Purchase of real estate without broker - who should get theoretical savings

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flight
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Purchase of real estate without broker - who should get theoretical savings

Post by flight »

I'm interested in opinions about who should receive the theoretical savings of a real estate transaction without the use of a broker.

More specifically, I have approached someone with an offer (not currently on the market) to purchase a house. It's a credible offer backed by a professional real estate appraisal. I've taken the appraised value, less 6% for the theoretical seller's real estate commission, and then added $5,000.

My belief is the seller, all else equal, should be indifferent between an offer at 100% of appraisal using a RE broker, and an offer of 94% of the appraised value without using a RE broker. But I would be interested in opinions about this.

And then as a twist, if I said the seller was a family member, would that change your answer? I've thought about splitting the theoretical savings 50/50, ie 97% of appraised value.

thanks
Teague
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Re: Purchase of real estate without broker - who should get theoretical savings

Post by Teague »

The buyer should get the savings, because they are the only one bringing money to the table.

or

The seller should get the savings, because they are the one paying the broker.

or

There are no savings to dole out, since the deal is what it is, and "theoretical savings" has no meaning.

So there's your answer.
Last edited by Teague on Sun Dec 29, 2019 7:01 pm, edited 1 time in total.
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stan1
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Re: Purchase of real estate without broker - who should get theoretical savings

Post by stan1 »

It's negotiated.
livesoft
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Re: Purchase of real estate without broker - who should get theoretical savings

Post by livesoft »

I think it would be negotiable. If I was the seller, I would tell the buyer that I should get the entire savings because of the risk I am taking not using a broker.
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RickBoglehead
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Re: Purchase of real estate without broker - who should get theoretical savings

Post by RickBoglehead »

Seller may get higher offers by listing the property.
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Carefreeap
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Re: Purchase of real estate without broker - who should get theoretical savings

Post by Carefreeap »

livesoft wrote: Sun Dec 29, 2019 7:04 pm I think it would be negotiable. If I was the seller, I would tell the buyer that I should get the entire savings because of the risk I am taking not using a broker.
In theory both parties benefit by being represented by brokers. The last time I sold a property (2015 and in CA) there were nearly 100 pages to the contract including disclosures.

Split it, especially if it's a family member.
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jfn111
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Re: Purchase of real estate without broker - who should get theoretical savings

Post by jfn111 »

Split the 6% and you both come out ahead.
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celia
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Re: Purchase of real estate without broker - who should get theoretical savings

Post by celia »

The seller is taking a bigger risk since they haven't found out if there could be better offers out there. Why should they take your offer and give you back the saved commission when there might be someone else out there who would offer above the appraised amount? After the commission, they should come out ahead.

Now, if they want to do you a favor and let you have it at your price, that is their choice. But what if another relative wanted it for a little more than what you are offering? Then you're back to the same situation.
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David Jay
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Re: Purchase of real estate without broker - who should get theoretical savings

Post by David Jay »

jfn111 wrote: Sun Dec 29, 2019 7:16 pm Split the 6% and you both come out ahead.
This is how it should work.

Over the decades, I have invariably found that the “sale by owner” seller always felt that it was their money (“I’m not paying some realtor for just doing some paperwork”). So I was expected to pay the same price and put up with the inconvenience of working with an amateur seller. Never thought it was worth it.
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flight
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Re: Purchase of real estate without broker - who should get theoretical savings

Post by flight »

RickBoglehead wrote: Sun Dec 29, 2019 7:09 pm Seller may get higher offers by listing the property.
There are some additional nuances that I neglected to mention. The property/house has existing tenants with below market rent, and let's say they have long term leases or implied leases to stay there. I don't think continuation of below market rent (say 50-75% less than comparable rental rates) for the tenants is going to generate strong (or stronger) offers if brought to market with an agent.

There are some other nuances, but really just wanted to isolate the lack thereof broker commission.

Putting aside the family or tenant aspects, my offer to buy is a $5,000 premium to the after broker fee, appraised value of the house.
Freetime76
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Re: Purchase of real estate without broker - who should get theoretical savings

Post by Freetime76 »

I second “ it’s negotiable”.

I’d say your point of less commission plus a 5K “bonus” is a good pitch if your appraisal is good - meaning there’s activity in the area for decent comps and decent average days on market before a sale (meaning you’re satisfied with the dollar amount).

And it’s also a plus is the seller wants no hassle of showings, questions, tenants getting annoyed or what have you...not sure what contingency might be in your offer (repairs?). If no repairs (I.e. over x amount), that’s a plus in real dollars.

Is this all in writing or just a conversation? If dollars are the question, it’s not hard to talk through the net amount going to the seller, vs with an agent.
The below market tenants/family piece are a wild card in a way. Pulling from experience: Someone might take less $ for allowing dearest cousins (or some such) to stay at the same rent for an extra year. Or to help them move. Or who doesn’t plan to bulldoze a prized garden. Or to renovate the interior including ripping out the cabinets dad installed... you’d have to consider the situation.
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Watty
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Re: Purchase of real estate without broker - who should get theoretical savings

Post by Watty »

flight wrote: Sun Dec 29, 2019 6:45 pm More specifically, I have approached someone with an offer (not currently on the market) to purchase a house.
An unsolicited offer would likely need to be pretty good so get them to sell when it is not on the market unless there is some special situation.

Among other issues selling the property could cause them to have a large tax bill.
bluebirdy
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Re: Purchase of real estate without broker - who should get theoretical savings

Post by bluebirdy »

"who should receive the theoretical savings of a real estate transaction without the use of a broker"

if the house is not on the market, there are exceptions, but normally you would have to make an offer above "retail" pricing to persuade the owner to sell... so there's not really going to be any savings to go around
J295
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Re: Purchase of real estate without broker - who should get theoretical savings

Post by J295 »

No rule of thumb. It’s negotiable.
S4C5
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Re: Purchase of real estate without broker - who should get theoretical savings

Post by S4C5 »

Why should the default scenario be a 6% commission?

Situation is somebody sets a price and somebody else pays it. If they feel the price should be lower due to added hassle without using a middleman, then negotiate what that’s worth and adjust the price.

Buyer is not entitled to a 6% discount. That is a made up number.

Seller can and will just say he’s already factored that into the asking price if buyer tries to ask for a 6% discount. Then what?

I’m eagerly awaiting the day in the next 5-10 years when traditional real estate agents are made redundant and no longer have jobs.
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Re: Purchase of real estate without broker - who should get theoretical savings

Post by JGoneRiding »

flight wrote: Sun Dec 29, 2019 7:31 pm
RickBoglehead wrote: Sun Dec 29, 2019 7:09 pm Seller may get higher offers by listing the property.
There are some additional nuances that I neglected to mention. The property/house has existing tenants with below market rent, and let's say they have long term leases or implied leases to stay there. I don't think continuation of below market rent (say 50-75% less than comparable rental rates) for the tenants is going to generate strong (or stronger) offers if brought to market with an agent.

There are some other nuances, but really just wanted to isolate the lack thereof broker commission.

Putting aside the family or tenant aspects, my offer to buy is a $5,000 premium to the after broker fee, appraised value of the house.
Implied lease means nothing and even a long term lease can most likely be broken by a new buyer. Most all states allow for eviction if the new owner intends to occupy the property themselves. So I wouldn't discount that. Why would you want a property though with all these hang ups. You unlikely another buyer are family so much more stuck.
tesuzuki2002
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Re: Purchase of real estate without broker - who should get theoretical savings

Post by tesuzuki2002 »

RickBoglehead wrote: Sun Dec 29, 2019 7:09 pm Seller may get higher offers by listing the property.
Offers might be lower too!!!
BillyK
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Re: Purchase of real estate without broker - who should get theoretical savings

Post by BillyK »

Fair market value is not a value less real estate commission. Theoretically, since the majority of properties, particularly single family ones sell through Realtors, real estate commissions are reflected in the home’s market value. When the bank’s appraiser comes in and appraises the property, they will treat a FSBO the same as non one. It may give the seller some leeway in a soft market to sell for somewhat less than a property listed with a broker, but regardless of whether it is listed with a broker or not, the property is worth what a qualified buyer is willing to pay for it.

The problem with FSBOs is that the seller is looking to save paying the commission and the buyer is looking to get a discount. Usually, you have two emotionally attached amateurs negotiating with each other which is often not a good thing. Many FSBOS will end up eventually selling through Realtors and paying commissions.

You should try and negotiate the best price that you can for the property, but whether the seller is paying a commission or not is irrelevant in the property’s value.
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flight
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Re: Purchase of real estate without broker - who should get theoretical savings

Post by flight »

Freetime76 wrote: Sun Dec 29, 2019 9:37 pm I second “ it’s negotiable”.

I’d say your point of less commission plus a 5K “bonus” is a good pitch if your appraisal is good - meaning there’s activity in the area for decent comps and decent average days on market before a sale (meaning you’re satisfied with the dollar amount).

And it’s also a plus is the seller wants no hassle of showings, questions, tenants getting annoyed or what have you...not sure what contingency might be in your offer (repairs?). If no repairs (I.e. over x amount), that’s a plus in real dollars.

Is this all in writing or just a conversation? If dollars are the question, it’s not hard to talk through the net amount going to the seller, vs with an agent.
The below market tenants/family piece are a wild card in a way. Pulling from experience: Someone might take less $ for allowing dearest cousins (or some such) to stay at the same rent for an extra year. Or to help them move. Or who doesn’t plan to bulldoze a prized garden. Or to renovate the interior including ripping out the cabinets dad installed... you’d have to consider the situation.
It's a conversation that lead to a verbal offer. And, we did talk through the offer with the seller about the impact of not having a broker versus the typical commission paid when using one.

To an earlier comment about whether hiring a RE broker or putting on the market would solicit a higher offer, what I am pointing out is the marketability of the property is seriously question, in my opinion. The seller has family living there presently at below market rent, and preference is to have them continue to live there. If a buyer, other than me, were to accept that condition for life of estate, it would likely come at a huge discount, not a premium, to my offer.

Putting all that aside, what I really wanted to isolate is how the seller should feel between getting an offer at appraised value and having to put on the market with a broker, versus getting an offer of 94% of appraised value + $5,000.
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Re: Purchase of real estate without broker - who should get theoretical savings

Post by Jack FFR1846 »

Whoever the better negotiator is or whoever is in the stronger position. We were specifically excluded in the seller's real estate agreement. They didn't pay the 6% commission. I negotiated a price 40% below asking. I'd suggest we got all of the savings and then some. Seller had a lot to lose and I knew it.
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Re: Purchase of real estate without broker - who should get theoretical savings

Post by carolinaman »

David Jay wrote: Sun Dec 29, 2019 7:25 pm
jfn111 wrote: Sun Dec 29, 2019 7:16 pm Split the 6% and you both come out ahead.
This is how it should work.

Over the decades, I have invariably found that the “sale by owner” seller always felt that it was their money (“I’m not paying some realtor for just doing some paperwork”). So I was expected to pay the same price and put up with the inconvenience of working with an amateur seller. Never thought it was worth it.
+1. I agree. When I was looking for homes, I avoided "sale by owner" for these reasons. As a buyer, you are exposing yourself to numerous potential issues without proper guidance and a good contract.
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MrBobcat
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Re: Purchase of real estate without broker - who should get theoretical savings

Post by MrBobcat »

flight wrote: Sun Dec 29, 2019 6:45 pm
And then as a twist, if I said the seller was a family member, would that change your answer? I've thought about splitting the theoretical savings 50/50, ie 97% of appraised value.

thanks
The 2 times I've done this, once as a buyer and once as a seller we've split the difference 50/50 and everyone was happy.
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dm200
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Re: Purchase of real estate without broker - who should get theoretical savings

Post by dm200 »

stan1 wrote: Sun Dec 29, 2019 7:01 pm It's negotiated.
Yes!
Whoever the better negotiator is or whoever is in the stronger position. We were specifically excluded in the seller's real estate agreement. They didn't pay the 6% commission. I negotiated a price 40% below asking. I'd suggest we got all of the savings and then some. Seller had a lot to lose and I knew it
.

And Yes as well
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