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Beware When Buying Without An Agent

Cutting expenses is at the top of most people’s priorities today. Many are putting off major purchases like a new car or home until they feel more secure financially. However, not all buyers are taking a wait-and-see attitude.

They’re casting worries about the home sale aside and are buying now to take advantage of near-record-low interest rates. In order to get a discount in price, a number of buyers attempt to buy without an agent.

Let’s say the sellers signed a contract agreeing to pay 6 percent of the purchase price to their broker when the sale closes. If the property is listed on the multiple listing service, the listing broker offers to pay a portion of the commission to the broker who represents the buyers.

If there isn’t a broker representing the buyers, the commission can — if the listing broker agrees — be reduced by the amount that would usually be paid to the buyers’ broker.

In this case, if the listing broker agreed to pay 3 percent of the purchase price to the buyers’ broker and there is no buyers’ broker, the sellers would pay the listing broker only 3 percent at closing. On a $700,000 sale price, this would net the seller an extra $21,000, allowing the buyers to pay that much less and still match the price the sellers would receive if they paid the full 6 percent to the sellers.

Whether this is actually a cost-savings strategy will depend on a number of factors. A key issue is knowing how much you should pay in the current market. If you offer a price that’s way under market value, the seller might not even respond, particularly if you aren’t represented by a knowledgeable local real estate agent who can plead your case, or at least elicit a counteroffer. If you offer more than market value, this might negate any savings you’d realize by a commission reduction.

HOUSE HUNTING TIP: Attorneys who represent themselves in a home purchase or sale have an advantage over inexperienced homebuyers. They have legal expertise, especially if they specialize in residential real estate. A buyer with no legal or real estate background should consult with a knowledgeable real estate attorney to draft the purchase agreement.
When no one represents the buyers, the sellers’ broker represents the sellers exclusively. This means the sellers’ agent cannot prepare your contract for you or give you advice. An exception to this would be if the buyers and sellers agreed to have the listing broker represent both the buyers and sellers, which is not permitted in all states. But the listing broker often requires a larger fee for representing both parties.

Buyers who attempt to represent themselves may have knowledge that’s limited to what they’ve read in consumer-oriented homebuying books. Unless these books were published since 2009, they don’t represent the rigors and rules of the current housing market.

The best agents don’t rely on books to learn their trade. As with most professions, agents become experts in their field through years of experience working with homebuyers and sellers.

Homebuyers and sellers hire agents to learn the process, understand current market value so they don’t sell too low or pay too much, and to facilitate moving the process through the various quagmires plaguing the current market-loan qualification, appraisal issues and renegotiations over property defects — to a successful closing.

THE CLOSING: Unrepresented buyers are at a big disadvantage if they’re in a multiple-offer competition. Most sellers and their agents would rather work with a buyer who is represented by an agent, preferably one with a good reputation for closing home-sale transactions.