Do-It-Yourself Home Buying? Three Ways it Can Cost You
Buying a home is one of the largest, most significant investments you will make in your lifetime. The decisions you make during the buying process are critical and will affect you long after the sale. There’s a lot at stake, but by relying on the experience of a real estate agent, you can eliminate much of the uncertainty and stress when buying a home. So, why do some buyers try to go it alone and buy without using an agent?
Unfortunately, some buyers mistakenly believe that they’ll be better off without a real estate agent when buying a home. Following are three common misconceptions that some buyers have about using an agent, and why giving into those misconceptions could potentially put their real estate investments at risk.
Misconception #1 “It will be easier and more convenient to have the agent who has the FOR SALE sign in the yard help me, rather than getting my own agent.”
The person who has the property listed (and who has placed the FOR SALE sign in the yard) is called a Listing Agent. The Listing Agent works for the seller and, by law, must act in the seller's best interest. Not yours. It’s the Listing Agent’s job to sell the home for as much money as possible and with terms that benefit the seller. Therefore, as a buyer, it typically isn’t advantageous to rely on the advice or counsel of the Listing Agent. Be leery of a Listing Agent who volunteers to represent both you and the seller. This is called Dual Agency - a complicated scenario requiring the Listing Agent’s loyalties to lie with both you and the seller simultaneously. Dual Agency is illegal in some states. An agent who represents buyers is called a Buyer’s Agent. It is the job of the Buyer’s Agent to help the buyer obtain his or her ideal home for the lowest price and best terms possible. A Buyer’s Agent works exclusively for you - the buyer - and has a legal fiduciary obligation to represent your best interests. A Buyer’s Agent can streamline and and simplify the process - walking you through each step and helping you avoid costly mistakes.
Misconception #2 “I’ll get a better deal if I don’t use an agent.”
Some buyers feel they will save money by not using an agent -- believing that the seller will reduce his price in lieu of paying an agent commission. Here's the problem with that theory: When a homeowner hires a Listing Agent to sell his home, the owner is required to sign a contract called a Listing Agreement. The Listing Agreement states that if the home sells, the homeowner is contractually obligated to pay the Listing Agent a commission - say, 6%. What most people don't recognize is that (per the Listing Agreement), the Listing Agent is in no way required or obligated to share that 6% commission with ANYONE except for a licensed real estate agent who is representing the buyer (a Buyer’s Agent). The seller won't simply reduce his price in lieu of paying a commission, because the commission is not his to give. The commission belongs to the Listing Agent. So if you purchase a home without a real estate agent representing you, most likely the seller is still paying the the ENTIRE commission ... all to the Listing Agent. Some Listing Agents will tell you they'll give you a "good deal" if you buy directly from them without representation. This is a common tactic used by some Listing Agents. Remember, they stand to DOUBLE their commission if you don't have an agent representing you. So, always consider the source, what their motivations are and with whom their loyalties lie.
Misconception #3 “I’ve bought property before/I’ve researched home buying on the Internet, so I’m proficient in the process. Therefore, an agent can’t really add any value.”
Finding a home is the easiest part of a real estate transaction. Anyone with access to the Internet or a newspaper can find properties for sale. It’s what happens after you’ve found your dream home that things tend to get complicated -- and where a real estate agent can add a tangible value. Let’s say you’ve found your ideal house or condo and you want to buy it. What happens next? Do you know how to make an offer? Do you understand the ENTIRE contract? How does earnest money work, how much should you contribute and who holds it? How can you be certain you aren’t paying too much for the house? What are your rights during the due diligence period? Are the numbers on your Settlement Statement correct? These are just a few of the important issues you’ll encounter when buying a home so it’s important that you receive the proper guidance. If you don’t have an agent, the Listing Agent may be willing to provide some help, but remember - the Listing Agent represents the seller and is legally obligated to look out for the seller’s best interests. If you’ve purchased real estate before you’ll have a general understanding of the process, but keep in mind that most states adjust their sales contracts yearly, so critical aspects of the contracts and processes can change year-to-year. It’s also important to keep in mind that the information you find on the Internet may be outdated, inaccurate and may not even pertain to the laws and rules in your state. An experienced Buyer’s Agent adds experience and expertise in all aspects of the sales process including financing, negotiations and more. Competent Buyer’s Agents:
- Are involved in dozens of real estate transactions per year.
- Know what can go wrong because they’ve seen it, time and time again.
- Have the knowledge to help you ask the right questions
- Can help you avoid oversights and misinterpretations.
- Have access to the most updated sources of information, including recent sales data.
- Bring a network of known, trusted real estate professionals, including: lenders. attorneys. Inspectors and contractors.
The best part about using a Buyers Agent is that they are compensated from a portion of the seller-paid commission when you purchase a home, so there is no direct cost to you.