This is the third article in a series about my and my wife’s decision to purchase a home. The first two articles are:
When my wife and I decided to look for a home, we took two initial steps:
- Finding a buyer’s agent (the topic for today’s post)
- Getting pre-approved for a mortgage (the topic of a future post)
You: Why a buyer’s agent?
While you can certainly shop for a home without a buyer’s agent, the services of a buyer’s agent can be critical, especially for first time home buyers like my wife and me. There are many things I understand, particularly on the financial side, when it comes to homes. But there are a lot more intricacies that I don’t understand, including roofs, heating systems, and septic concerns. Furthermore, I’m confident there are still other parts of the home buying process that I don’t even know I don’t know.
You: Unconscious incompetence.
Yes – the scariest kind.
The Cost of a Buyer’s Agent
You: So how much does a buyer’s agent cost?
Anywhere from nothing, to 3%, to even 6% of the sales price of the home you buy.
You: So on a $300,000 home, a buyer’s agent could cost me $9,000?
You: That’s a lot of money – why would you pay that much if you could get a buyer’s agent for free.
You can’t get a buyer’s agent for free.
You: You just said I could get a buyer’s agent for as little as nothing.
You: So what are you talking about?
Who Pays the Buyer’s Agent?
It’s a matter of perspective. Some people claim the home buyer doesn’t pay for the services of the buyer’s agent because the payment isn’t actually made from the buyer’s funds at closing.
You: What does that mean in English?
When you close on a home (At closing, the money and the deed to the home change hands.), a seller using a seller’s agent will typically pay a 6% commission to the seller’s agency. This 6% fee is subsequently split, roughly 50-50, between the buyer’s agency and the seller’s agency. If the buyers don’t have an agency representing them, the seller’s agency keeps the whole thing.
You: Making it seem like my buyer’s agency is free, since either way the seller pays 6% and I don’t make any direct payment. So what’s the argument that I’m really paying 3% or 6%?
Where’s the money coming from that the seller uses to pay the agency commission?
You: From the seller’s funds at closing – you just said that in your question!
But where did the seller get those funds just a few seconds earlier?
You: From the buyer.
Right. It’s a matter of perspective. I liken it to the half of Social Security tax your employer pays on your behalf. Sure, the employer is the one cutting the check, but its money that could have otherwise been paid to you. You feel the pain of the tax payment even though you don’t actually write the check. Same thing with a buyer’s agent. Nonetheless, selecting a buyer’s agent wisely is a worthwhile exercise (and besides, you’re paying for it anyway).
How to Choose a Buyer’s Agent
You: How did you choose your buyer’s agent?
Deliberately. The same way you wouldn’t choose a doctor out of a phone book, you shouldn’t just pick a buyer’s agent based on who hosted a recent open house you attended or who introduced herself at the grocery store last week.
In previous home shopping experiences in other states, my wife and I learned a few things about buyer’s agents. Perhaps the most important: the best ones aren’t in the office when you call or stop by randomly.
You: Where are they?
You: Even in this market?
Especially in this market. In fact, they may be the only ones selling homes. Some of the less effective agents have been eliminated from the marketplace since the economic downturn removed the easy sales.
You: So how do you find the best buyer’s agents?
Your referral network. Talk to your friends and colleagues and find out who they’ve used and are excited to recommend. Those who have had good buyer’s agents will be eager to share his or her name. Don’t ask, “Do you know a real estate agent?”
Because everyone knows a real estate agent. Heck, some may even be friends with real estate agents (not that there’s anything wrong with that). But you want an agent who comes recommended based on the experience of someone you trust on such matters.
We found two excellent buyer’s agents using this approach and, quite honestly, we liked them both. However, you can only work with one at a time.
Because that’s how it works.
You: Not helpful.
Sorry. In order to get the best efforts of your buyer’s agent, they’re going to want an exclusive right to work with you for a period of time. To me, a few months is a reasonable request – especially if you’ve thoroughly vetted the candidate.
You: So how did you choose between the two agents you liked?
It wasn’t easy, but it came down to their referral networks. One simply had been in the business longer and knew more people. Such extensive experience is worthy of your consideration too. Plus if you have multiple qualified candidates, you can also evaluate their “intangibles.”
You: Like fit? Personality?
Certainly, but not necessarily because you like one the most. Rather, base your decision on whose style you think will be most effective at landing you the right house at the right price. Someone who not only knows their stuff but will has the confidence to call you out if you’re about to do something you shouldn’t or not do something you should.
You: What if I don’t know anyone who can make a trustworthy referral?
Then find out who sold the most properties in your area last year and make an appointment with that person.
You: For real?
Yup. That guarantees you’re not going to get Buddy.
Buddy is the new guy. If you must go that route, do this at at least two agencies and then choose a winner.
You: How do I find out who sold the most properties?
Go into the office and find the sales awards plaques. Say you have or would like to make an appointment with the person who has his or her name on the wall the most.
You: This will work?
Buddy might not like it, since he’s sitting around the office waiting for a new client and the top agent might find it a bit odd, but will be thrilled to have a new client, especially one that’s pre-approved, the subject of the next housing-related post.
How did you choose your buyer’s agent? Anyone buy a home without a buyer’s agent? How did that work?