Tuesday, July 8, 2008

Home Buying : Should I use an agent?

We're hot in pursuit of a house. We think we know which one we'd like to buy. As we're about to get into buying the house, I'm wondering if we should use a buying agent. Here are the pros and cons as I see them so far. Remember, I am a first time home buyer at the very beginning of the process. I don't know much about it and my current opinions could be bad ones.

Pros of a Buying Agent

  1. Proximity to the house We're 1400 miles away from the houses we're looking at. An agent could look at the house for us, do local paperwork, etc.

  2. Professional References A buying agent would know who to get to do the appraisals. They'll know which appraisers run high and which run low. They'll also know which building inspectors are on the level and which do a shoddy job.

  3. Bargaining They know the market and the business. They may be able to do a better job at knocking down a high price.

Cons of a Buying Agent

  1. They have conflicting interests Since the agent is paid a percentage of the house price they make more money if we spend more money. This removes motivation to help us find a lower priced house, or to bargain hard to get a price lower.

  2. They Do Nothing I Couldn't Do They may know what forms to fill out, but if the selling agent is interested in getting the house sold, they'll make sure I sign everything I need to.

  3. Higher Price The buying agent's pay has to come from somewhere. With the right negotiating it may be possible to have everyone else come out ahead by cutting the buying agent out of the picture.

Higher Price

This is the one I really wanted to talk about.

I called a friend yesterday who works at a real estate company and who has her real estate license. I wanted to get the scoop on buying agents to see if we were going to need one when we go to buy this house.

The quote which made me discredit everything else she said was
...and it doesn't cost you anything because the seller pays the agent fees...

OK, yes, it may be technically true that I will not be the one who writes the check to the agent, but isn't the check paid with money I just barely gave the seller?

One strategy I think we will be trying to use to lower the price is to not use a buying agent. By not using a buying agent we can pay less, the selling agent can take a larger incentive and the seller can keep more. Here's how it works in my mind.

With Buying AgentWithout Buying Agent
House Price (we pay)$100,000$98,000
Selling Agent Commission3% ($3,000)3% + $400 as motivation ($3340)
Buying Agent Commission3% ($3,000)0% ($0)
Money Left for Seller$94,000$94,660

We give the selling agent extra beyond the 3% commission so that he/she stands to gain from the deal. I pay $2,000 less on the house and the seller makes an extra $660. The benefit margins increase for everyone as the price of the house increases of course.

Since the selling agent and the house seller have more than likely already signed a contract stating what the commission is, reaching some sort of arrangement like the one listed above will depend on what their contract says and on their flexibility within the contract. They may be willing to break the contract if they will both come out ahead.

It will also depend on the house seller being smart enough to realize that selling the house for less money still nets him a higher return.

The Seller Agent Takes All (and splits it) Scenario

Removing the buyer agent commission will only work if the seller contract has a separate percentage for the buyer agent to earn. In some cases the selling agent will simply take a higher percentage (like 7 or 8%) and then split that with the buying agent.

In cases like these the seller doesn't have much, if anything, to gain, but I'm hoping that we'll have more power over the selling agent. We could
  • Tell them that at the current price we would want the buying agent's percentage
  • Tell them that if we don't get the house reduced by an appropriate amount that we will get a buying agent so that their commission is reduced

Have you used a buyers agent? Should I?

Does anyone here have experience using a buyers agent and think I should? Has anyone not used a buyers agent? How hard is it to do the paperwork on your own? We'll see how well the negotiating goes once we get closer to buying. For now we're still looking, but we're narrowing in on choices and will have to start talking to sellers soon.


GoliathDebtor said...

I could be wrong on this, but I've heard that the seller's agent will have the 6% commission written into the contract, and the buyer's agent simply gets half from the seller's agent. If there is no buyer's agent, then the seller's agent gets all 6%...

(Like I said, I could be wrong, but that's my understanding)

Rich said...

I've heard similar things, so I think that that is a common arrangement, but it will come down to the details in the contract.

That sort of case is where "threatening" to bring on a buying agent would possibly carry weight on the selling agent, since including a buying agent in the deal would cut their commission in half.

Sarah said...

We used an agenct when we bought this spring, for a few reasons:
1. We live in a hot seller's market, where properties sell very quickly. We felt that we needed an agenct to get us in to homes in a timely fashion. Doing the research on our own could have meant losing out on properties.
2. We were first time home buyers and had no idea what we were doing. We really liked and trusted our agent, and we really needed help and advice along the way, which was invaluable.

For us, having an agenct was totally worth it, as we needed someone to hold our hands in some ways. If you don't need this, then you might be fine.

The fact that you're trying to buy a home from 1400 miles away is interesting. Will you be buying the house without seeing it yourselves?

Rich said...

"The fact that you're trying to buy a home from 1400 miles away is interesting. Will you be buying the house without seeing it yourselves?"

We're not quite that brave :-)

Our initial searching will be all online.

When we're pretty sure we like a place we've got some family in the area that will go look at it for us.

If it still looks good after that then we'll go out and see it in person right before making our offer.

...at least that's the plan for now.

Sarah said...

Ah, I see. I had a family member that bought her home sight unseen, just with us sending her some pictures. I always thought that was kinda foolish.

Good luck with your house hunting!

Alison said...

I just used a buyer's agent. don't bother. In this day and age you can easily research the market on the internet using public records and real estate websites. You will know what price is a good price.

You can easily find out about appraisers and builders etc on Angie's List and that only costs $30 to join.

The buyer's agent will pressure you to spend more than you want to on a house. It's a huge pain. The only benefit was when we were negotiating, that the agent did all the faxing and phone calling, but at the same time, it was irritating that we could not just have a conversation with the seller rather than doing it down this whole chain of people which totally de-personalized the transaction and I think it brings out the worst in people when they don't even know the person they are dealing with (to give you a hard time about stuff). That is my opinion on it.

sara l said...

One thing an agent can do that you can't is look at local MLS info and do comparisons. For instance, they can see if there are foreclosures in the area and what other homes recently sold for. Since you're coming from so far away they may also know more about the area (local politics/changes affecting the house location). If there's an HOA they can also help navigate those issues.

I think the key is to find the right buyers agent. Not someone who's just looking to make a quick buck, but someone who cares about helping you find the right property. There are people out there that will just try to make you spend more, but I think there are also agents that care about what's best for you.

I'm currently using an agent, and my mom and aunt are agents. My mom has convinced the owners of her last 4 closings to look lower than their original thought. She and her partner have also suggested to others that they save for a while, fix their credit, etc before buying a house so they can have the better loan programs.