Do You Need a Realtor to Buy a House?

Do You Need a Real Estate Agent to Buy a House, or can you do it yourself? Let's take a look at things you should consider.

Everyone has that one friend who is handy enough to be dangerous. He is always looking for a deal and is convinced the cheapest way to get any project done is to buy the supplies and do it himself. That it may take three times as long is not a concern. That it makes life inconvenient for others in the house is also not a concern. That something could go wrong does not cross his mind. The goal is to do it himself and save money. The question is, how much does he save? And is he opening himself up to costly problems if something goes wrong and the project hits a snag requiring a professional?

House projects are expensive but generally not nearly as expensive as buying a house. For this reason, some buyers try to buy a house without a realtor. Listing agents and buyer's agents typically each get a 3 percent commission. Usually, it is paid by the seller but considered when setting the sale price on a $310,000 house (the median home sale price in the third quarter of 2019), $18,600. Provided the home buyer can get the price they want without the help of a real estate agent, there is a potential to save a lot of money.

But not all home sales will have a 6 percent commission fee, even if real estate agents are involved. The commission structure is changing as agents do less work than in the pre-Internet age. Buyers search for homes online. Listing agents have lockboxes (so they don't need to open a house for buyers to view it). Automated systems allow buyers set up home showing appointments. For all these reasons, commissions are often negotiated below 6 percent.

What should you expect from a realtor when buying a home?

Below are some of the main things a Realtor (a member of the National Association of Realtors) or real estate agent does for a buyer:

• Helps you find a home, provides information about the neighborhood. You can ask a realtor about schools, distance to employment hubs, and area highlights. Whether its proximity to shops or the woods, you should get the answer;
• Negotiates an offer based on the asking price, comparable homes for sale in the area, market situation, and home condition;
• Writes a Purchase and Sale Agreement. It may include the contingencies that must be met for sale and the amount of the Earnest Money Deposit;
• A realtor helps find a home inspector and attends the home inspection;
• Negotiates any home repair needs or adjustments to the sale price if repairs will not be made;
• Communicate with the seller's agent throughout the process;
• Work with a title company for a title search and help arrange title insurance;
• Work with a real estate attorney to pull together all the documents needed for the closing, including a list of closing costs.

Buying a house without an agent can be done, though it is not easy. Most likely, it will likely require the help of a real estate attorney. Buyers may later regret the decision if price negotiations quickly sour or the sale hits a legal snag they are challenged to solve. Savvy negotiators familiar with legal jargon may feel differently.

So, do you need an agent to buy a house? Match your buying situation and personality to those outlined below to find out.

First-Time Buyers

Buying a house is a complicated, expensive and timely process. Even with the help of a real estate agent, it usually takes at least three months or longer to move from house-hunting to closing and moving in. A buyer's agent will represent your interests and is familiar with the area you are focused on. Realtors are familiar with home prices and market conditions and can be much more helpful than going to open houses alone. A good agent will guide buyers through the entire process, from house-hunting and price negotiation to setting up inspections and appraisals. Realtors get all the paperwork ready for the closing.

If you need to move from your current house quickly, a real estate agent will speed up the home buying process and ensure it goes as smoothly as possible.

You could consider purchasing without an agent if:

1. You are not in a rush to get out of your current space.

2. Prefer not to deal with middlemen.

3. Have negotiating savvy, patience, and time.

4. Know-how to work through a lot of paperwork (with the help of a real estate attorney).

Out-of-State Homebuying Process

One of the key things real estate agents do is help buyers identify potential homes. For out-of-state buyers, real estate agents fill a crucial gap. They attend open houses for buyers and lead a buyer on real-time virtual tours. Good real estate agents also manage the process of appraisals, inspections, and repairs. Surprisingly, this scenario is not as uncommon as it may seem: One in three people in 2017 reported buying a house without first seeing it in person.

Buying from a Family, Friend, or Neighbor

Sometimes buyers are buying a house they know well. They could be buying it from parents, aunts or uncles, or from a close friend. They could also be buying a home from a neighbor. In these cases, negotiations can be low-key and friendly. Buyers have also already scaled the biggest challenge of home buying: finding the right property. A 2018 report found that 56 percent of buyers said finding the right property was the biggest challenge.

Buyers and sellers may find that they can save the combined buyer's and seller's agent commission fees and hire a real estate attorney instead. In this case, buyers must manage the process themselves. It includes getting an appraisal, title search, and home inspection.

Buying a Home Without an Agent from Your Landlord

Most renters live in apartments that are not for sale. But there are cases where a renter decides to buy the house they are currently living in. Only about 5 percent of renters purchase their rental property each year. Landlords find this advantageous. They don't need a listing agent to list the property and help them find a buyer, saving them money and time. Landlords also know renters have good credit and can make mortgage payments. Just like they were making timely rent payments.

Some buyers agree on a purchase price and get an appraisal, title search, mortgage, and home inspection. A real estate attorney usually drafts the paperwork. Renter's familiarity with property should not preclude getting a home inspection. Remember that enting is very different than buying. Other buyers may be less comfortable negotiating the price and conditions and choose to hire a buyer's agent. Buyers would then need to agree with the landlord on how to pay the agent's commission or do it themselves.

For Sale by Owner (FSB0)

Before the Internet, FSBO home sales were much harder. Now online resources make it much easier. Websites like Isoldmyhouse.com and Forsalebyowner.com offer listing on MLS. It helps get in front of more prospective buyers. Despite this, FSBO home sales have decreased from a high of 15 percent of all homes sales in 1981 to 7 percent in 2018.

Buyers who find an FSBO house may find that no real estate agent wants to work with them. Many buyer's agents worry they will also end up doing the job without being compensated. This is especially true since the seller typically pays the agent's commission through the home's sale. If your agent is ready to work with you on an FSBO sale, you need to pay the commission yourself. You can also choose to negotiate directly with the owner and hire a real estate attorney.

Investors who Have Bought Many Properties

Some people buy properties and rent them out to make an income. These people usually focus on a specific geographic area and are very familiar with local real estate prices and options. Investors with good negotiation skills and resources for inspections, appraisals, and paperwork might forego a real estate agent. Investors who buy homes as a side income may decide that paying a real estate commission is worth the money. It helps save them time and hassle.

Buying in a Hot Market

If you are buying a house in a competitive real estate market where most sellers have a listing agent, you will find that a real estate agent is necessary. Sellers want to make sure buyers are serious. Some might view buyers without any agent as less serious, even if they have a mortgage pre-approval letter. Hot markets often require an Earnest Money Deposit to show you are serious about purchasing a property. Negotiating the amount and securing it through a third party are both jobs managed by a buyer's agent.

The Final Decision

Whether or not to hire a real estate agent is a decision that only a buyer can make. Most people, 86 percent to be exact, used a real estate agent to purchase their home. Why? There are many reasons. For starters, the commission paid to real estate agents is a part of the selling price, so buyers who choose not to use an agent must negotiate with the seller to reduce the purchase price and save money. Real estate agents are very familiar with local markets, have access to market data, and know when a house is priced low, high, or correctly. They also have access to listings for short sales, which can be excellent options for some buyers but are only shared in trusted circles of agents.

For all these reasons, many buyers decide to hire a real estate agent. Buyers should be sure to hire a buyer's agent and not an agent providing dual agency, meaning they serve both the seller and the buyer in a single transaction and are likely to have conflicts of interest arise.

Own up helps people navigate the entire home buying journey. We can help you decide if you need a realtor to buy a house and answer any other homeownership questions.

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