Your car has a blown engine, and needs a new one. Can you replace it on your own?
Of course you can. But that doesn’t mean that you should.
If you’re an experienced auto mechanic, it might make sense to do the work yourself. But if you’re just a weekend tinkerer, or if you don’t know the difference between a Chevy and a Tesla, it’s probably best to rely on an expert to do the work. Otherwise, the damage you could do might end up costing a lot more to repair than you’d be saving in labor costs.
Here’s the lesson, and you undoubtedly know what we’re going to say next: of course you can buy a house without a realtor, but that doesn’t mean that you should.
Home sales are complicated. And real estate agents (or realtors, who are simply agents who belong to a specific industry group) have knowledge, contacts and experience that most of us don’t. After all, helping people buy or sell houses is what they do every day.
They know the market and its pricing trends, they’re experienced in negotiation and the required paperwork, they’re familiar with the best outside professionals (inspectors and title companies, for example), and they often have inside knowledge about houses that are about to hit the market or aren’t listed on MLS. Many times, they know the seller’s agent personally and can find out if the listing price is realistic, or exactly what it will take to get a deal done.
Here’s what may be the most important reason for using a good real estate agent. The buyer usually doesn’t pay for their real estate agent; the seller does. In other words, using a realtor or buyer’s agent doesn’t cost you anything, but pays huge dividends – especially if you’re a first-time home buyer who’s completely new to the home buying process.
Even so, some people want to do it themselves. Here’s a look at when that may make sense, and a step-by-step guide to buying a house without a realtor.
When You May Want To Go It Alone
There are a few cases when home buying without a real estate agent could make sense.
- You’re a realtor or former realtor, or have a close friend or relative who is a realtor.
- You’re buying the house from a friend or relative who you completely trust.
- You’ve bought lots of homes or other properties, and know exactly what to do and how to do it.
- The seller doesn’t want to pay your agent’s commission – and neither do you. This happens most commonly when the house is a FSBO (For Sale By Owner), because the seller isn’t paying a listing agent commission for his side of the sale either. (Caution: some FSBOs don’t use realtors because the seller doesn’t want to disclose a serious problem with the house to an agent, who would then have to disclose it to prospective home buyers. Proceed at your own risk.)
In that last case, the many advantages of using a real estate agent may make it worth your while to swallow hard and pay a buyer’s agent on your own. But if you’re still determined to buy a house without a realtor, here are the steps to take. If you're looking for a comprehensive checklist for buying a house, you can find it here.)
How To Buy a House Without a Realtor
Before anything else, you should narrow down the list of communities or neighborhoods in which you’d like to live, do a complete budget to figure out your how much house you can afford, check your credit score to get a good idea if you’ll qualify for a mortgage, and do some general research on home prices in your target area (Zillow, MLS or other real estate websites are fine for that). Armed with that initial information, you can move forward.
- Get a Mortgage Pre-Approval: This not only saves time during the mortgage approval process, but shows the seller and her agent that you’re a serious and qualified buyer. It also confirms how much you can afford to spend on a house, because you’ll know approximately how large a mortgage loan you can obtain and what interest rate you can expect to pay.
- Hire a Real Estate Attorney: In some states you’re not required to use a lawyer when you buy a home. It’s highly advisable, though, if you don’t have an experienced realtor who can review the mountains of paperwork required for a real estate purchase. A small legal mistake can cost you dearly. Fortunately, real estate lawyers aren’t usually as expensive as you’d think, since you only need their services a few times during the process.
- Find Your Dream House: As you house hunt, you’ll be dealing directly with sellers or their agents. Remember that neither is your “friend,” even if you have a lengthy, pleasant discussion with them at an open house. You’ll be advocating for yourself, so the more research you’ve done on the neighborhood, homes in the area and real estate in general, the better.
- Get the Seller Disclosures: By law, home sellers have to disclose structural and safety issues with a house to potential buyers. Since you’re acting as your own agent, it’s up to you to obtain that disclosure. (Disclosure laws vary by states – you should research the specific laws in your own state before going any further. At the very least, most states require lead paint disclosures, and require that the owners give truthful answers if asked direct questions.)
Home sellers generally have to disclose issues like the use of lead paint, asbestos and radon in the home, damage done from insect infestations, water and mold, and major defects in the foundation, heating and plumbing systems.
This is also a good time to ask questions about other structural or safety concerns you may have, and to find out how recently important items like the roof and furnace were replaced. You can also clarify at this time which fixtures or appliances will be staying with the home, and which might be available for inclusion in the sale or purchase.
- Research Comparable Sales and the Market: Before making a formal offer, it’s important to know how realistic the asking price is, and whether the market is a hot or cold one. That information, particularly data on recent selling prices for comparable properties in the area, and how great the competition might be for the home, are key guides to whether the house is worth its proposed sale price or how much you should offer.
- Make an Offer and Negotiate: Offers are made on formal real estate documents, as are all counter-offers during the negotiation process. This is one of the times when having a lawyer will be extremely important, since these are binding legal documents. When submitting an offer, you’ll have to include a check for earnest money; the amount depends on customary practice in your area.
Offers and counteroffers should include more than just the purchase price you’re proposing. They should include contingency clauses involving closing date, inspection periods and other conditions that must be met before closing. They should also include any requested financial concessions such as cash toward closing, as well as a list of all fixtures and appliances which will be included in the sale. Each offer and counteroffer should state a firm deadline for response.
- Formally Apply for a Mortgage: The approval process can take weeks, so don’t delay. Stay in touch with the mortgage lender throughout, so you’re not surprised with bad news just before closing. Be sure to receive a final rundown of all closing costs before the actual closing date.
- Find a Title Company: You’ll need to protect yourself by having a title search done and obtaining title insurance. A buyer’s agent usually recommends a title company, but since you’re on your own, ask your lawyer (if you have one) or do some research. Don’t ask the seller’s agent, though, just to be safe.
- Get a Home Inspector: The same goes with finding a good home inspector, who will spend several hours going through the house from top to bottom to find any problems and will deliver a complete written report. If the home inspection doesn’t include pest and termite inspection, hire a separate company for that.
- Renegotiate (if necessary) and Sign Off on Contingencies: It would be terrific if the home inspector finds no problems whatsoever. That almost never happens, though. Before you formally remove the home inspection contingency from your contract, it’s time for another talk with the home seller or their agent to ask for repairs, price reductions or allowances in order to remediate any issues. Once you’ve come to terms on the bottom line numbers and everything’s agreed to, you can remove the contingencies and get ready for closing.
- Closing: Do a final walk-through the day of the closing, to make sure everything’s ready for you to take possession. At the closing you’ll have to have your ID, a cashier’s check (or proof of wire payment) for the down payment and closing costs – and if you have one, your lawyer should be with you to go through the piles of documents and make sure everything’s in order.
Congrats – you’ve bought your new home.
There are three common thoughts that people have after buying a house without a realtor:
- “I’m never doing that again!”
- “That wasn’t as hard as I thought!”
- “Maybe I should look into getting my real estate license!”
Hopefully you’re in the second or third group, meaning your home purchase went through smoothly.