Use an Agent or Go It Alone?

A young woman is considering buying her first condo. She does her homework. She knows what she can afford, surfs the online real estate sites, and has some idea what’s available where she wants to live.

She sees an open house sign on her way to a friend’s house. Out of curiosity, she stops in, and signs a sheet that says she is not working with a real estate agent. Looking around, the home seems to have everything she wants. How can she be so lucky?

The agent enthusiastically presents the features of the unit. In addition, she intimates that several people have expressed interest and she expects to have at least one offer before the end of the day.

The first-time buyer feels pressured but doesn’t want to lose the unit. It has everything she wants. The asking price isn’t at the high limit of what she can afford so she decides to go with the agent and signs a purchase agreement for full price in anticipation of competition from other buyers.

This is an example of someone who might benefit from using a buyer's agent.

While buyer's agents are certainly one means of navigating a home purchase, many sophisticated buyers will discover that they are better off not using an agent at all.  Without a third-party interjected into the transaction, sellers open up about the property and share its high points and flaws with candor.  Moreover, buyers do not have to worry about an agent acting in an unscrupulous manner or putting the agent's interests before those of the the buyer.

Emotions and Pressure

For starters, the young woman lets her emotions overcome her. She buckles under pressure from an aggressive agent who may be earning a commission on both sides of the contract without informing her about dual agency.   Open Houses are often hosted by the listing agent or another agent from their office.  Depending on what state you are in, that may a create a dual agency relationship so make sure to ask.  It is important to have an independent agent represent her to ensure her best interests are met.  Make sure to avoid paying full price for a condo without finding out prices of comparable units.  Don't accept an  agent's word about the competition because the truth is that many people express interest at open houses without coming through with contracts.

Neophyte real estate buyers need expert advice when diving into the real estate process. Pitfalls are many. In addition to presenting a variety of suitable choices, a good real estate agent knows how to estimate market value, skillfully negotiates contracts, and stays on top of contingency removals and the many details attendant to the purchase.

As stalwart as most people consider themselves to be, emotional issues play a major role in purchasing a home. Buyer’s remorse is a common affliction and sets in more often when buyers don’t carefully weigh all of the factors involved in ownership. Issues may include underestimating payments, closing costs, and maintenance fees. Commitment phobia creeps in and the responsibility of assuming a mortgage gets overwhelming. An experienced agent often sees reactions like this and may help to allay fears as they arise.

Why Buyer's Agents Can Be Important

How do you know if you are getting a bad deal on that new house? Hopefully your buyer agent helped you value it. What? You are thinking of not using a buyer agent?

Types of buyer agents

You have a choice of working with an agent in the local market who specializes strictly with real estate issues, OR you can now choose to work with agents who bring a multi-discipline approach to the market.  On such company in the great Los Angeles area is Showcase Properties.  With an affiliation to a home improvement firm, Showcase offers buyers an in-depth approach to analyzing a home's potential for improvements and their associated costs, threby taking the guess work out of a buyer's decision making process.  These firms typically charge nothing extra for this pre-purchase advice.

Types of buyer agency contracts

There are many benefits to using a buyer agent and few disadvantages. The main disadvantage, being locked in a contract with them, can be easily circumvented if you know what to ask for.

You should know that there are typically a few types of contract you can enter into with a buyers agent. The most common ones (which may have different names or be unavailable in some states) are Exclusive Agency, Exclusive Right, and Open.

Exclusive Right to represent is the mother of all contracts. Once entered in to it doesn't matter how you buy your house or whether the agent was even involved. They will be entitled to the commission spelled out in the contract.

Exclusive Agency right to represent limits you to using just one real estate brokerage. Under this form you owe a commission if you find your home through and real estate brokerage, however if you find it yourself and the agent is not involved you don't owe them a commission.

Open right to represent is feared by many agents but gives the buyer the greatest range of options. Under this form you only owe the brokerage commission if you purchase a home that the agent has found. You are free to work with anyone else you choose, so long as you don't sign exclusive contracts with them.

If your agent tells you it is against policy to use an open agreement that may be an indication their company is not for you. It should be noted however that if you are unloyal to your agent (agent hopping without reason) they will probably not work very hard for you and further. An open agreement is best used to allow yourself to work with other agents if you don't like the one you have. It is very bad form to work with multiple agents "just because".

The good

Buyer agents have access to a wide range of properties in the MLS. Your search for a home can be simplified by working with one agent who schedules multiple viewings with multiple seller's agents. This alone is enough of a reason for most buyers to use an agent, but it gets better.  On the other hand, it takes a minimum amount of time and effort to contact seller's agents on your own, and allows better flow of information from the seller's agent to the buyer.

Buyer agents have a legal duty to work for your interest. (But how this is defined can be tricky. See "The bad" below for details.) A FSBO seller or listing agent may care only about selling as fast and as high as possible.

Buyer agents know how to evaluate a property and determine if it's truly a "bargain".

Buyer agents have detailed knowledge of the homebuying process and can help you thorugh the stress of buying your home.

Buyer agents work with reputable mortgage companies and brokerages every day. They can recommend one who isn't going to leave you hanging at closing and who may even get you a better deal then you may have found on your own.

Buyer agents understand the inspection process and can assist you in recommending and arranging environmental and physical property inspections as well as recommending reputable inspectors. 

The bad

While buyer's agents have a legal duty to work for your interest, this does not necessarily mean they won't sometimes put their own financial interest ahead of yours.

Your buyer's agent wants you to buy a house, and they will work hard to overcome obstacles to that goal. Follow your gut instinct and do not be intimidated by pressure to make a decision if you aren't ready.

Your buyer's agent wants to earn a significant commission on the sale. They are unlikely to show you homes that are not in the MLS. In addition, many buyer's brokers boycott MLS listings from discount brokers, because they dislike the competition, and/or because the commission may be lower than they want to accept. Be prepared to do your own search for homes on the Internet and ask your buyer's broker to show you homes that they might have missed.

A good buyers agent, more than just earning a commisssion, wants to build a long term relationship with their clients. They should have the ability to show you FSBO's, properties that are no longer active on MLS, etc.

Unfortunately in all fields there are ample examples of people who just aren't qualified. The top two stress causers for buyers are bad mortgage originators and bad agents.

If you get the impression your mortgage originator or agent is putting their interest ahead of your own or may not know what they are talking about then please get a second opinion. It is sad, but even in a field as personally rewarding (nothing better than helping someone find their dream) as home sales there are people who intentionally or not can make that dream a nightmare. If you get a bad agent or mortgage originator just move on to a new one (you did get an open agreement right?) and have faith that for every bad apple there are two good ones and two outa three ain't bad.

Next article: Players on the Buyer's Team

Previous article: Home Value by Square Foot

Related Links

• Brokers and Agents for the Buyer
• What a Buyer's Real Estate Agent Does
• Where to Find the Right Buyer's Agent