager to work with us. He negotiated on our behalf with the seller, and basically came back and said that if we could raise our offer to $327,000 we could have the deal. There was a pending offer of $335,000 but if we wanted it at $327,000, he would convince the seller to give it to us. Why would the seller's agent go so far for us? Why would he bend over backwards to try to make the deal happen for us, when we were offering a lower price, rather than a higher bidder? Was this a breach of his fiduciary duty?

Here's the trick to saving $8000 on a house, which by the way represents the equivalent principal reduction after 2 years of mortgage payments. That means, if you use this trick, you saved about 2 years of hard labor at your chosen career to pay down your house. In the real estate world, they have this strange rule that would be completely unethical anywhere else in the world. It's called dual agency. That means the seller's agent can represent you, the buyer, and your adversary, the seller. It's completely nonsensical, but, so long as this system exists, you might as well use it. There is a 6% commission in a real estate broker contract that is split 50/50 if two real estate agents are involved (buyer and seller's agents). If only the seller's agent is involved (that is, he or she finds the buyer and represents the seller) then such an agent gets 100% of the 6% pot. In my case, if the condo was sold for $335,000 in a two agent deal, the seller would receive $314,900 in cash (after 6% reduction for commission) afterwards and the seller's agent would pocket $10,050 in cash (3% of sales price). However, if the condo was sold for $327,000 in a one agent deal and the seller's agent was smart enough to reduce his or her commission (say, to 3.5%) to make the deal happen, everyone wins. The seller would receive $315,555 cash (after a 3.5% reduction for commission), the seller's agent would receive $11,445 cash (3.5% of sales price), and the buyers would receive an $8000 discount on the house. Everyone gets more than what they would have received if there were two agents involved. What do you miss out by dumping your buyer's agent? Well, a free ride to the house is the primary thing I can think of. All the paperwork and home buying advice can be provided by the seller's agent. They'll hold your hand through the paperwork, loan process, and escrow process (since they're your "agent" technically). I suppose, you could even call the seller's agent to pick you up and give you a free ride to the house to look at it too. So in that case you give up nothing.

If you haven't figured out the trick by now, I'm trying to say that you should call the seller's agent when looking at a house." It's called dual agency. That means the seller's agent can represent you, the buyer, and your adversary, the seller. It's completely nonsensical, but, so long as this system exists, you might as well use it. There is a 6% commission in a real estate broker contract that is split 50/50 if two real estate agents are involved (buyer and seller's agents). If only the seller's agent is involved (that is, he or she finds the buyer and represents the seller) then such an agent gets 100% of the 6% pot.

In my case, if the condo was sold for $335,000 in a two agent deal, the seller would receive $314,900 in cash (after 6% reduction for commission) and the two agents would each pocket $10,050 in cash (3% of sales price). However, if the condo was sold for $327,000 in a one agent deal and the seller's agent was smart enough to reduce his or her commission (say, to 3.5%) to make the deal happen, everyone wins. The seller would receive $315,555 cash (after a 3.5% reduction for commission), the seller's agent would receive $11,445 cash (3.5% of sales price), and the buyers would receive an $8000 discount on the house. Everyone gets more than what they would have received if there were two agents involved. What do you miss out by dumping your buyer's agent? Well, a free ride to the house is the primary thing I can think of. All the paperwork and home buying advice can be provided by the seller's agent. They'll hold your hand through the paperwork, loan process, and escrow process (since they're your "agent" technically). I suppose, you could even call the seller's agent to pick you up and give you a free ride to the house to look at it too. So in that case you give up nothing. You can find all the listing of houses and the contact info of the seller's agent on www.realtor.com. It is the same database used by all realtors (the so-called MLS or multiple listing service).

To recap, here are the reasons why you should use only the seller's agent:

(1) They can reduce their commissions from 6% to 3% and still have it worth their while to do the deal with you. A 3% reduction in their commission represents thousands in savings!

(2) There is a huge incentive for the seller's agent to persuade the seller that you are the right person to close and that your offer is the best (sellers don't always look at the highest offer, they also care about which buyer is actually going to close the deal), since the seller's agent can make much more if there's only one agent involved.

(3) Buyer's agents are especially evil, not because of their moral character, but because of the incentive system. They don't make money unless you actually get your offer accepted. So there is incredible pressure on them to persuade you to overbid in you offer. If you overbid, there is a greater chance that your offer will be accepted. You don't need that kind of pressure when committing yourself to the most expensive purchase of your life.

(4) The Seller's agent actually has a lot of useful information that is helpful in the home-buying process. They know if the seller is motivated, whether other offers are pending, what complaints have been made about the house by other potential buyers, etc. Since the seller's agent also becomes your agent in the deal, they have a duty to advise you (and possibly even reveal this juicy info to you). However, if you use a buyer's agent, you have absolutely no access to the good information.

So before you call up your co-worker's realtor friend because you're in the market, ask yourself if you'd rather make an extra 2 years of mortgage payments because you were too lazy to look on www.realtor.com and drive yourself to the house.