Becoming a buyer in NYC is a process in which you learn what you are made of. Creating something valuable, enjoyable, and worthwhile requires fortitude, guts, and a little imagination. Not only is the endeavor highly emotional, but it is also nuanced and can be expensive if mismanaged. It requires having the right supporting players in place, from your mortgage broker to a fantastic attorney as well as a broker who truly serves your best interests. Someone who says what they think, not what you want to hear, differentiates a salesperson from a trustworthy advisor.
The right team is vital in helping you deal with potentially rigid co-op boards and the legal intricacies of financing, negotiation, and comparative market analysis. An experienced broker will also know how to structure your bid to stand out amongst a sea of others.
Adding to the confusion is a new variable regarding which party pays the commission on a real estate transaction. What once was a seller’s responsibility has now become an open forum for discussion and negotiation. But pushing the commission onto buyers, who already bear significant friction costs associated with purchasing, has serious repercussions. That additional ‘hit’ can prevent them from meeting the price a seller will agree to — especially given the continuation of higher interest rates, which further diminishes the buyer’s purchase power.
Based on that fact pattern, we see that everything is status quo: sellers are still paying the commission because they recognize it’s the smartest thing to do. Because they are vested in getting the highest price possible and protecting the building’s value, sellers have essentially boycotted the idea of reallocating the commission.
According to a report by The New York Times last spring, 85 to 90 percent of home buyers in New York City used a buyer’s broker. More recently, StreetEasy published a Zillow research report showing that 88 percent of buyers nationwide used a buyer’s agent the previous year.
There are so many reasons a buyer’s broker is essential. When people buy a real estate asset, they generally want to avoid buying a lemon. They typically wish to have the ‘blessing’ of a trusted residential broker to ensure what they are looking at is sound.
A broker can advise on certain things that a third-party website cannot, such as the nuances and underpinnings of the neighborhood and the building—including whether you can hear the train or subway rumble underneath the unit, whether there’s a history of water or gas leaks that hasn’t been fully disclosed in the building minutes, or whether the next-door neighbor is a heavy smoker. All these factors are material and set the tone of who your broker is and how they serve you.
Most buyers recognize the value of bringing in an advisor to provide comparable analysis, conducting proper due diligence surrounding the building’s financial history, and determining how the unit will hold value over time and what sets it apart from other properties. An expert will also be able to ascertain whether the property is in a ‘fringe’ neighborhood that will recede quickly in a soft market, or one that will take off. A qualified buyer’s broker can genuinely understand how to structure an offer properly and illicit a deep counter from the seller to get what the buyer wants, all while creating an environment that will allow both parties to feel like they have won.
A buyer’s broker understands that they aren’t just helping them obtain a home; they are helping to secure an asset that must perform well over time.
They can prepare some of the most laborious but necessary documentation, framed in a way that fully discloses the buyer’s identity to the board, the managing agent, and the seller — without their meeting the buyer.
The skill with which a broker curates that narrative is among the most critical components in the sales process, given this will determine whether buyers are granted a board interview and get approved to buy in the building.
The buyer’s broker should prepare you for a co-op board interview protocol and detail what you can and cannot say during that interview (if you are lucky enough to get to that point.)
Buyers who choose to represent themselves forfeit valuable support and assurance in how and what they present to ensure a successful transaction and the long-term protection of their purchases’ value.
My chief point is that there are some things that money can buy, and one is a level of experience and acumen, showcasing what a broker’s value truly is. Brokers who have been through many different market cycles recognize and know how to leverage those opportunities in their client’s favor. A seasoned pro can find inherent value where others may panic and mistrust the opportunity in front of them. Having an advisor guide you in going against the market’s grain is where the value proposition of a great broker lies.
Moreover, an established buyer’s broker can often ‘part the sea,’ if you will, getting their clients’ offers considered first by the seller, who can rely on the broker’s consistency and track record in seeing the deal through to the end without any issues.
Sadly, buyers often feel they cannot trust a broker based on negative prior dealings. I spend much of my time cleaning up what others have overpromised and underdelivered. It is a trust exercise in convincing the client to believe that what I say, I will do.
I also spend time clearing up falsehoods, such as that buyers believe because they don’t have a broker, they will have more leverage to offer by applying commission points to incentivize the broker to move forward with their offer– even if it’s not at the same price–or that the commission adjustment allows the seller to have more to take home.
Most people don’t realize that when a buyer doesn’t have a broker representing them, two things happen: The listing broker has no issue driving that bid up whether they have a broker or not and most likely will still increase the bid to maximize the seller’s profit. They may not always disclose transparently to the seller that the buyer has come in without representation. Therefore, they are capitalizing on the additional 1.5 or 2 percent it may have saved and allocating it to their own pocket.
While we recognize it is a conflict of interest, it is the fiduciary responsibility of both the buyer’s and seller’s broker to disclose if a dual agency has been created.
Without using a buyer’s broker, the listing agent’s fiduciary responsibility remains with the seller, not the procuring buyer, so the buyer entering the transaction is walking into a situation where they have no one advocating on their behalf.
The bottom line is that when you are putting a substantial amount of cash into an asset, it is incumbent on all parties to have a representative looking out for their needs to ensure they are getting the most value for their asset, whether on the buy or sell side.
As a real estate advisor, I am very uncomfortable ‘selling’ my value to anyone. However, I am a big believer in actions speaking louder than words. Anyone wishing to enter into a real estate transaction should look very carefully at their agent’s actions to appreciate best what they bring to the table.
