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?
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.
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.