Buying your first home is likely one of the most stressful experiences in life (second to only getting married). The field of real estate in my opinion has changed vastly over the past five years with self-service sites like Redfin, Zillow, and Trulia and making the MLS accessible to common people like you and I. The MLS is the database which contains all of the houses for sale in your area. Getting access to MLS data makes pricing and market trends much easier to follow for the lay person.
With Redfin’s commission sharing I’ve wondered how that will impact traditional real estate agents going forward. Traditionally agents get 6% of the transaction price – split between the buyer and seller. Redfin drops their charges from 3% to 1.5% – a big price drop for a property that sells for many hundreds of thousands of dollars. Given that, I do believe there’s value in having (and paying for) a traditional real estate agent for a higher touch experience.
So why hire a traditional agent?
Traditional agents bring three key things to the table: experience, local knowledge, and negotiating skills. In competitive markets great experience means deep relationships with all the people your real estate transaction requires. You’ll need quick access to home inspectors, termite inspectors, roof inspectors, mortgage brokers, and most importantly – the seller’s agent. Your agent’s reputation in the market can be an asset to you if your agent has a history of closing the right deals.
Also after the sale your agent will be able to recommend painters, flooring people, handymen, electricians, etc. They will work with you long after the sale and likely help you find your next home. I went with a traditional agent – and I’m glad I did for my first home. I valued the experience and coaching my agent brought to the table.
That all being said, not all agents are equally good. Here are five things to look out for when you’re thinking you don’t have the right agent.
1. They aren’t acting in your best interest
There’s a myth in real estate that buyers don’t pay real estate agent commissions. That couldn’t be more true. In fact, the buyer is the only one that has money in the entire transaction. The buyer pays the seller, the seller’s agent, and the buyer’s agent. If agents weren’t involved, the house would be 6% cheaper. A lot can go wrong in a real estate transaction and a good agent will be vigilant in protecting your best interest.
The buyer’s agent has a duty to act in your best interest through a highly intensive and emotional process. Expect that in the search process. You will have a myriad of emotions and your agent will help your through the process.
The lure of the commission should not outweigh doing right by you. Ask your agent questions every so often during your home search you already know the answer to ensure they’re working for your best interest. For example, I spoke with an agent about a particular property we were looking at:
Me: “I’m not sure about the location of this property. I don’t think it’s right for me.”
Agent: “This is a great neighborhood with good schools and solid property values. I think you should move forward with this house.”
2. You feel pressured to buy a home
Continuing from above, some agents will try to push for a home purchase as the search lingers on. In competitive markets it takes time to find the right home for the buyer. Low inventory, bidding wars, and lost battles can wear on a home buyer. It’s common for home searches to take a year or longer in very tight markets.
Good agents help you make good decisions, but don’t pressure you to buy a particular property. If your opinion differs from the agent, it’s fair for the agent to share their viewpoint – but in the end only your decision matters. Buyers should feel like they can have open conversations with their agent all throughout the home buying process – regardless of timing. As a buyer though – be ready to buy a home. Home buying is a commitment and you’ll want to make good use of your agent’s time.
3. They don’t price property as a lender would
Pricing property accurately to win deals is one of the most valuable skills good agents bring to the table. Appraisers will typically look at the three best comparable property sales within the last three months. Given that, we have to realize that no two homes are alike. Appraisers account for that by using use industry-standard adjustments for things like bedrooms, bathrooms, the condition of the home, and extra amenities like garages and pools. Getting to the appraised value of the property is extremely important as it’s the best grounding for making an offer on a home.
Depending on market conditions – your offer may vary substantially from the appraised value. In hot markets with multiple offers all of the other buyers will be bidding up the property. Effective agents know how to price the property to win. It’s important to have an open conversation with the agent about how high to go given your budget and what the bank is willing to extend for your mortgage.
In a buyer’s market, buyers can often bid under the appraised value as there won’t be competition on the home. Savvy agents know how to get great deals for their buyers: before and during escrow.
4. They don’t inspect property like a home inspector
In hot markets, sellers will often run all of the standard disclosures and inspections up front. This makes it significantly easier deciding if it’s a house to put an offer on as you know all of the home’s dirty laundry. In very hot markets, offers likely need to be non contingent – you have no easy way to back out of the sale. Having all of the inspections up front helps buyers make appropriate offers.
In markets that are not red hot, buyers normally have the opportunity to run inspections during escrow. Inspections can run several hundred to several thousand dollars depending on the size and scope of the inspection. Savvy realtors can spot hot issues early and help the buyer make an appropriate offer before going into escrow. The worst is to find a major issue during escrow and not close the deal when the buyer and seller can’t compromise. The buyer then is out a significant amount of money (several thousand usually) and the seller has to disclose all of the inspections made by the buyer.
5. They can’t negotiate and close deals on your behalf
The buyer will almost always find issues during the inspection contingency period. This is normal. Sellers will need to make concessions or lower the sale price to account for these issues. If the seller is not willing to compromise, the deal may fall through if the buyer doesn’t fill the gap.
The buyer’s agent skillfully negotiates on the buyer’s behalf. Good agents know how to control the conversation so that all parties are happy in the deal. Some of that is managing the expectations of the buyer, the expectations of the seller, using years of experience to guide the transaction.
The easy out is to ask the buyer to pay more or to deal with all of the issues of the house by themselves. This is a sign of a weak agent dealing with a stubborn seller. Remember, the buyer is the only one in the equation that has money. The buyer pays the seller, the seller’s agent, the buyer’s agent, and all of the associated fees. That gives the buyer a significant amount of control in the equation. If the seller knows the buyer really wants the home, they will use that fact as leverage in the transaction against you.
If the buyer’s agent can’t close the deal, everyone loses. The buyer is out any inspection fees, the seller has to relist to their home and disclose all of the new inspections, and future buyers will wonder why the deal didn’t close giving them pause on the property.
Your agent is your strong advocate in the equation. A great agent really is the difference in your home search. If he or she is not working out for you, take some time to understand why. Ask your agent if he/she is getting everything they need to help you find the right hime. Be up front on what your expectations are in the sale.
If things aren’t working out, make the hard decision to move on to another agent. Use what you’ve learned in this experience to help vet the next agent to join you on your search.
1. Cover photo courtesy of: https://en.wikipedia.org/wiki/File:South_San_Jose_(crop).jpg
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