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Brought to you by Lori Ares, home-buyer specialist and broker licensed with M Realty LLC. Read more...
Contact: (503) 936-4192
And by Ron Ares, re:PDX founder / editor and marketing specialist.
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Buying Real Estate, DIY-Style
I have had several listings on the market recently and have been struck by the sheer numbers of independent buyers operating without the aid of a buyer agent. Portland has an independent streak to be sure, but does it extend to buying real estate?
Surely, it is easier than ever before to research properties without the aid of an agent–there is no lack of Internet sites devoted to home valuations, classifieds, real estate search, and limited MLS access. But, getting inside each home for hands-on due diligence is a chore if you plan on only visiting open houses or calling the listing agent for an appointment.
It isn’t just lower priced, first-time homes or investment properties. I have shown properties in the $275,000 to $700,000 range to ‘unrepresented’ buyers, apparently content to talk with the listing agent. Even today, I showed a listing to a couple relocating back to Portland, and with only a few days to find a home, were apparently calling each listing agent for an appointment. I wondered how productive their time could be, waiting for listing agents’ availability to provide a showing.
I can understand first-time buyers that might not yet understand the value of having an agent that can provide advice, market information and exclusive representation–and gain them access to any property in the multiple listing service.
But, why do seemingly sophisticated buyers choose to go independent? At some point, they will have to decide how to enter into an agreement, either:
- with an agent brought in just to represent them during the sale agreement process;
- with the listing agent, now operating as a dual agent and representing both parties; or
- representing themselves solely, with the listing agent serving as a go-between in negotiation, but offering no counsel to the buyers.
So, I pose this question to readers….why not use an agent during your investigation period?
Some theories:
- Patent distrust of agents in general
- Buyers hope to negotiate a better deal on their own
- Listing agents know more about the property anyway
- Undue pressure from agents to buy a property quickly
- Buyers aren’t serious enough to ‘employ’ a buyers agent, but want to see properties anyway
- Do have have a buyer’s agent, but aren’t getting value from the relationship or don’t want to bother them, or are too embarrassed to admit it.
I’m just curious. Buyers, which is it for you? And other agents, what has been your experience?
[tags] real estate, buyers, agents, MLS, realtor, purchase, homes, houses [/tags]
Photo courtesy of giveawayboy, used under Creative Commons license.
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15 Responses to “Buying Real Estate, DIY-Style”
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another possibility is that the unrepresented buyer thinks they’ll be able to push the price down by creating pressure on the seller’s agent to lower their commission
don’t know how often it works
I can understand how some realtors could add a lot of value for some people. I do not believe that ALL realtors add value for ALL people. Case in point: myself.
The information is now available to Buyer’s with access to Market Action, http://www.portlandmaps.com, zillow (this is questionable), automated listing status e-mail from various website/companies to track the status and detail (which is not generally public) from rmls.com, City of PDX for plans/permits/etc, RMLS pictures/virtual tours, and a real estate attorney.
I use a real estate attorney for the paperwork. This, I have found, is more useful than having a realtor. How many realtors routinely do background checks on a Seller? How many realtors have JDs in contract law?
I have construction knowledge, appraising knowledge, and have evaluated approx. 100 homes in the neighborhood I am interested in. I know this micro-market better than any realtor I have dealt with. What value can they possibly add?
I am happy to stop in at a Realtor open. I feel this places nearly little burden on the Listing agent.
I fund my attorney. I ask that the 2.5% to 3% BAC be set to 0% and for the Seller to pay closing costs. You would think this would be a wash (net zero) for the Seller.
The fact is…there is an agreement made between the Seller and Listing agent that CAN specify additional compensation for the listing agent in a case where the Buyer is represented by an Attorney – this is considered an unrepresented Buyer. Why is that? Is it right to charge the Seller more money because a Buyer has an attorney? This sounds like discrimination to me.
Regarding commission:
How is a Realtor able to justify $30,000 ($1M house, 3% BAC) for some redundant (at best) advice, a taxi ride, and access to show a home? In my last transaction, the realtor added NO VALUE. I actually found the home I am living in currently.
In many states, rebates are becoming common…25% to 75% of the BAC comes back to the purchaser! Not yet in Oregon.
In many Countries, 1% BAC is the norm (UK, for instance).
I am happy to throw away $5k. $30,000 is too much.
Finally, why is the commission a percentage? I’m looking at homes in the $1M range…perhaps slightly higher. What is it about the service that is worth 2x vs. a $500k home?
The Realty world is undergoing a change. It is just a matter of time before the BAC is 1%.
J -
That was my theory number two. Frankly, I don’t know how often it works. The listing agreement spells out the compensation and the listing agent is not obligated to reduce the commission for dual agency or non-represented buyer, unless otherwise stated in the compensation agreement. I don’t practice dual agency, but on occasion have offered a lower commission to sellers if I encounter a seller that wishes to represent themselves. But I do it prior to taking the listing.
Private,
Agreed that ALL Realtors do not add value to ALL people.
You are definitely in the highly-sophisticated category of the bell curve of buyers. Many do not have the time, experience, or focus as you. An agent more often does add value for buyers from out of the area, or may only engage in a handful of transactions in their lifetime.
There is a lot in your comment to digest, but a couple points intrigued me:
1) How helpful is a background check on the seller? Does it provide additional leverage in negotiation, or are you interested in the character or financial standing of the seller?
2) Attorneys are the only non-real estate-licensed parties in Oregon that can legally be compensated for real estate activity, so it could eat some of the commission you are hoping to save.
3) Buyer agents may find themselves increasingly in a fee-for-service practice (like lawyers) if the concept of divorcing the commission from the seller’s side gains momentum.
Thank you for the thoughtful post.
The last bullet point rang true for me. I was working with a family friend agent who we worked with before. Unfortunately it went poorly in my eyes. Negotiations on price, availability, communication and a seller who was flipping but gave a since dis-proven “selling due to personal situation” story left a foul taste in my mouth. My next purchase will not be with this agent, if with an agent at all.
Excellent post, Ron.
The biggest hurdle buyers’ agents have to overcome is the (mistaken) perception that the service is free. ‘Free’ carries with it no value, thus the notion that the exchange of warm bodies brings equivalece. It’s why buyers drift, and why they typically see no need to interview to find the best agent available, even though I’d argue a good buyer’s agent is as important to a buyer as a good listing agent is to a seller. It’s also the single most important reason we need to divorce commissions.
Re Private: Any buyer who thinks it’s clever to begin a transaction with a background check of the seller is a lawsuit waiting to happen. Most competent agents will stay far, far away.
Realtor commission is a joke now, that is why I listed mine by FSBO. I have sold 3 homes by myself and never paid a dime to a Realtor. The internet is going to level this game so that Realtors sell your home for a flat $500 or $2000 or whatever the going rate. No more 3% bologne.
[...] would have one; but because of the perceived zero value, that’s emphatically not the case. Ron Ares wrote a couple weeks ago about the sudden appearance in our area of buyers who want only to deal with listing agents. [...]
When I started searching for a house last summer (vancouver area) I went the ‘independent’ route because I wasn’t sure what I was looking for and I usually do a lot of research. So I imagined myself searching for a house for 3 – 6 months while I picked up on the market and my desires in a home. After speaking with a few agents before starting my search I realized most were focused on closing a deal ASAP and not helping me with MY way of searching. Before starting I decided that if I saw the market leveling off or dipping at all I wouldn’t buy anything since my main interest was a 2 year flip. For those two reasons: long time searching, possibility of not buying at all I also felt guilty to hire an agent!
I ended up buying FSBO!
You could hire a secretary to setup your appointments for a lot less than what the BAC% rate to agents! I don’t mean to be an agent-basher, but they provide no REAL value outside of clerical work. To say that a buyer’s agent protects the buyer during contract negotiations is nothing but a fear tactic. Most realtor’s/agents have no or little legal education. The first thing a standard contract will tell you is that you are excusing your agent from any legal liability and that you should have the contract reviewed by a real estate attorney.
Sorry, but we all have had to face the impacts of the Internet on our lives and careers, it is time for the real estate industry to wake up!
I can understand those folks who feel comfortable working without an agent; their level of experience may not warrant help and advice. However, I have worked with many first-time buyers who don’t know the first thing about buying a house. They tip-toe with trepidation around the whole process; it is all so foreign to them.
Just this last weekend I worked with a couple who asked dozens of pertinent questions during their search for their first home. Do you receive the keys when you sign the paperwork at close? What if we decide to back out? What if there is something wrong with the house? Is an oil tank a bad thing? Is this a good price for the house? How long does it usually take to close? What happens at a home inspection? What is a Seller’s Property Disclosure? How much earnest money should we put down? You get the idea.
More power to those folks who can go it alone and feel they have all of their bases covered, but for many people hiring an agent is in their best interest. I’ve talked to many buyers and sellers that say they wouldn’t buy/sell a house without an agent on their side.
And on the subject of commissions, I agree our system is a bit backwards, but it is what we have to work with at the moment. The market, as always, continues to change and this may be something that goes through an overhaul in the near future.
As one currently involved in a home search and not represented by an agent, my reasons for going it on my own are mostly aligned with your theory #1. I have been part of 5 real estate transactions in OR in the past 20 years, 3 with agents “on my side” and 2 without. The 2 I did on my own were trouble and hassle free. One of the 3 that involved an agent went very badly, and in fact involved fraud on the part of the agent.
My other beef with using agents at all is that they are adamant about using the ’standard’ contract drawn up by the OR board of realtors, which in my view is slightly slanted toward protecting the seller, and is definitely slanted toward avoiding all litigation, even in the rare cases where litigation is reasonable and warranted.
I happily pay an attorney $500-750 to write a contract for the sale, and encourage the other party to have their attorney review and suggest changes before we sign.
Thanks for posing the question.
Price: saavy buyers can get the info they need online. They can negotiate down (2.5% is standard we expect to reduce price) if they don’t come in with an agent. The inspector is worth his weight in gold when this is the case. Lastly, I feel agents tend work to help each other more than they do to help their client.
In general I think the Broker (not the agent) takes TOO big a chunk on commission. I agree with the comment above about commission being the same (%) on a 250K property and a 1 million dollar property: did the agent REALLY do THAT much more in effort?
My biggest issue with using a buyer’s agent, and why I am currently looking for a home without the help of an agent is why should I hire somebody who gets paid more the more I spend. Talk about a conflict of interest!
I think the most important step is to be realistic in what you can and cannot do. I’ve seen so many first time home buyers jump into something they cannot afford only because they have big dreams.