Blog Home Buying Information

When Should You Use a Real Estate Agent to Buy a Home?

using a real estate agent

As a reader of the MortgageHippo Blog, you most likely know that Trulia, Redfin, and Zillow are not the names of aliens from another planet but are among an ever-growing list of websites that help buyers locate homes and the corresponding seller’s information.

Also, as a reader of this blog, you know that we are hippo-sized fans of online tools that help home buyers take control of their home-buying experience. Anyone looking for a home can find available properties in their desired areas with a few clicks of a button. So, with so many websites to locate homes for sale, should home buyers still use a real estate agent to find their perfect home?

When considering such an important decision, consider the big three – no, not NBA players, but  Expertise, Power, and Money.

Expertise

Purchasing a home is a complex transaction. Due to its complexity, many different professionals get involved along the way: MortgageHippo for information regarding home buying and mortgages, a real estate attorney for your purchase contract, a home inspector, an appraiser, a title company, etc.

You may think of a real estate agent as a member of this group that is only in charge of finding you a property (which you also think is within your Google reach without an agent). You are partly right – a real estate agent should save your finger a lot of scrolling through properties on your iPhone, but that’s not the whole story. The agent should also play an integral role as quarterback among these many different professionals, which is no small task.

A real estate agent should be your expert and here’s how:

  • They can educate you on refining what property you are looking for and how much it will cost.
  • They can sort through active listings of properties (through the Multiple Listing Service) in your desired neighborhoods and their relevant market conditions, including how long they have been on the market. While you can do much of this searching online, you may be relying on half-truths and expired information and not even realize it.
  • They should counsel/advise you through inspections and any needed repairs.
  • They can help answer any questions on the entire purchase process and usual mounds of paperwork.

You can navigate this expertise on your own; however, it will not be as easy as a few Internet searches may lead you to think. If this is your first time buying a home, work with experts!

Power

Let’s face it, in order to get your dream home, you will be relying on others along the way. As a result, you may not always feel in power. Working without an agent certainly increases your involvement in the process, but the right agent should increase your power in the transaction. Here’s why:

  1. The seller and their agent may take you more seriously;
  2. Your agent will negotiate on your behalf

The seller and their agent will most likely take you seriously with or without an agent IF you have secured financing, have all of your paperwork in order, and show experience with the home buying process. You most likely do not have the level of familiarity with the process to give confidence to the seller that you are a legitimate buyer, and that’s not good.

If the seller and their agent do not have confidence in you, they will either not sell you the property because of the risk of it falling through or sell you the property at a higher than market price, taking advantage of your lack of knowledge.

Enter the buyer’s real estate agent:

The real estate agent gives you more power in the transaction because you have a professional representing you and negotiating on your behalf. This is hugely important because any leg up in negotiation is a good thing. The real estate agent has a fiduciary responsibility (legal responsibility) to represent your best interests in the transaction. However, to help keep some control of your buying process, be sure to continue to educate yourself and keep in touch with all aspects of the process along the way.

Since the sellers are likely using their own agent, you want to avoid their agent taking over the entire process. If you enter the transaction and the ensuing negotiation without an agent, the seller’s agent may ask you if he/she can represent you and the seller in a dual agency role. This allows him/her to keep a larger commission.

But how can a seller’s real estate agent that is supposed to be representing the best interests of the seller also be your agent and represent your best interests? We don’t think it’s possible, and that’s why we advise against it.

Money

Money, money, money. Without a real estate agent, you may save money. This is awesome – clearly. But to do so, you must ask the right questions and know what you are doing.

In the vast majority of home sales, the buyer’s agent splits a commission (ranging from 4% to 7%) with the seller’s agent. The seller, out of the purchase price, pays the commission. The buyer’s agent does not receive their payment until after your house-hunting is over, the contract is negotiated, and the sale is complete. While this does not seem to be a cost to you, most sellers will price this anticipated cost into the purchase price, and therefore, you are participating in the payment, albeit indirectly.

If you do not have a real estate agent representing you, be sure to ask that a lower commission percentage be set and that you would like the purchase price to be lowered to reflect this. Since the seller often sets the commission percentage, without the buyer developing a relationship with the seller, the seller will not necessarily know to lower the commission. If the seller does not know to lower the commission, they will most likely maintain the original larger commission that was meant to be split with the buyer’s agent.

Without a reduction in the commission percentage to reflect that there is no buyer’s agent, you will not save money. And if there is no money savings, then you should definitely use a buyer’s agent because you will be paying for it!

If you do choose to use a real estate agent, keep an eye on their recommendations for the right purchase price and the right time to buy your home. They know the marketplace – which is needed intel.

Earlier, we stated that they have a legal responsibility to represent your best interests, but remember, the real estate agent gets paid when the transaction in complete. So, the longer the transaction takes, the longer the agent works without payment. The wonderful University of Chicago minds behind Freakonomics, so perfectly show how this incentive to get paid as soon as possible may push agents that represent the seller to sell at a lower price than the seller could achieve by waiting longer. The same philosophy can be applied to buyer’s agents that push the buyer to offer a higher price earlier so that the transaction can be finished earlier, and they can get paid.

Take a look at the authors of Freakonomics’ depiction of this.

MortgageHippo’s Two Cents

There are a number of great reasons for using a real estate agent, and we recommend finding a great agent and utilizing their expertise and power. Whether or not you choose to work with an agent, do your own research on available homes, experts and the purchase process.

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