I recently spoke with a friend about house purchasing. She indicated that despite many offers and many months of searching, she and her husband had not had any luck purchasing a house. When I asked who her agent was, she replied, "Oh, we don’t need one."
Despite being a highly intelligent individual, my friend failed to understand the simple correlation between her lack of a real estate salesperson and her failure to bid successfully on a house. Again, the proliferation of online information has led people to believe they should do everything on their own.
While I blogged earlier about the certain situations when a homeowner could do a FizzBo (For Sale By Owner) and employ an attorney to prepare the disclosures, rather than a listing agent, it is the exception rather than the rule.
My friend fundamentally misunderstood the role of the buyer’s agent. It’s true that a buyer does not enter into any contract with the agent, but lack of a written agreement does imply lack of contribution to a successful purchase.
New buyers assume that they can see all the listings they want through the online Multiple Listing Service. This fails to take into account the other things the buyer needs to know other than the address and listing price. Let’s start with the the basics of payment. A listing agent may have an exclusive listing agreement with the seller wherein the seller agrees to a 5 or 6% commission. However, that commission is usually shared in some way with the selling agent (or less confusingly, the buyer’s agent).
My friend was probably operating under the theory that by not having an agent, she was somehow saving the seller money and could offer a lower price.
However, when you are a buyer without an agent, the listing agent does not to share the commission. This also means that the seller experiences no break in the price so there is no price incentive for the seller to take your lower offer.
While you the buyer decide on what amount to offer, the agent has experience as to whether or not "underlisting" is occuring. That means if the comparables in the area have been going for 20% over asking (yes, very common in the Cupertino or Los Altos school district!), then your agent can give you a ballpark of what range your offer should be in.
In addition to payment and price, the agent should offer their expertise in what may be typical or atypical about the transaction terms. They are required also to do a diligent visual inspection of the property too to note visible defects of their walkthrough.
Are their drawbacks to using a Realtor? Yes, often buyers feel pressured by the time constraints of a deal and sometimes experience the suspicion that their agent "only cares about their commission." This may be true of some agents, but certainly does not bode well for their future referrals. Avoid this situation by word of mouth referrals and learning about the agent’s longetivy in the profession and what community ties your agent has. Those who have been in the business for a longtime have not succeeded by neglecting their clients and using scare tactics to close a deal.
What if you are in contract on a house and you feel that your agent has abandoned you? Do not hesitate to seek the legal assistance. The standardized purchase forms such as the California Association of Realtors (CAR) or the PRDS ones used on the peninsula are riddled with strict timelines. Failure to observe one can cause trouble. Waiving contingencies before you’ve had a chance to satisfy yourself of all your concerns is another problem.
What should your agent NOT be doing? Well, the most common problems we are seeing is a variation of a financing scam. Your agent should NOT be leading you down a rosy of path of how you can do a series of zero-down, totally financed deals and flip the properties for a quick and tidy profit. Real estate attorneys are hearing increasing horror stories of agents who convince their clients to buy multiple houses that are over-priced and and financed with unreliable appraisals. Later, the homeowner realizes that each house is worth anywhere from $100k to $200k less that the purchase price. The buyer is now stuck servicing loans that are far more than they can afford and that they would have to pay money out of pocket in order to sell the homes.
Short sales aside, financing scams are the one key thing to watch out for. Working with reputable brokers and doing a reality check is important. You as the buyer cannot substitute anyone else’s judgment for your own so when a deal sounds too good to be true, it probably is.