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Ask Dr. Don: Do we need a real estate agent?

  Dear Dr. Don,
We're first-time home buyers, and we're still doing our homework. Is it better trying to get everything done ourselves without dealing with a real estate agent (so we can get the price of the house lower), or should we deal with a real estate agent? Can you tell me the advantages and disadvantages of each path? Do you have any suggestions about us doing it ourselves?
Thank you,
Martha Maison

Dear Martha,
I understand what you're trying to accomplish, but you need to think through the actual consequences of a decision not to use a real estate agent.

First, remember that the homeowner is making the decision whether to list her property with a real estate agent. So the homeowner is deciding whether you will pay a commission. You can limit your search to for-sale-by-owner properties, but that can drastically limit your selection of available homes, since about 80 percent of all homes are listed with a real estate agent.

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The seller may be a little more flexible on price when selling by owner, but they're not likely to give you all the commission savings or they'd be no better off than if they had let a real estate agent have the listing. So the seller's motivation is to keep all or part of what she would have paid in commissions.

Let's assume that the typical commission in your market is 6 percent. Let's further assume that by purchasing a by-owner listing you can save half the commission, or 3 percent. If the homeowner can reasonably expect that her house will sell at $150,000, then she's saving $9,000 on commissions by not listing the property and may be willing to sell the house for $145,500, splitting the commission savings with the buyer. You could save $4,500.

You're going to spend at least some of that savings in additional time and effort in completing the transaction. Do you know which costs are customary for a seller to pay in your market and which the buyer normally pays? Can you pick out a good home inspector, termite inspector and do you have any thoughts about when you want to close on your new home?

You'll definitely want a real estate attorney to review the transaction. You should take that step even if you used a real estate agent since the agent can't provide legal advice, but how many extra hours of the lawyer's time will you require because you bought a house without an agent?

I think a first-time home buyer is well served by selecting a buyer's agent to represent them. A buyer's agent represents your interests in a real estate transaction. If you don't sign a buyer's agent contract with your agent, then they represent the seller in the transaction even though you're the one who brought them into the transaction.

The listing agent and the buyer's agent will typically split the commission stipulated in the listing agreement. You want to make sure that your agent is paid in that manner and can't come back to you for any part of the commission.

The written contract that you sign with a buyer's agent should stipulate that the buyer's agent's commission is to be paid solely by the seller from the sales transaction proceeds. It would be a good idea to have your real estate attorney read this contract before signing.

It would be best to have an exclusive buyer's agent rather than someone who could potentially represent both buyer and seller. You may not be able to find someone in your area that is exclusively a buyer's agent. That's OK. You can still have them act as your buyer's agent up to the point where you're asked to sign a dual agency agreement.

A dual agency agreement allows the real estate agent to represent both seller and buyer. In your situation as a first-time home buyer, I wouldn't recommend that you sign a dual agency agreement. The Bankrate.com story Is 'your' agent really working for you? has more information on real estate agents, including buyer's agents.

-- Posted: March 15, 2004
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