Why You Should Not Buy a House Through the Listing Agent

Through my own experience and by hearsay it seems that the urban legend about getting a better deal by buying a house through the listing agent is running rampant. This amazes me since a home buyer is always better off having a Buyer Agent working for them. Thus, here is the real deal on the 5 most common myths......

MYTH 1: I'll get a better price.
Some people think the agent will share negotiating information with them, such as how low the sellers are willing to go. Not so - make no mistake about this.... the listing agent is hired by the seller to get the best price possible for them, even if they know what the seller will do they can't disclose it to anybody without authorization by the seller. They are ethically and legally bound to sell that house for the most money possible. Along that same line, there also exists the misconception that since the seller is saving half of the commission, they can lower the sale price by that amount. This is not the case - the commission is set in the original listing contract which is a contract between the listing agent's Broker and the Seller, so the unless the Broker also becomes part of the negotiations, or they have agreed up front to what's called a Variable Rate or Dual Rate commission (the seller pays a different rate if the listing agent sells the house themself)  the seller is paying the full amount no matter whether the buyer has their own Buyer's Agent (representation) or not.

MYTH 2: I will get a kickback of at least 1% from the listing agent

Almost all Real Estate brokerages discourage or don't allow kickbacks. No Realtor I know would do this. Although there seems to be the urban legend style "I know someone whose [friend, neighbor, cousin, coworker...] did this" it is actually very rare. You also need to know that your mortgage provider may have a serious problem with a kickback, and that well into the buying process you could lose your mortgage approval. Also, reputable Brokers who agree to a kickback will send the IRS a 1099 form documenting the payment so you may face tax consequences.

MYTH 3: I don't need a Buyer Agent - the listing agent is my agent and will help me
Oh boy, this one always gets me.... Even if you agree to "Disclosed Dual Agency" which means the listing agent's Broker works for both you and the seller, but the listing agent still works for the Seller, their primary responsibility is ALWAYS, ALWAYS, ALWAYS to help and protect the Seller. No matter how nice the listing agent may be, when a choice has to be made that is a conflict between your interests and the Seller's, the agent will always do what is in the Seller's interest. This means they do not need to tell you that a outdoor wood boiler powerplan has been approved to be built on that lot behind you, or that 30 years ago this land was a gun club and no one really knows how much lead is or isn't still in the ground. The agent you’re buying through also has a vested interest in your buying THEIR listing (house) and will not encourage you to look at similar ones of better value even if they know of them. It is important to remember that if you buy through the listing agent, no one in this whole process is looking out for your interests except you.

MYTH 4: The listing agent will get the seller to take a lower price because they are highly motivated to put the deal together.

This can really backfire for reasons related to Myth 3. First of all, the listing agent cannot legally assist you in deciding your buying strategy, which includes preparing a comparative market analysis to determine the correct buying price for the home and determining the terms that you will make a part of your offer. Only a Buyer's Agent can do this. The listing agent's sole responsibility is to take the offer you have decided to make with the terms you have decided to include and deliver it to the Seller. They can analyze your offer and prepare a fresh market analysis for their Seller to determine if it's in the Seller's best interests, but ultimately any decision on your offer is solely that of the Seller.

MYTH 5: A Buyer's Agent is going to cost me a lot of money. 
A Buyer Agent is paid out of the commission the seller has agreed to pay to the listing agent's Broker, they have decided on what the "split" will be and both Seller and Broker have signed it in writing. So here's the thing, it costs you nothing to have a Buyer's Agent and your Buyer Agent is the only person in the whole home buying process that is totally and completely looking out for your interests. So why wouldn't you want one? They will protect you from knowable pitfalls and get you the home you want for the lowest price they are able.

I function as both a Listing Broker/Agent and an Accredited Buyer Agent. My preference is definitely to be one or the other in all my transactions. I find ultimately that all the parties involved are much happier and better off with a clearly defined set of roles and loyalties and no question at any time who it is I'm working for.

Let me work for you!

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FIRST TIME HOME BUYING

You're about to take the plunge and buy a house - congratulations! When working with a first time buyer these are the things I tell them they should do.

1. GET YOUR FINANCING IN PLACE

If, like all of us, you want to get the best house you can for the least amount of money, you need to make sure you are negotiating from a position of strength. Price is only one element in the negotiations to have your offer accepted, and is not always the most important one. Other aspects, such as the financial strength of the buyer and their down-payment or the closing date are also critical to a seller.

The only way to make a strong offer in today's market is to get "pre-approved". This means that all your financial information has been checked and verified by a qualified loan professional and their lender finds that if nothing changes they will lend you the money you need to purchase a home of a certain selling price. The mortgage broker will also give you an ideal price range, your maximum debt load, and whether there are any credit issues you should correct before you make an offer. This process takes a few days so it's best to begin well before you start looking for a home. Note: do not confuse this with getting "pre-qualified" which is a brief and superficial process and does not mean you will actually be approved for a mortgage of that amount.

2. GET A BUYER’S AGENT - YOU NEED REPRESENTATION

Did you know that many homes are sold without a sign ever going up or an ad ever being put in the paper? These great deals go to those people who are committed to working with their own buyer’s agent.

Listing agents place ads to get you to call them - they want to handle both the seller and buyer end of a deal. When reading an ad know that what is not mentioned in the ad is usually more important than what is. For example, many homes have some drawback that any good seller's agent will never mention in an ad, such as traffic noise, power lines, or outdated plumbing and electrics. Remember that the person marketing the home is representing the seller. When you look at a house with the seller’s agent they will not critique the property or point out any drawbacks you should know about - it’s up to you to find them out on your own. Or you can get your own agent - known as a buyer’s agent.

Your buyer agent looks out for you and your best interests and owes their total loyalty to you during negotiations on price, inspections and contingencies. The fee for the buyer's agent is paid out of the commission the seller pays when their home sells. The listing agent can work with you as a buyer for the property but they must disclose that in the event of a conflict of interest they work for and their loyalties are to the seller and in all cases they will look out for the seller's interests above yours. In other words, make sure you understand what your agent can and cannot do for you and who they work for.

3. CHECK OUT THE PAPERWORK BEFORE YOU MAKE AN OFFER

You would think that an offer would be pretty simple, tell them what you will pay, what you expect to be included in the sale, and what date you'll buy the house. In today's litigious society there are many opportunities to get into legal trouble out of innocent naivete. The contracts are very complex with language that can favor the seller or the buyer depending on how it's written, so it's best to review a set of blank contracts well before you write an offer. Your agent (or your attorney) can explain anything you have questions about and will give you a step-by-step idea of how the process will go. When you are familiar with the contracts and the process you will be ready when the right house comes along.

4. DON'T BE PUSHED INTO A HOUSE BUT DON’T BE AFRAID TO STEP UP FOR THE RIGHT ONE

Your agent should show you everything available that meets your requirements. Don't make a decision on any house until you feel that you've seen enough to pick the best one. Especially if a town is new to you, it is a good idea to get a feel for the town and its neighborhoods. A good agent has the patience and experience to work with you until you find the right house.

Having said that, however, there are two circumstances where you may need to make a fairly quick or bold decision. There are times when a home comes on the market and is what you have been looking for ... a value-priced house in a good location in great shape. Odds are that there are several buyers who are also looking for that same house and if I say this one won't last when I call, you should be willing to look at it immediately and make a decision quickly.

The other situation is that it's your first or second weekend looking at houses when you find "the one". It's great - just what you were looking for. But....you've only seen five other houses and what if you find one weeks from now that you like more? Sad to say, I have had clients in this situation and who a month later were saying, "Gosh I wish we had jumped at that house.... it was just what we wanted." Sometimes the right one is one of the first few you see. Trust your instincts.

4. REVIEW THE SELLER'S DISCLOSURES BEFORE YOU MAKE ANY OFFER ON A PROPERTY

No house is ever going to be perfect. So, the price you offer should reflect your best opinion of what the property is worth to you based on its current condition. Though not required by law, most agents recommend that their sellers complete a comprehensive seller's disclosure sheet that gives them a chance to tell you about the house's systems and any events that have taken place with them while they have lived there. You should read this carefully and when in doubt have your agent probe for further clarification of the information provided so that you are not surprised after your offer is accepted.

When looking at a house you're serious about, keep your eyes open for small and visible items that may need repair or replacing.  Do not assume the homeowner will do these, and adjust your offer price accordingly.  Serious structural, deferred maintenance and/or safety items that come up during the home inspection that you could not have known about or seen i.e. plumbing, electrical or chimney issues can be negotiated during the inspection contingency period. Find out whether the seller will remedy these or if you have to adjust your offer to reflect the cost to you for repairs.


5. ASK FOR A HOME WARRANTY IN YOUR OFFER

There's no law saying that the seller has to include a home warranty with the sale of their home (they cost around $600) but if you don't ask for one you most likely won't get one. As a first time home buyer you are not familiar with the cost and maintenance of the various systems of a house, so having a home warranty (they're usually for a year from your purchase date) can take a lot of the worry out of "what do I do when the hot water heater doesn't work" issues.

6. HAVE A PROFESSIONAL HOME INSPECTION

You should budget for getting the property inspected by a licensed professional home inspector, pest inspector, well inspector and/or any other kind of inspector that the house you're looking for typically requires. Have your buyer's agent recommend a few they trust and interview them on the phone before you pick one. A seller's agent cannot legally recommend a home inspector to a buyer. The inspectors will let you know the true condition of what you are buying and what kind of repairs/upgrades to the systems or structure will be required in the near future. Start with the home inspector and pest inspector and if they recommend that you have specialty expert inspect a troublesome item do what they say. The money you spend on the inspections could save you lots of money on repairs in the future. And don't be afraid to ask your inspector to explain how to work or maintain appliances or systems, they're working for you and are very willing to answer any and all questions..

7. GET A FRESH COMPARATIVE MARKET ANALYSIS ON THE SPECIFIC PROPERTY

Ask your buyer's agent to prepare a market analysis (CMA) of the property before you make the offer. A seller's agent cannot legally do one for you. This market analysis will tell you what similar properties are selling for. A CMA can't be done with a bunch of data from the internet, unless you or your agent has been inside the comparable properties used in the analysis you are likely to come up with false results. The CMA should also include only properties sold within the last 3 months, anything older than that is from a different market and should be considered as such. Your agent will help you interpret the analysis, but you should always review it in detail to be sure that your offer is based on sound thinking and that you are very confident that you are paying at or below market value for the property. The last thing you want is to find out that you overpaid for a property without knowing it. (You may choose to knowingly overpay if you if it's a bidding war and you have to have this house, but at least it will be an informed decision.)
CONCLUSION

Buying your first home is an exciting (if nervewracking) process. It is important to have someone work with you who is looking out for your interests, is patient and who knows the local market well.  I have helped many first time buyers find a house they love and will make it the least confusing, and as positive as possible for you every step of the way.  

 If I can be of help to you, don't hesitate to call me, Mike Hunter at 978-580-1069 to talk about making you a homeowner!

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