Thursday, March 15, 2007

Buying a Home Without Representation

Back in the good ole days, if you wanted to buy a home you walked into a real estate office and they showed you "their inventory" - every home that their office had listed. If you wanted to see a house that wasn't listed by that office, you had to go to another office, the one that listed it, and they could tell you the details and sell you the home.

There were many problems with this approach - the onus was on the buyer to find the office, find the home, and do their own bidding. Most significantly, they were dealing directly with the agent that represented the seller. The seller told them to get the most money possible on the sale of their home, and now they've found their mark - YOU!

Things have changed a great deal in recent years.
  • The advent of the Multiple Listing Service (MLS) made all listings available to all MLS subscribers. The buyer was freed from having to find the office of each home they had interest in.
  • The introduction and proliferation of the World Wide Web and widespread internet connectivity made it possible to preview homes from the comfort of your own home, sharing one's likes and dislikes with his or her Realtor prior to making any appointments. No longer does the buyer need to see lofts when looking for townhouses, or vintage style kitchens when looking for granite and stainless steel. Information is widespread and best, free!
  • Focus has increased on improving the experience and protection of home buyers. Most real estate transactions feature two represented sides - a listing agent and a buyer's agent. There are laws in most states defining the roles that an agent can and cannot play in a real estate transaction. In some states, a single real estate licensee may not represent both the buyer and seller in the same transaction. In some, such as Illinois, the agent may represent both sides, accompanied by full disclosure.
One thing that has not changed, is the listing agent's responsibility to his or her clients. When a home seller hires an agent to sell the home, the agent has a fiduciary (read: legal) responsibility to his or her clients' best interests. The agent must protect their private information and motivations, market and show the home, etc, but he is also responsible for bringing the highest price the market will bear. All of the agent's research, marketing, and negotiation are with his/her clients needs in mind.

Why then do I consistently hear stories of individuals who buy a home without representation?! Why do you want to be unrepresented when the seller has hired a professional to negotiate on his/her behalf and represent their needs?

A good real estate agent will take so much of the pain and suffering out of the process and allow you to focus on finding your new, dream home. A Good real estate agent will:
  • Listen closely to your needs and wants, and only show you homes that meet your criteria.
  • Explain the full home buying process to you up front, mitigating the risk of any surprises, like mortgage insurance, high assessments, earnest money, or high closing costs.
  • Schedule appointments for showings, second showings, third showings... etc.
  • Help you to understand and complete forms and write offer contracts.
  • Perform a market analysis to assist you in preparing a reasonable offer on a home.
  • Negotiate on your behalf and in your best interests.
  • Guide you through the inspection process, the attorney review, and coach you to the closing table.
That's a lot of assistance... the best part, it doesn't cost you anything. Repeat - it doesn't cost you anything!

How can that be?

The vast majority of the time, buyer's agent's compensation comes from the listing agent's commission split. The home seller has agreed to pay the listing agent a percentage of the sale price of the home (commission). The listing agent then makes a promise to the market to pay a "cooperating commission" to an agent that brings the sellers a buyer.

So why, then, do so many people opt to make such a large purchase without representation? I haven't figured that one out yet.