Home Buying Without an Agent
Risks and Tips Before You Buy
Most people would not consider buying a home without an agent. In any given year, only about 10 percent to 20 percent of the home buying sales are transactions completed without the services of a real estate agent. Although many For Sale by Owner sellers will pay a commission to a buyer's agent, some will not. Some FSBOs want to sell without any real estate agents involved in the transaction whatsoever. In the industry, we call these types of sellers unrepresented.
Beware if you are trying to buy a home directly from an unrepresented seller. The seller may not know what they are doing or might be taking advantage of you; either way, it could be problematic.
An unrepresented seller might choose to lock out a real estate agent because of money. Their reasoning is they don't want to pay a real estate commission. Some of them lose a lot of money because of the perception that paying a commission costs more when a good agent often pays for herself through negotiation services. But that's their loss and your gain.
Agents in the industry see a lot of FSBOs underprice. That's good for you, though. It's also common for a home buyer to wonder if the seller is hiding a defect or some other problem because they don't want an agent involved, and that's quite possible as well.
Tips for Home Buying Without an Agent
Before moving forward to buy a home from a for sale by owner, ask the seller if you can let your agent represent you. The seller might be willing to pay a commission for a buyer's agent, which means your agent costs you nothing. It's worth asking about. If not, here's what you do:
- Find out how much comparable homes sold for before making an offer. The prices of active listings are pretty much worthless and not indicative of value.
- Build contingencies into your offer. You need a way to cancel the contract if everything is not to your satisfaction without risking your earnest money deposit.
- Get a home inspection. Don't hire a home inspector from a list, ask around for a recommendation.
- Hire a real estate lawyer. Real estate advice is not expensive. Expect to pay $200–$500 for a lawyer to review your contract and offer advice.
- Make sure you buy or the seller pays for a title insurance policy. You should get a clean title, free from liens and encumbrances.
The Risks of Home Buying Without an Agent
I would be remiss if I didn't point out that some home buyers, especially first-time home buyers, are wary of real estate agents. They don't trust agents. They think that real estate agents care only about closing the deal and not about them. A small percentage of real estate agents are like that, but the larger percentage care deeply about providing quality service and treating clients honestly and ethically.
- Without an agent, you'll have to do your own negotiation. Negotiating an offer is very different than, say, buying a car, because the risks in buying a home far exceed price considerations.
- Without an agent, you won't have a neighborhood specialist to rely on. Agents who sell in certain areas know facts about that neighborhood, which could be important to you and a seller might not disclose.
- Without an agent, you might not receive all of the seller disclosures that you are entitled by law to receive. Sellers might not purposely withhold a disclosure, but you probably won't know what to ask for.
- Without an agent, you might pay more for closing costs than is customary in your neck of the woods. Sellers might make you pay for everything, and you wouldn't know the difference.
- Without an agent, you'll be left to decipher piles of paperwork filled with gobbledygook. An agent can explain the difference between a disclosure and an agreement, and help you to understand what you sign.
- Without an agent, you'll find your own mortgage. You won't know if your lender has a reputation for closing on time or whether you're getting the best rate and terms. It will be a shot in the dark.