Are you in the market to purchase a home or investment property? Have you decided whether or not you will use a real estate agent to assist you with your purchase? Here’s something to consider: about 90% of buyers use a real estate agent or broker when purchasing a house. Buyers not using a real estate agent are typically buying a home directly from a friend or family member. There are many benefits to having an experienced real estate agent help guide the way. Plus, buying a home without a real estate agent can be risky.
No Agent = No Representation = Increased Risk
Buying a house is often one of the biggest financial decisions people make in their entire lifetime. If you’re considering purchasing a home, you may think to yourself…”I don’t need assistance from an agent. Agents are pushy and don’t know any more that I do.” That’s often an unfortunate assumption, and one that can cost you money. The truth is, there are fantastic real estate agents out there who are honest, no-pressure, and who bring years worth of experience to a deal. A good buyer’s agent will dramatically reduce the risks involved in purchasing a home.
How Much Will A Buyer’s Agent Cost?
Some buyers may mistakenly assume they have to pay a buyer’s agent a commission out-of-pocket. That’s an overwhelming thought, given that buyers have to pay for their down payment, inspections, loan fees, insurance, taxes, etc. Luckily, the listing agent many times pays the buyer agent’s fee.
One major benefit of using a buyer’s agent is their agent is often paid by the listing broker. That’s because a when seller hires their agent (or broker, technically), they agree to pay a brokerage fee (commission) that covers commission for both sides of the transaction. Then, if the buyer purchasing the home has their own agent, the seller’s broker will pay the buyer agent’s broker a portion of the brokerage fee. If the buyer doesn’t not have an agent, the agent representing the seller will assist the unrepresented buyer throughout the transaction. However, in that situation, the buyer would be unrepresented, without the confidentiality or counsel of an agent.
Buying Directly Through The Seller’s Agent (No Representation)
Some buyers assume they can get a discount if they go directly to the seller’s agent to purchase a home. They assume the seller will owe less commission when there is no buyer’s agent involved. However, this is very seldom the case. The total amount of commission paid by the seller is agreed upon before the home hits the market. And commission is typically enough to cover the agent’s time and expenses for both the seller and buyer. If there is a separate buyer’s agent, the seller’s agent usually splits the commission with them.
Another misunderstanding is the seller’s agent will provide all the same representation for a buyer that they would get if they had their own, designated buyer’s agent. That’s not true. What actually happens is the buyer ends up dealing with an agent who’s sole responsibility is to represent the seller’s best interests. That agent’s job is to get their seller the best price, and best terms for their seller’s situation. That usually puts the buyer at a significant disadvantage.
Think of it this way…have you ever trained “the new guy” or “the new gal” at work? I’m talking about someone with no experience, or maybe someone with very little, or outdated experience? What are the chances that person could keep up with you if you weren’t taking the time to show them every step of the process? How many things would fly completely under their radar? Think about it.
Buying a “For Sale By Owner” Home
If you’ve been shopping for a home, you’ve likely noticed For Sale By Owner (FSBO) ads online or maybe some yard signs. If you’re not already working with agent, you may decide reach out to the seller directly to get more information, or schedule a time to see the home in person. At that point, you may even decide this home is the perfect home for you and write an offer! In that scenario, you hopefully have two honest parties trying to work out a deal.
Both buyer and seller probably assume they’re saving money by “not paying any commission”. They both agree on a price, and it’s a “done deal”. That’s great news, right?! Maybe not. In a real estate deal, it’s usually the questions you never knew to ask that will cost you money. Buying a home without a real estate agent can lead to some very unexpected outcomes.
A Rent-to-Own Disaster (Story Time)
Here’s a real-life example of a disastrous For Sale By Owner purchase (these were not my clients):
A husband & wife couple signed a rent-to-own contract with their landlord. They assumed that meant they had “purchased” a home. They consistently paid on time, every month, and also handled the repairs & maintenance. This went on for over 10 years. All the while, the property was still in the landlord’s name.
At some point, the landlord re-married. His new wife then took out a mortgage on the property. Keep in mind, this is a rent-to-own situation, and the “buyers” are technically still tenants at this point. There has been NO transfer of ownership. And even though these folks were making payments for over 10 years, they were still just tenants, not owners. They probably had no idea the new mortgage existed. Here’s where the story gets complicated…
The landlord’s new wife went to prison and the landlord died (I’m not sure in what order). At this point, the landlord’s son worked to settle the estate, which was now pretty complicated…because of the new step mom…who was in prison! I’m not a lawyer, so I don’t know exactly how all of this got worked out. Here’s what I do know:
Around this same time, these “buyers” (tenants) decided they were ready to sell “their” house and move on to the next chapter in their life. Their decision had nothing to do with the situation surrounding the property ownership. They just wanted to move, just like anyone else does. They had a life change, or found their house no longer suitable for their lifestyle. Unfortunately, they were trapped…indefinitely.
Eventually, they were able get most of their money from the sale of the house, but it took years. During that time, they had no clue how long it would take. They surely spent many days in court. They had legal fees. In the meantime, their lives were on hold, and I happen to know they missed out on several homes they really hoped to purchase.
I can almost guarantee this would have never happened had they simply worked with a good real estate agent instead of going at it alone. In this example, buying a home without a real estate agent was a disaster for everyone involved.
Offering Too Much
Suppose you’ve found the perfect home offered For Sale By Owner. You research prices on Zillow and determine you’ll offer a little less than the seller’s asking price. By the way, the information found on Zillow is notoriously wrong or incomplete. Even Zillow’s own opinion of how accurate Zestimates are in Kansas City is poor.
Anyhow, your offer is accepted. You pay for inspections, and everything checks out. Great! Now, the bank orders the appraisal. Unexpectedly, the appraisal value comes back too low. The bank will only lend a certain amount of money on the property, based on the appraisal. If you’re not willing or able make up the difference (in cash), you may not be able to purchase the home. And, you’ll have already spent all that energy, time and money. What a waste! Having a real estate agent’s professional opinion of value before writing an offer on a property can save you a lot of time and money.
The Paperwork
When you buy a home, you’ll need to complete a contract that specifies the terms of the deal. How do you find a good contract to use? You can find contracts online, or at the office supply store. These contracts might technically work, but often aren’t very detailed and may not adhere to local laws and regulations.
Excellent purchase contracts are another great resource real estate agents can provide. The standard set of contracts used by most agents in the area are provided by the Kansas City Regional Association of Realtors®. These contracts written by attorneys with the assistance of real estate agents on the local board’s contract committee. They’re designed to be fair, thorough, and provide enough clarity to keep deals together when the going gets tough. Further, working with an agent who is very familiar with the ins and outs of these standard contracts can save you lots of hassle, time and money.
If you end up buying a home without a real estate agent, you should at least hire a real estate attorney to write your contracts and make sure you’re protected. A real estate attorney might not have the same market insight, tools or negotiation skills, but they at least understand the laws surrounding real estate.
Home Inspections
It’s very crucial to have your potential home inspected before you buy it. What inspections would you order, and which inspection companies would you hire? Is there anything unique about the property in question which would require additional and more specialized inspections? Are there any red flags you’re missing which would save you the cost of inspections, because knowing them ahead of time would be a deal-breaker? These are all things an agent can help with.
Let’s assume you complete inspections and aren’t sure what to make of a 50 page inspection report. Most home inspection reports list a daunting number of things wrong with a house. How do you know what items are important vs simply informational? Unsure what something in the report means? An agent can help you ask clarifying questions with the inspector. Agents are also a great resource for helping you develop a game plan when negotiating repairs. They can help you prioritize what’s most important, then work with the seller to address any serious defects.
Final Thoughts
We’ve covered a lot of information, so let’s review. Buying a home without a real estate agent can be risky, clunky, and inconvenient. There are many benefits to using a real estate agent to help you throughout the home buying process. The best part is that you usually get to enjoy all of these benefits while the seller pays the commissions!
Are you interested in learning more about purchasing a home? Feel free to reach me below.
Justin Rollheiser – REALTOR®
Keller Williams Realty | Diamond Partners, Inc.
13671 S Mur-Len | Olathe, KS 66062
Direct 913-800-7653
Office 913-322-5878
Comments or Questions?