Buying Real Estate In New York City: Buyers Need Representation
A buyer clicks on her computer. She googles “Real Estate New York City”. Below the slew of ads, several citywide search engines appear, with Realtor.com and Zillow atop the list. The buyer chooses one and refines her search: she wants to live in Manhattan, on the Upper West Side, in a nice roomy two-bedroom apartment. She likes the older buildings with solid walls and high ceilings, so she zeroes in on those. She finds two or three she deems appropriate and emails the agents whose names appear prominently beside the photos. Because she is probably looking on Zillow, she almost certainly doesn’t understand that the name featured prominently beside the listing photos is NOT that of the listing agent, the one the seller has hired to represent the property. It’s another agent, likely one with minimal knowledge of the apartment or the building, who has paid to have his name placed there. Nonetheless, she contacts that person, the one who paid to have his name there, and sits back, thinking, “This was so easy. I can just search on my own.”
And yet…was it so easy? First of all, the broker whom she contacted was NOT the seller’s agent; he is an agent who bought that spot in order to attract buyers. He will want to represent her as a buyer’s agent, regardless of whether he knows anything about the unit, the building, or anything else. Second, even if she drops him, there are a number of other issues. Most buyers are actually ill-equipped to appreciate the subtle differences between the apartments they see and the buildings in which those apartments sit. They generally don’t understand the arcane rules of co-op boards, which vary substantially from one building to the next, or the complicated relationship between renovation and resale value. And finally, almost no one represents themselves well in a negotiation. A well-chosen buyer’s agent can do all these things. In providing both negotiating expertise and deal and building savvy, buyers’ brokers almost always pay for themselves.
In this past Sunday’s New York Times, one of the lead articles (“Are Broker Commissions Too High?”) focused on the issue of agent commissions which, as the writer accurately said, are considerably lower in most European countries. What the article did not note, however, is the primary difference between the U.S. and those countries: co-brokerage. Buyer brokerage does not exist in most European markets. If a buyer wishes to purchase a property in London or Paris, there is no MLS or other complete repository of listing data. Buyers must contact numerous different real estate agencies to make sure they see an appropriate random sampling of properties. And all of those agencies represent the seller.
Many buyers believe that working directly with the listing agent will save them money. Typically, when a seller negotiates commissions upfront with his agent, the agent concedes a one-point difference between a co-broked sale and one with a direct buyer (who is not represented by a buyer’s agent.) On a million-dollar deal, that 1% comes to $10,000. For most buyers, a buyer’s agent can save them that and more between negotiating a better price and more favorable terms. And in a co-op, there is almost no buyer who can put together a well-crafted board package without expert help.
One of my agents was recently hired by buyers who, confident that they didn’t require representation, assembled a board package to present to the co-op in which they had chosen to buy. Fortunately for them, the Board did not simply reject them based on their submission. Instead, the Board returned the package, indicating that they were unable to review it due to its overall lack of organization and clarity. The buyers panicked. Not knowing how to provide the clarity the Board clearly required, they hired my colleague to assist them in the process of sculpting a more complete and elegant presentation.
The internet provides listing information, which enables any prospective purchaser to inform themselves about availability in the market, to look at photos and/or videos, and to read about the building. Agents gain knowledge from working for years in the business, learning the nuances which distinguish one micro-neighborhood from another, one building from another, and one buyer’s needs and order of priorities from another. Often buyers do not themselves understand their priorities until an expert agent teases them out as they travel between properties. Increasingly, buyers in complex markets like New York believe that their transparent access to information about availability enables them to become do-it-yourselfers. Without guidance, these buyers are much more susceptible to making mistakes in both price and property. Information is readily available. But information and expertise are not the same.