If you’re planning to buy a home, having someone help you find the perfect home then negotiate a great deal seems like an amazing idea. And that’s what you can have when you choose a buyer’s agent (sometimes called buyer advocates). Popular in the USA and gaining popularity here in Australia, buyer’s agents are to buyers what selling agents are to sellers.
A buyer’s agent can help make finding the right home easier and make the job of negotiating a deal less stressful. And they can help you avoid buying the wrong property for your needs and save you tens of thousands in the process.
But the services of a buyer’s agent isn’t free. And selecting a buyer’s agent can be tricky.
Below, we take a deep dive into what a buyer’s agent is, how much they cost, how to select one and much, much more.
What is a buyer’s agent?
According to the Department of Mines, Industry, Regulation and Safety (DMIRS), a buyer’s agent is a “…licensed real estate agent or registered sales representative who undertakes real estate transactions while representing a buyer for the purchase of a property.” Whereas a selling agent acts in the best interests of the seller, a buyer’s agent acts exclusively for the buyer.
What’s the difference between a buyer’s agent and a selling agent?
In short, a buyer’s agent acts for the buyer, the selling agent acts for the seller. The seller’s agent works to get the highest price with the most favourable conditions for the seller. The buyer’s agent works to secure the property at the lowest price and on conditions that are favourable to the buyer.
Are buyer’s agents regulated?
In WA, buyer’s agents are regulated by the Real Estate and Business Agents Act 1978 and the related Real Estate and Business Agents and Sales Representatives Code of Conduct 2016.
But there are exceptions.
A person can identify and shortlist properties on behalf of a buyer (a property finder service) without being licensed so long as they don’t conduct any form of negotiation.
What does a buyer’s agent do?
A buyer’s agent has a number of roles that include:
- Based on the buyer’s needs, develop a clear brief of the sort of property that is required taking into account factors such as price, location and proximity to amenities;
- conduct research in order to prepare a list of properties that fit the buyer’s criteria;
- arrange property viewings;
- inspect properties and provide advice as to their suitability;
- appraise properties and advise on estimated market values;
- negotiating on behalf of the buyer, including bidding at auction;
- conduct enquiries and searches with relevant authorities;
- identify limitations and restrictions that affect the use and enjoyment of a chosen property;
- prepare the Offer and Acceptance (O&A) including adding special conditions designed to protect the buyer’s interests;
- explain the terms and conditions in the seller’s contract and advise if they are in your best interests (a buyer’s agent cannot provide you with legal advice unless they are a lawyer);
- arrange building and timber pest inspections;
- monitor the settlement process;
- assist with due diligence including attending the pre-settlement inspection.
What can’t a buyer’s agent do?
A buyers agent is not allowed to:
- provide financial advice unless they hold an Australian financial services (AFS) license;
- Receive a fee from the seller while acting as a buyer’s agent, unless both parties provide fully informed consent prior to them so acting;
- Have any form of undisclosed conflict of interest;
- Receive any form of incentive or inducement for the referral of a product or service related to the transaction unless they have the buyer’s prior written acknowledgement.
Alternatives to using a buyer’s agent
There are a number of options available to buyers if they don’t wish to employ a buyer’s agent. These include:
- DIY – buyers who are confident with the property purchase process can represent themselves. This involves doing their own research, negotiating directly with the real estate agent and managing the settlement process. Buyers who take this path – and most do – should bear in mind that the agent is legally and ethically obliged to act in the best interests of the seller. Their ethical obligation, therefore, requires them to obtain the highest and best possible price for the property.
- Use a conjunctional agent – quite often a real estate agent will offer to find a property for a buyer, including properties listed by other agents. In the event of a successful sale, the conjunctional agent shares in the commission paid by the seller to the listing agent. On the surface, this seems like a great option because the agent does all the work and the buyer doesn’t get charged a fee. But the arrangement has many hidden risks. To quote DMIRS, “If you use a conjunctional agent, they are required by law to act in the seller’s best interests, not yours, as the seller pays their commission. This means you should consider what information you provide to a conjunctional agent, as the sub-agent must relay all relevant information to the seller and that could lead to you paying a higher buying price. If you are not paying an agent you must assume the agent is working in the best interest of the seller.”
- Appoint a buyer’s agent for a limited part of the process – sometimes a buyer might find a property they wish to buy but make use of a buyer’s agent to complete the negotiation or bid at auction. Or, they might want the buyer’s agent to find a property but complete the negotiations themselves.
How much does a buyers’ agent cost?
Buyer’s agents set their own fees. Most will have a success fee of some kind, usually a percentage of the sale price. They may also charge an upfront commitment fee. This fee is often not refundable. Other fees may include fees for negotiation and bidding at auction, and research and property selection fees.
As a rule of thumb buyer’s agent fees range from 1.5 – 2.2% of the purchase price. More expensive properties often attract a lower percentage.
In addition to the agent’s fees, you may be asked to reimburse them for the cost of items such as land registry searches and government enquiry fees. You should only be charged for the actual cost incurred.
When do buyer’s agents get paid?
Unlike a selling agent who gets paid at settlement a buyer’s agent can be paid at any point of the buying process. Many buyer’s agents charge a flat fee on the signing of the appointment to act and then a success fee when you enter into a purchase contract. Others charge a single success fee either on sale or at settlement. Some agents charge fees for specific services, such as bidding at an auction. These fees are generally paid on completion of the service.
It’s important that you check with the agent about when and how their fees are payable before signing their appointment to act.
Why you might use a buyer’s agent?
- You have an advocate whose sole job is to act on your behalf.
- You want an objective third party to act on your behalf in the negotiation to purchase a property that you’ve found.
- You lack knowledge of an area or type of property that you intend to purchase
- If you’re uncertain about the market value of a property, especially a property that’s being offered for sale without a price.
- In WA, consumers who use a licensed buyers agent are protected by the Fidelity Guarantee Account
- Buy right – access to off-market properties, see properties for what they are, don’t get swept up in the hype. Independent, not emotionally connected to the outcome
- Save time – having a professional do the groundwork on their behalf (potentially saving on a lot of open homes and lost weekends searching)
- Save money
- Derisk the transaction, include the right terms and conditions on the contract.
- Assist with due diligence, property inspections
How to select a buyer’s agent
There are several factors to take into account when selecting a buyer’s agent. The most common include:
- How well can you relate to them? Buying a home can take you well out of your comfort zone so it’s important that you have a good working relationship with your buyer’s agent.
- Can you trust them? You’ll be sharing your personal goals and aspirations so it’s important that they come across as trustworthy. Pay attention to any red flags that might suggest otherwise.
- Experience – How many years of experience does the agent have? Length of experience is often equated to a positive client outcome.
- Do they offer the right services for your needs? There’s no point employing a full-service buyer’s agent if all you need is someone to bid for you at auction.
- How much do they charge? Of course, price is a big factor, but it’s not the only factor.
- How is their fee structured? Will you be required to pay anything upfront? Is there a success fee based on a percentage of the sale price? When is the success fee paid?
- What extras do they charge for? Things like land registry searches and inquiry fees can get expensive.
- What happens if you decide to terminate their services early? For example, what happens if you find a property yourself during the contract period? Will they still charge a fee?
- What professional associations do they belong to? Are they members of their state’s real estate institute or the Real Estate Buyer’s Agents Association of Australia
- What is their research methodology? It’s important that the buyer’s agent has an established methodology for establishing the value of a property. Guessing, gut feeling or “in my opinion” aren’t options.
- Do they have professional indemnity insurance? This is a must-have. If they don’t, select someone else.
- Can they provide references from other clients? Make sure the references they provide are recent and verifiable.
- Do they have the specialist knowledge you require? For example, if you’re buying a development property does the agent have the specialist skills required to appraise this type of property.
How to appoint a buyer’s agent
A buyer’s agent is appointed in the same manner as a selling agent is appointed by the seller. By law, agents must obtain written instructions to act prior to undertaking any work on behalf of a client. This agreement is also called an authority to act.
The authority to act is a legally binding contract. It obliges the agent to provide the services, and the buyer to pay the fees and charges, set out in the document.
Although many buyer’s agents use the authority form created by their local real estate institute some choose to have their own form. Therefore, it’s essential that a buyer reads the document carefully and asks any questions prior to signing.
Don’t forget, even though an agent might use a standard form the terms, conditions and price it contains aren’t set by law. The buyer is within their rights to negotiate these matters prior to signing the contract.