It is hard to imagine that you could pay nothing for something and still get ripped off. Unless, of course, you are buying a home.
In the US, by custom, the seller of a home is expected to pay for a real estate agent to help a buyer buy the home. Naturally most home buyers jump on the deal. After all, you can’t do much better than free, or can you?
While buyer’s agents may do many things for buyers, buyers really only work with agents for one reason: expertise. In particular, they seek the answers to two very important questions from their agent:
1. Should I buy this home?
2. How much should I offer?
In the US there is another custom when it comes to compensating real estate agents: most of them work for lottery tickets. And as result, the buyer becomes the agent’s lottery ticket. A ticket they hope will pay off some day.
One of the consequences of this lottery-like compensation is that the agent’s true allegiance is NOT to the buyer, but rather to the deal itself. Regardless of how hard they work, to get paid, their buyer has to actually buy a home. And to make sure that happens, the agent may have to talk the buyer into buying a home they probably shouldn’t. Or, worse yet, talk the buyer into paying more than they should for a home, just to ensure the deal gets done and they get paid.
So, buyers work with “free” agents primarily for their advice and ultimately cannot trust it because of the way they are compensated. Nice.
In this circumstance, the rip off comes from taking the advice of an expert who cannot be trusted. An expert offering misguided advice that could easily cost the buyer more money than if they simply paid for their own agent by the hour. An agent who would be loyal to them because they were not working for lottery tickets.
So, why do buyers subject themselves to this potential rip off? Because it is invisible. Paying a real estate agent by the hour, which could cost a couple thousand dollars, is highly visible. It is “real” money the buyer has to pay out. On the other hand, paying ten thousand dollars too much for a home because they took compromised advice is invisible. They may have overpaid for the home, but they will never know it, so all is good.
When it comes to infrequent, big-dollar transactions like buying a home, nothing is more valuable than expert advice. But it only has value if it can be trusted. Advice that cannot be trusted is not worth the price, even when the price is free.
To learn how to keep more or your hard-earned equity when you sell your home, check out The Intelligent Home Seller eBook and The Intelligent Home Seller eCourse.