The Value of Buyer Agents? Much More Than Zero
We have been told that the three most important things in real estate are location, location, and location. But there are two other axioms which arguably supersede, one of which Burnett v National Association of Realtors (NAR), a federal class-action lawsuit of home buyers in Missouri, is presently testing in the courtroom.
What is not under dispute is that sellers want to maximize the financial return on their home. To do so, many home sellers do, in fact, try to market their homes by themselves. However, according to 2022 NAR data, more than 90% of all home sellers ultimately engage a Realtor to represent them.
The tactics of this association are currently under scrutiny when it comes to buyer representation, and how those tactics violate the other axiom: That every buyer wants to save money on their purchase.
Critics of NAR believe that it holds a de facto monopoly through its multiple listing service, and that were this “cartel” to be broken up, buyers could save more than $120 billion in fees per year. They argue that the sales commission commonly paid to a buy-side agent should remain in a buyer’s pocket.
The facts say something quite different: Buyers affirmatively choose to hire Real Estate agents to represent them because of the value they add to each transaction.
To the untrained eye, an agent might not appear necessary. After all, more than sixty million people per month visit Zillow.com, the most trafficked US Real Estate website. Despite the ample information freely available, 94% of buyers aged 25-44 years old still hire an agent to represent them. While that number decreases to 80% for buyers over 55, recent consumer studies show that this number has only increased for both groups over the last two decades.
Why would this be? Because nowhere does caveat emptor carry more weight than in a home purchase. First-time buyers comprise between 25-40% of annual home purchases. Those other home buyers have been out of the market for an average of nine years. Buyers have realized they are in over their head without the guidance of a real estate professional who can manage the morass of the transaction. But more than that, they have decided en masse to hire representatives who have a fiduciary responsibility to negotiate the best price, help them conduct due diligence, and put together a team of professionals to navigate the inevitable issues that arise.
Buyer agents add value at every step of the transaction. It does not begin with the negotiation on price, either. In a low inventory environment, agents are relied upon as market makers. But often, they are only tour guides. According to NAR, the median gross income of its members was $54,330 in 2021, almost twenty-three percent lower than the median gross household income in the United States.
The best agents earn more and deserve it. They are advocates, advisors, and people who care deeply about their clients, today, and long after the transaction is completed. To label them as unnecessary is an insult, not just to them, but to the buyers at all price points who choose to hire them.
Scott Harris
Scott Harris is a 20-year industry veteran and top producing agent at Brown Harris Stevens who has been involved in the marketing and sales of nearly $1 billion of New York City residential property, representing both buyers and sellers.
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