Ask Brian is a weekly column by Real Estate Expert Brian Kline. If you have questions on real estate investing, DIY, home buying/selling, or other housing inquiries please email your questions to [email protected].
Question from Stuart in VT: Hi Brian, For the last past six weeks, I’ve been searching online for houses. Several have sold before I even talked to an agent about them. But I keep searching and adding a few new ones to the list that I’m interested in. You see, it’s taken me over two years to come up with what I think is enough for the down payment. Now, I have it and I’m ready to seriously look at houses that I might want to make an offer on. That's why I started looking online and taking notes about six weeks ago. But this is my first home, and I don’t know why I should hire an agent. It seems to me that it will just cost me money and time. I’m thinking I’ll just call the telephone number listed and directly make an offer. It would speed things up by cutting out the middleman when houses are selling as fast as they are. I think that by doing it myself, I can get it done faster and probably get a deal that better fits my needs and wants.
Answer: Hello Stuart. As a first-time buyer, I can’t stress enough how important I think it is for you to use a buyer’s agent. The short answer to the question you should have asked is: Yes, you can buy a house without an agent, but it is seldom a good idea, and I can’t imagine it ever being a good idea for a first-time buyer.
Have you looked at how a purchase offer is drawn up before it is presented to the seller? If you think you can do better buying your first house without an agent, I suggest that you pull up an online purchase offer form and read it. Then try filling it in with a dummy offer just to see how confident you feel making a commitment that could last for the next 30 years. I think that alone will make you reconsider how important it is to have a buyer’s agent working for you. But there is much more to it than only the purchase offer…
Let’s start with the cost to hire a buyer’s agent. Seldom does the buyer pay an agent fee? It’s the seller that pays the full fee which includes the buyer portion of the agent fee. As the buyer, you get the service mostly for free, although at least part of it is figured into the sale’s price. However, the buyer’s agent is not working for the seller. The buyer’s agent has a fiduciary duty to represent the buyer’s interests.
Stuart, a buyer’s agent helps the homebuyer in many other ways than just the purchase offer. A few of the more important services that you’ll gain include:
Help match your budget and needs to a house you can afford. There is a lot that goes into this one alone. For instance, along with the down payment, an agent can help you understand how much money you’ll need for closing costs. These can vary depending on how a purchase offer is written and what is customary in your region. As an example, you’ll probably pay for the appraisal as a closing cost. But even before closing, you’ll need to pay for a professional inspection out of your pocket. And even before you get to that point, an agent can advise if the offer you are about to make is justified for the house you’ve decided to buy. Somewhere in the mix, you may need some advice on finding a mortgage broker that specializes in something that will help you, such as a VA loan.
Provide neighborhood facts before you make an offer. Agents specialize in neighborhoods, at least you want to find one that specializes in neighborhoods that you are interested in. This is about more than just crime statistics and good school districts. A good agent could disclose that a new freeway ramp is going to be built on the main road that is likely to quadruple surface street traffic. Or that a major employer just went out of business and that will hurt home values. Just as easily, an agent could suggest an adjoining neighborhood where good things are happening or about to happen.
Assist in writing and negotiating the offer. This is the step that I suggest that you try by yourself to see how confident you feel doing it alone. There is much more to the offer than only the purchase price. You’ll need to understand and include clauses and contingencies. You may need to tweak a few standard clauses and contingencies to fit your specific needs. Part of the negotiation usually involves the seller removing or modifying your clauses and inserting their own. You’re going to want to know why they probably made the changes. There are a ton of possibilities here such as you sweeten the deal by offering a short-term lease-back until the seller can find another place to live or the seller including all the appliances in the sale so that you don’t have to buy them the same day you hand over all your money to close the deal.
Help to navigate the professional home inspection report. The inspection report does not come with a pass/fail grade. It is a report that tells you what the inspector found wrong with the house. It is up to you to review and evaluate the report to determine what is acceptable to you. Every house has problems – even brand new houses. You are almost certainly going to want an agent’s opinion about the inspection report.
Understanding the paperwork. Beyond the inspection report, there is a ton of paperwork that you will be expected to read and understand. Some of it includes title reports, the appraisal, and estimated closing costs. It’s going to include complex jargon and terms that you want to be explained to you and someone to answer questions that you have.
Review seller disclosures. You might not know what to ask for or what sellers in your state are required to disclose or not disclose.
Stuart, this is only a sampling of what a professional real estate agent will help you understand and work through. You will have many questions and want many more explanations about the home buying process. As a first-time homebuyer, I strongly recommend having a buyer’s agent.
Please comment with your thoughts about using a buyer’s agent.
Our weekly Ask Brian column welcomes questions from readers of all experience levels with residential real estate. Please email your questions or inquiries to [email protected].
Brian Kline has been investing in real estate for more than 30 years and writing about real estate investing for seven years with articles listed on Yahoo Finance, Benzinga, and uRBN. Brian is a regular contributor at Realty Biz News