First Time Home Buyers: Should you hire your own agent?

The following is an update to information I first published in 2011.   I recently shared information for potential first time home buyers about the differences between renting and owning, and about whether a first house is affordable.  The question this time is — should a first time home buyer use their own real estate agent

This question has a simple answer:   YES, you should!  There are several major reasons.

YesThe first reason: The agent listing a home does not work for you, the buyer.

Many first time home buyers believe that if they are interested in a home, their best course of action is to call the agent who is selling the home. If they like the home when they see it, and they make an offer with that agent, they may mistakenly believe that agent is representing them.  

While the agent listing a house must show fairness and honesty and accuracy to anyone making an offer, the listing agent represents the seller, not the buyer[1].  The agent does not care what you want to spend, and in fact, is responsible to share any information about what you do or don’t want with her seller.  The listing agent is also not able to share with you any financial market information which might help you figure out the correct price, because that would be helping you and not the seller.  This agent does not owe you any confidentiality, and therefore, anything you say will be shared with the seller.

For example, let’s say you saw a great $200,000 home that you wanted, but you can only spend $185,000.  If you had a buyer agent who was representing you, your buyer agent would do a market analysis for you and would find out that similar houses in the area are selling for $170-185K.  She would then help you put together an offer and would provide backup for the market reasons why she/he believes that price is appropriate.  Let’s say you offer $170K.  Your buyer agent would negotiate with the listing agent, on your behalf, and would help you get the best deal for you.  You wind up with an accepted offer of $175K.

But now let’s do the same example with you negotiating directly with the agent who is selling the house, the listing agent.   You make an appointment to see the house, and you wander through it, and realize this is PERFECT.  So you say, “I love it, and I want to offer $170K, but I would go up to $185K but that’s the most I can spend and I couldn’t go any higher.”   The agent would then go to the seller and say, “Hey, this buyer offered $170K, but they would go to $185K” because that agent is required to share all the information with their client, the seller.  Obviously you are not going to buy the house for $170K because they already know you will go up to $185K.  If the seller would have accepted $170K or $175K had the offer come from a buyer’s agent, now they will just tell you it’s $185K firm.

 Do you see the difference?

The second reason: The agent selling a home does not work for you.   Yes, I know, it’s the same reason as number one, but that’s because it’s so important to understand!

The third reason:   There is no difference in commission paid if only one agent is used.

moneySometimes, a buyer will think they can get the house for less money if they don’t use a separate agent, because then there won’t be the additional commission to the second agent.  That’s not how the commission works.  Basically, the seller and the listing agent decide on the commission up front.  Let’s say they agree on a commission of 6% of the purchase price.  They also decide how much of that will go the buyer’s agent.  Let’s say it’s 2.5%.  If there is a buyer agent, the buyer agent would get 2.5% and the listing agent would get 3.5%.  If there IS no buyer agent, the listing agent gets to keep the entire 6%.  So there is no reduction in commission if only one agent is used.  And in fact, as indicated above, you may wind up paying MORE for a home if you use just the listing agent, because her job is to get the best price for the seller.

 

The fourth reason:  You don’t have to pay out of your pocket for the buyer agent.

In a typical sale, the commission for the buyer’s agent comes out of the seller’s proceeds at the closing.  It’s already built into the sale price of the home.  The buyer does not have to directly write out a check for the buyer’s agent for their work (note, in some rare cases, which would be discussed before making an offer, a buyer’s agent MIGHT require the commission from you – for example, if your agent finds you a for-sale-by-owner home and the home owner won’t pay your agent’s commission). In a typical sale, however, it makes sense to use a buyer’s agent, because you are getting an advocate who will help you from the home-shopping part of the process to the closing, and it doesn’t cost you anything!

 

The final reason:  There is a LOT of work involved in purchasing a home.

Finding the right house for you at the right price is only a small part of what the buyer’s agent does for you.  The process doesn’t end with an accepted offer.  There are inspections and additional negotiation, and contracts and mortgage applications and mortgage appraisals and underwriting issues and title issues and attorney processes and the actual closing.  A good buyers agent will help you through the entire process, and will follow up with you after the closing as well.

So the answer to the question, should I use a buyer’s agent when buying a home, is a resounding YES.

—————————————————– 

[1] Please note, there are some exceptions to this statement regarding the listing agent only working for the seller; for example, in some states, a transaction agent represents both parties, and even in NY, with the approval of both the seller and the buyer, an agent can represent both sides of the transaction.  However, in that case, the services she/he provides to the buyer/seller are not exactly the same as they would be if they had only one client.

 

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