Everyone has that one friend who is handy enough to be dangerous. He is always looking for a deal and is convinced the cheapest way to get any project done is to buy the supplies and do it himself. That it may take three times as long is not a concern. That it makes life inconvenient for others in the house is also not a concern. That something could go wrong does not cross his mind. The goal is to do it himself and save money. The question is, how much money does he really save? And is he opening himself up to costly problems if something goes wrong and the project hits a snag requiring a professional?
House projects are expensive, but generally not nearly as expensive as buying a house. For this reason, some buyers consider buying a home without a real estate agent. Real estate listing agents and buyer’s agents typically each get a 3 percent commission, usually paid by the seller, but considered when setting the sale price. On a $310,000 house (the media home sale price in the third quarter of 2019), that is $18,600. Provided the buyer can get the price they want without the help of a real estate agent, there is a potential to save a lot of money.
But not all home sales will have a 6 percent commission fee, even if real estate agents are involved. The real estate commission structure is changing as real estate agents do less work than they did in the pre-Internet age. Buyers do expansive Internet searches for homes, listing agents have lockboxes (so they don’t need to open a house for buyers to view it) and automated systems let buyers set up home showing appointments. For all these reasons, commissions are often negotiated below 6 percent.
Below are some of the main things a Realtor (a members of the National Association of Realtors) or real estate agent does for a buyer:
- Help you find a home, including providing information about the neighborhood, area schools, distance to employment hubs and area highlights, whether its proximity to shops or the woods;
- Negotiate an offer based on the asking price, comparable homes for sale in the area, market conditions and the condition of the home;
- Write a Purchase and Sale Agreement, including the contingencies that must be met for the sale to go through and the amount of the Earnest Money Deposit;
- Help find a home inspector and attend the home inspection;
- Negotiate any home repair needs, or adjustments to the sale price if repairs will not be made;
- Communicate with the seller’s agent throughout the process;
- Work with a title company for a title search and help arrange title insurance;
- Work with a real estate attorney to pull together all the documents needed for the closing, including a list of closing costs to help you be prepared.
Buying a house without a real estate agent can be done, though it is not easy and will likely require the help of a real estate attorney. Buyers may later regret the decision if price negotiations quickly sour, or the sale hits a legal snag they are challenged to solve. Savvy negotiators familiar with legal jargon may feel differently.
So, do you need a real estate agent to buy a house? Match your buying situation and personality to those outlined below to find out.
Buying a house is a complicated, expensive and timely process. Even with the help of a real estate agent, it usually takes at least three months and often much longer, to move from the initial house hunting steps to closing and moving in. A buyer’s agent will represent your interests and is familiar with the area you are focused on. Real estate agents are familiar with home prices and market conditions and can be much more helpful than going to open houses alone. A good agent will guide buyers through the entire process from house hunting and negotiating a sale price to setting up and monitoring inspections and appraisals, and getting all the paperwork ready for the closing.
If you need to move from your current house quickly or don’t have a lot of extra time, using a real estate agent will speed up the home buying process and ensure it goes as smoothly as possible. A study by the National Bureau of Economic Research comparing the Multiple Listing Service (MLS) home listings by agents versus For Sale By Owner Homes (FSBO) in Madison, Wisconsin found that FSBO homes took longer to sell than those where a real estate agent was involved.
First-time buyers should also assess their negotiating grit. The National Association of Realtors reported in 2018 that average FSBO home sold for $200,000, versus $265,000 for a home sold with a real estate agent. FSBO advocates say the 6 percent commission makes up the difference. But the study by the National Bureau of Economic Research found home sales prices were not significantly higher for MLS listing. One explanation for the difference in price may be the kind of home: some experts say condos, mobile homes and homes in rural areas (read less expensive), are more likely to be for sale by owner. If this potential differential is of concern to you, an agent may be your best route.
If you are not in a rush to get out of your current space, prefer not to deal with middlemen, and have the negotiating savvy, patience, time and know-how to work through a lot of paperwork (with the help of a real estate attorney), you could consider making the purchase without an agent.
One of the key things real estate agents do is help buyers identify potential homes. For out-of-state buyers, real estate agents fill a crucial gap by attending open houses for them and even leading the buyer on real-time virtual tours with Facebook or Skype. Good real estate agents also manage the process of appraisals, home inspections, and agreed-on repairs. Surprisingly, this scenario is not as uncommon as it may seem: One in three people in 2017 reported buying a house without first seeing it in person.
Buying from a Family, Friend or Neighbor
Sometimes buyers are buying a house they know well. They could be buying it from parents, aunts or uncles, or from a close friend. They could also be buying a home from a neighbor. In these cases, negotiations can be low key and friendly. Buyers have also already scaled the biggest challenge of home buying: finding the right property. A 2018 report found that 56 percent of buyers said finding the right property was the biggest challenge.
Buyers and sellers may find that they can save the combined buyer’s and seller’s agent commission fees and instead hire a real estate attorney. This will mean buyers must manage the process themselves, including getting an appraisal, title search and home inspection.
Buying a House from Your Landlord
Most renters live in apartments that are not for sale, but there are some cases where a renter will decide to buy the house they are currently living in from their landlord. Only about 5 percent of renters purchase their rental property each year. Landlords find this advantageous because they don’t need a listing agent to list the property and help them find a buyer, saving them money and time. Landlords also know the renter in question has good credit and will be able to secure and make monthly mortgage payments, as they were making timely rent payments.
Some buyers in this situation may agree on a purchase price and get an appraisal, title search, mortgage and home inspection, using a real estate attorney to draft the paperwork. Renter’s familiarity with a property should not preclude them from getting a home inspection; renting is very different than buying. Other buyers may be less comfortable negotiating the price and conditions and choose to hire a buyer’s agent. Buyers would then need to agree with the landlord on how to pay the agent’s commission, or do it themselves.
For Sale by Owner (FSB0)
Before the Internet, FSBO home sales were much harder, as sellers depended mostly on word of mouth and yard signs. These days, online resources make it easy to do the more common hybrid model between selling on your own and using a Realtor or real estate agent. Websites including Isoldmyhouse.com and Forsalebyowner.com offer packages that include listing on MLS, which drastically increases the number of prospective buyers who see a house. Despite this, FSBO home sales have decreased from a high of 15 percent of all homes sales in 1981 to 7 percent in 2018.
Buyers who find a FSBO house may find that no real estate agent wants to work with them. Many buyer’s agents worry they will also end up doing the job of the listing agent, without being compensated. This is especially true since the seller typically pays the agent’s commission through the sale of the home. This means that if you find an agent willing to work with you on a FSBO sale, you may need to pay the 3 percent commission yourself. You can also choose to negotiate directly with the owner and hire a real estate attorney.
Investors who Have Bought Many Properties
Some people buy properties and rent them out to make income. These people usually focus on a specific geographic area and are very familiar with local real estate prices and options. Investors who feel confident in their negotiation skills and have the time or resources to plan for inspections, appraisals and all the needed paperwork might forego a real estate agent. Investors who buy homes as side income and also have a full-time job may decide that paying the real estate commission is worth the money in order to save them time and hassle.
Buying in a Hot Market
If you are buying a house in a competitive real estate market where most sellers have a listing agent, you will find that a good real estate agent is not only helpful, but necessary. Sellers want to make sure buyers are serious, and some might view buyers without any agent as less serious, even if they have a mortgage pre-approval letter. Hot market often require an Earnest Money Deposit to show you are serious about purchasing a property. Negotiating the amount and securing it through a third party are both jobs managed by a buyer’s agent.
The Final Decision
Whether or not to hire a real estate agent is a decision that only a buyer can make. Most people, 86 percent to be exact, used a real estate agent to purchase their home. Why? There are many reasons. For starters, the commission paid to real estate agents is a part of the selling price, so buyers who choose not to use an agent must negotiate with the seller to reduce the purchase price and actually save money. Real estate agents are very familiar with local markets, have access to market data, and know when a house is priced low, high or correctly. They also have access to listings for short sales, which can be excellent options for some buyers but are only shared in trusted circles of agents.
For all these reasons, many buyers decide to hire a real estate agent. Buyers should be sure to hire a buyer’s agent and not an agent providing dual agency, meaning they serve both the seller and the buyer in a single transaction and are likely to have conflicts of interest arise.
Own up helps people navigate the entire home buying journey. If you are looking to purchase a new home and have questions about whether to hire a real estate agent, or any other home ownership topics, give us a call.