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Ask Dr. Don: Do we need a real estate agent?
By Dr.
Don Taylor • Bankrate.com
 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
or not 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.
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. This Better
Business Bureau publication has more information on real estate agents,
including buyer's agents.
-- Posted: July 1, 2003
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