Wednesday, November 28, 2007

The Thousand Dollar Gamble—Why Buyer’s Representation is Essential!

I love working with home buyers! First Time Buyers. Move up Buyers. Relocation Buyers. You name it—I love it!
That is why a few weeks ago when a young couple called for a showing on a home I have listed, I was excited. I pulled together my Home Buyer’s Packet with information and tips for anyone considering making a move and headed off to the home.

Now I know that most people do not fall in love with the first home they are shown. But, I am also aware that buyers scour the internet for weeks, even months prior to calling a Realtor. So after a few pre-qualifying questions, I knew this young couple was ready to buy their first home.

I arrived to the home first and turned on all the lights to brighten up the place. A few minutes later several cars pulled up. The young couple and both sets of parents got out to inspect the property. After looking everything over, I asked the young people the big question:
While you are out looking at homes, are you looking for a Realtor at the same time?
Usually the answer is vague so I am ready with my speech about choosing a Realtor. This time one of the dad’s spoke up.
“They don’t need an agent because the will get a better deal without one.”
OK. I just met the young couple and their parents so I had to tread lightly here. I wanted a further explanation of what this guy was thinking, so I asked. It was his belief that with both sides of the commission on the table a better deal could be negotiated.

Well maybe, but usually not. Yes, there can be variable commission rates with dual agency so the offer could be a bit more attractive to a seller. But that amount is negligible in the grand scheme of things when buying a first home.

The total commission paid by the seller on a $200,000 home will run anywhere from $8,000 to $14,000. Now unless the agent is the listing broker, a percentage of the commission will go to the brokerage; usually 25-50%. Now we are down to a total commission for the agent of $4,000 to $7,000. How much of that will the buyer see in a lower purchase price? Maybe $1,000 to $2,000.
Is it worth a thousand bucks to gamble that a great agent is going to be the listing agent on YOUR dream home?
In the alternative, if a first time buyer signs a buyer’s representation agreement with a Realtor, the savings can be in the tens of thousands. When you work with a Realtor to show you properties, that agent will help you through the negotiations, prepare a market analysis for the neighborhood, and assess each property with you. When you walk into a home unrepresented, the listing agent is working for the seller until you sign and agree to dual agency. The agent owes the fiduciary duties only to the seller, including disclosure and confidentiality, so everything you say about your financing and interest in the home is disclosed to the seller as required by the listing contract.

Minnesota state law requires that I disclose that I am working for the seller when I first meet with buyers. When I explained the
Minnesota agency disclosure document to this young couple, it was the first time they had seen or heard of it after viewing several homes with various agents. It was obvious to them that not all agents are following this law.

This is where I will leave the story of these first time buyers but I want anyone considering buying a home to remember this, buyer’s representation with a Realtor will save you money. Here are a few examples of how this savings can work:

New Construction—When buyers visits a model home, the sales agent in the house will quote the list price and discounted savings that the builder is offering. That's it...End of Story. But, if buyers sign with their own agent, often a better price can be negotiated with the builder. I had clients who saved an additional $15,000 last year on their dream home from the price quoted by a sales agent. Had my buyers walked into the model without me as their Realtor, they would have paid more for their home.

Existing Homes—As I walk through each potential home with buyers, I point out concerns to address in the purchase agreement. Will the upgraded fixtures stay with the home? Is that discoloration a moisture problem? The carpet, roof, furnace needs replacing, can it be done prior to closing?

As a buyer’s agent, I will discuss these issues with you on the home and assist you structuring an offer addressing the defects in the home and repairs that will be needed. I also assist my buyers in determining a fair initial offer on the home based on comparable homes that have been recently sold in the area. If the home is overpriced, we can often negotiate a lower sales price. If the roof needs replacing and we are able to negotiate a new roof, that can be $4000-6000 in savings alone.

Will the listing agent point out all concerns or that the home is overpriced? The answer is no, as they are working for the seller.
Unless it is a material fact about the property, there is no duty to disclose to the unrepresented buyer.
Septic Systems and Wells—These are important and very expensive issues when considering purchasing an
acreage property. Some Realtors who work mostly in the Twin Cities will not know how to address these home features. If after agreeing on a price for the home, the septic or well does not pass an inspection, who pays the thousands of dollars for the repair or replacement?

If you are looking at an acreage property, having a Realtor that understands how the testing process works and how to write a purchase agreement to address these important issues is essential. The cost of replacing a failing septic system can be well over $10,000, not including replacing landscaping for the new drain field. Wells can have a similar price tag if complete replacement is required.

Service Professionals—Whether you need a loan officer, title company or inspector, many Realtors have a list of service professionals at their fingertips to get the job done efficiently and at the lowest possible cost to you. Most buyers do not have first hand knowledge to make a great selection for these professionals. When making the single largest purchase in your lifetime do you really want to take your chances asking DEX? I work in this industry everyday and know when it is worth it to pay a few dollars more and when the savings is not worth the cost.

The bottom line when buying a home is, you need a knowledgeable advisor in your corner. Partner with a Realtor you trust before you find that dream home. Not only can it save you thousands, it can save you headaches as well.

More Articles on Buying Real Estate that might be of interest:

Ready to buy in the Twin Cities without taking a gamble? If you are considering buying, selling or relocating to Minnesota and need help from a professional Realtor, give me a call or visit my website for a FREE Relocation Packet. I specialize in acreage and lakeshore properties in the north and east Twin Cities metro area including Ham Lake, Lino Lakes and all communities in the Forest Lake School District! Serving Anoka, Chisago, Ramsey and Washington Counties in Minnesota.

Copyright 2007