Buying a house without a realtor

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investor1
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Buying a house without a realtor

Post by investor1 » Sun Oct 19, 2014 4:47 pm

I've been saving for a down payment on my first house, and I'm getting to the point where I think I'll have plenty saved for a 20% down payment for what I want in my area. If it matters, I'm in Oregon. Also if it matters, I'm looking for either a single family house or a condo.

I'm considering buying without getting a realtor. I'd love to find a For Sale by Owner so there is no agent fee at all, but I'm not banking on that. I think I can likely negotiate between the seller and their agent to either lower the overall price or the percentage going to the agent.

And it isn't all about the agent fees. IMO, there isn't anything that requires the buyer's agent to have the buyers best interest in mind (that I am aware of). They make money by making the sale. Once they find a house you are even considering, they benefit by convincing you to buy it. I don't need anyone trying to talk me into something I am on the fence about. Sure, a good realtor won't do this, but I don't know many realtors. The ones I do know reinforce the thoughts I have already typed.

I'm aware that not all listings are publicly available through sites like zillow. I think I can easily find houses I want to check out on my own by figuring out which neighborhoods I want to live in and driving around looking for For Sale signs. I don't mind the time investment.

Once I find a place I'm interested in, I'd like to make sure I understand what I can/should do. Here is my current understanding:

1. Arrange a viewing.
2. Hire an inspector (or a bunch of specialty inspectors).
3. Hire an apraisor.
4. Make an offer.
5. Hire a real estate attorney to look over the offer.
6. Work with the title company to transfer the title.

Is my understanding correct? Am I missing something? Honestly, I haven't really decided if I want to go without an agent. I just want to make sure I understand my options.

Professor Emeritus
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Re: Buying a house without a realtor

Post by Professor Emeritus » Sun Oct 19, 2014 5:09 pm

investor1 wrote:
And it isn't all about the agent fees. IMO, there isn't anything that requires the buyer's agent to have the buyers best interest in mind (that I am aware of). They make money by making the sale. Once they find a house you are even considering, they benefit by convincing you to buy it. I don't need anyone trying to talk me into something I am on the fence about. Sure, a good realtor won't do this, but I don't know many realtors. The ones I do know reinforce the thoughts I have already typed.


Your understanding of the law is incorrect A buyer's agent is a fiduciary who owes a total duty of loyalty to the client.

Pale Horse
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Re: Buying a house without a realtor

Post by Pale Horse » Sun Oct 19, 2014 5:19 pm

To arrange a showing, you're going to have to go through listing agent. Doing so, without a buying agent, will most likely lead them to attempt to claim procuring cause, which entitles them to both selling and buying agent commission. You can try negotiating this out of the deal, but it's an uphill battle.

I'd suggest looking into securing the services of a rebating Realtor, which will give back a portion of the buying agent commission. I just went through this in Michigan and felt he was worth the money at 1.5% commission, while I got 1.5% back.

investor1
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Re: Buying a house without a realtor

Post by investor1 » Sun Oct 19, 2014 5:24 pm

Pale Horse wrote:I'd suggest looking into securing the services of a rebating Realtor, which will give back a portion of the buying agent commission. I just went through this in Michigan and felt he was worth the money at 1.5% commission, while I got 1.5% back.


I wasn't aware of this option. Thanks. Do you have to pay income taxes on the 1.5% you got back?

Pale Horse
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Re: Buying a house without a realtor

Post by Pale Horse » Sun Oct 19, 2014 5:30 pm

investor1 wrote:
Pale Horse wrote:I'd suggest looking into securing the services of a rebating Realtor, which will give back a portion of the buying agent commission. I just went through this in Michigan and felt he was worth the money at 1.5% commission, while I got 1.5% back.


I wasn't aware of this option. Thanks. Do you have to pay income taxes on the 1.5% you got back?


No, of course not. It's your money to begin with, they are just taking less of it. Instead of paying 10k in commissions, now you're only paying 7500 for example.

it's just listed as a reduction of funds needed to close on your closing statement.

retiredjg
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Re: Buying a house without a realtor

Post by retiredjg » Sun Oct 19, 2014 5:33 pm

investor1 wrote:1. Arrange a viewing.
2. Hire an inspector (or a bunch of specialty inspectors).
3. Hire an apraisor.
4. Make an offer.
5. Hire a real estate attorney to look over the offer.
6. Work with the title company to transfer the title.

Is my understanding correct? Am I missing something? Honestly, I haven't really decided if I want to go without an agent. I just want to make sure I understand my options.

I think you have some things backwards. An inspection and an appraisal can easily cost $700 to $1200. Specialty appraisals will just add to this cost.

In my opinion, you don't want to do that without an offer in place because the owner may not accept your offer. And the owners are unlikely to put themselves through the inconvenience of an appraisal and inspection without a contract anyway.

The procedure is to make an offer and have it accepted contingent on the inspection and appraisal (and other things like financing). Once the inspection is done, you can negotiate for a lower price based on what is found in the inspection. The seller may or may not agree to a lower price. I suspect they generally do.

There is no need for a real estate attorney unless your state requires one. This is something that varies greatly by state.

I sold a home last year without an agent. I really had nothing to lose because I knew I was not out to cheat the buyers. You are not in this position so keep that in mind and be sure you get an inspector and appraiser that will be looking out for your best interests, not just rubber stamping the process. Actually, your mortgage lender will probably select the appraiser, so you don't have much control there.

I downloaded sale forms from the internet. The buyers and I figured it out on our own. I trusted them and they trusted me - it all worked out very well and they got a screaming good deal because there were no agent fees to be paid.

I made a lot of phone calls and learned from the attorneys I called that I didn't need one. I picked an agency to do the closing (they all have different fees) and the buyers picked the same one. They handled everything. It turned out to be exceptionally easy but that is mostly because neither I not the buyers were out to swindle anyone.

investor1
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Re: Buying a house without a realtor

Post by investor1 » Sun Oct 19, 2014 5:36 pm

Thanks.

HoosierJim
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Re: Buying a house without a realtor

Post by HoosierJim » Sun Oct 19, 2014 5:45 pm

. ... Do you have to pay income taxes on the 1.5% you got back?


No, of course not. It's your money to begin with, they are just taking less of it.


irs Number: 200721013 wrote:Taxpayer does not have an information reporting obligation under
section 6041 of the Code because, as concluded above, a payment or credit at closing
represents an adjustment to the purchase price of the home and generally is not
includible in a purchaser’s gross income.


Link

HOWEVER - The rebate now lowers the purchase price and establishes a lower BASIS for future gains.

stan1
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Re: Buying a house without a realtor

Post by stan1 » Sun Oct 19, 2014 6:02 pm

Check to see if Redfin is operating in your area. I'd consider working with them as a buyer in a slow to normal paced market -- not so sure I would if I was selling or if I was buying in a fast paced market where a property would have multiple offers within days. If the market is moving fast I think you need a buyer's realtor who is well connected with seller's realtors -- and I'm not sure you get that with Redfin. There are times when paying 1-2% is worth it.

Be wary of any property that's been on the market for more than 60 -90 days (30 days in a fast paced market). That could mean other people are cautious about it, either due to high price, location, condition, or some other flaw. Do not compromise on things you can't fix like location in order to get a "bargain" and don't take on a "project" unless you are going to do a lot of work yourself (or don't care about cost).

Good luck.

killjoy2012
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Re: Buying a house without a realtor

Post by killjoy2012 » Sun Oct 19, 2014 6:06 pm

Many of the replies already captured my thoughts and experiences, but just to quickly reiterate:

- 3% of the selling price goes to the selling realtor, and 3% to the buyer's realtor. e.g. 6% fee total paid by the seller. If you as the buyer choose to forgo a realtor, IME, you're just making the selling realtor twice as rich. You can try and negotiate knowing that, but good luck. To be honest, most people have bigger worries, esp when they aren't paying that fee to begin with. \

- I didn't have a realtor when I bought my first house in 1999, and the selling realtor was actually the mother of the home's owner. I believe I actually signed something that stated that single realtor was going to act on both our behalves, etc. While that may sound like a conflict, honestly, there isn't much to the process once the offer has been accepted.

- You don't get an inspection until after making an offer and it being accepted. Your offer should be conditional on a home inspection, appraisal, and other items. Home inspectors cost $100-600, and appraisals are ~$200-400. You don't want to commit to this expense until it's pretty much a done deal. If something major is found, you can then either accept it... or try negotiating the price down. Just don't push your luck, and go in knowing that all homes have issues.

Pale Horse
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Re: Buying a house without a realtor

Post by Pale Horse » Sun Oct 19, 2014 6:11 pm

HoosierJim wrote:
HOWEVER - The rebate now lowers the purchase price and establishes a lower BASIS for future gains.


That part's a bit tricky. It unfortunately doesn't reduce the actual purchase price, which is the price that all title & mortgage fees are based on. It will reduce your cost basis, but for a primary residence this isn't really a big deal as the first $250,000/$500,000 of gain on sale isn't taxable.

adamthesmythe
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Re: Buying a house without a realtor

Post by adamthesmythe » Sun Oct 19, 2014 6:42 pm

Part of what you are paying your buyer's agent for (indirectly, of course) is for knowing how things are done- how to write an attractive offer, how to include the essential contingencies, how to identify appropriate properties, maybe even alerting you to considerations you haven't thought of...these are all things that a first-time buyer in particular is likely to need.

It is certainly possible to circumvent the real estate agent. It seems to me there is much less reason to do this on the buyer's end. Mainly because the chances of actually saving some money are less, and the amount of work needed to avoid involving an agent at your end is substantial.

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TheGreyingDuke
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Re: Buying a house without a realtor

Post by TheGreyingDuke » Sun Oct 19, 2014 7:01 pm

Professor Emeritus wrote:Your understanding of the law is incorrect A buyer's agent is a fiduciary who owes a total duty of loyalty to the client.


That is true BUT...

I remember an article in the WSJ some years ago that showed (this was in Chicago I think) that when selling their own houses real estate agents held out longer for a better price, and got it. No conflict there with fiduciary duty but there is an incentive to close a deal to earn the commission.

If you can manage it, better off without the intermediary. One caution, many FSBOs are there because the owner was dispirited by a real estate agent's assessment of the selling price, thought they should get more, and then price it higher than warranted. I can recall many such instance, one recent example was a FSBO offered at $399k, lowered to $389k after six months, and then finally listed with an agent and priced at $325k.
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HoosierJim
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Re: Buying a house without a realtor

Post by HoosierJim » Sun Oct 19, 2014 7:24 pm

Pale Horse wrote:It unfortunately doesn't reduce the actual purchase price, which is the price that all title & mortgage fees are based on.


Yes - also in a small weird way it perverts the appraisal of like homes/units. Let's say a builder builds 8 identical condos in a building and offers them for sale for $200k - the first unit gets sold with the realtor discount/rebate. As you mentioned, the sale looks like it occurred for $200k but actually may be 1.5% less or more.

HoosierJim
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Re: Buying a house without a realtor

Post by HoosierJim » Sun Oct 19, 2014 7:38 pm

We have purchased/sold multiple homes and sold only 1 via a realtor. IMO the Realtor was worthless - missed things and added no value to the sale and was borderline unethical in one of the potential deals. The Realtors that cycled through the house with prospective buyers were little more than taxi services.

I have noticed homes in the area that start out as FSBO and within a month or 2 change to a Realtor sign. In the day of Ebay, Zillow, Uber, VRBO,Amazon - I am always amazed that the real estate market hasn't really budged on this. I always wonder if , especially new buyers, are scared of FSBO?

The Realtor argument is that they will get more money than the "by owner" - which I don't know whether this is true or not. They also claim they will navigate you through the complex legal process - personally, I would rather pay a lawyer for legal advice.

If you put together a competitive offer, have financing in place and prepare for a proper inspection, you may be able to convince the FSBO to take your offer.

john94549
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Re: Buying a house without a realtor

Post by john94549 » Sun Oct 19, 2014 7:44 pm

We bought our very first house (back in 1973) on a handshake. No realtors on either side. We hired a title company to help with the paperwork, and that was that.

My oh my, how times have changed. The "paperwork" involved these days is much more complicated. As a first-time buyer, knowing that you probably are entering a mine-field, well, I wouldn't do it.

Poster "adamthesmythe" nailed it.

drawpoker
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Re: Buying a house without a realtor

Post by drawpoker » Sun Oct 19, 2014 8:09 pm

I must be missing something here. Why would anyone who is buying a house be concerned about the realtor (s) involved.
You have no legal position as a buyer to negotiate anything other than the price you offer. "Selling a House Without a Realtor" would be a more common thread.
If you want to drive around every weekend on your own, then call up the listing agency on each house you like, ask to be shown the house, then, yes, if you decide to make an offer, you have successfully maneuvered around the usual scenario. Now you have assured there is only 1 realtor involved, not the usual 2 (seller side and buyer side) to split the commission.
So, in theory, you could make an offer substantially below the asking price, and, if the seller and agent were smart, you would be in a good bargaining position to get your offer accepted. Or at least set the groundwork for counters and counter-counters back and forth. When no cooperating agency is involved, the listing agent is more inclined to cut that 6% way down. Maybe almost by half. (With permission from Broker-in-charge, of course)
But, that's theory. In practice, usually both sellers and their agents are notoriously greedy, so there is no guarantee your plan will work.
btw, your plan of hiring a licensed r.e. appraiser on your own would not work around my area. The appraisers only take work from the lenders, insurance companies, estate attorneys, and other professionals. Not from Joe Six Pack.
There are good reasons for this practice, too lengthy to go into here. Check into it on your own.

noco-hawkeye
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Re: Buying a house without a realtor

Post by noco-hawkeye » Sun Oct 19, 2014 8:20 pm

Many times people will say buyers should almost always have a realtor, they don't really cost anything. If your seller is using a realtor, there is some truth in this viewpoint - the seller is going to give up something like 6-7% wether or not 1 or 2 realtors are involved.

I have found that if you talk to a sellers realtor, and approach them with a deal something like this:
"Listen, I have another realtor that I am thinking about getting involved for my offer. However, I would rather offer X% less and have the seller's realtor work both sides of the transaction. And Realtor, if you don't make a lower priced offer go through, I can just bring in my realtor and get better service".

I bet 98% of the realtors out there would bite on this approach and help push for a lower price, and still help you out with all the different things you would need. Realtors aren't out to cheat anyone outright, but they are highly motivated by money.

drawpoker
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Re: Buying a house without a realtor

Post by drawpoker » Sun Oct 19, 2014 8:26 pm

Well, all I can say is that if these 98% do what you just suggested in either North Carolina or Maryland they are going to risk losing their license. Clearly a violation of state real estate law and regs.
Once that listing agreement is signed and ink is dry, the law clearly says the fiduciary duty is to the seller and the seller alone. (Other agents, in absence of a signed "buyer's" contractual agreement, automatically become sub-agents of the seller under the law once they enter picture ) They are not permitted to negotiate in any way on behalf of the buyer's interests.
Nope

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Re: Buying a house without a realtor

Post by Mudpuppy » Sun Oct 19, 2014 8:44 pm

Pale Horse wrote:I'd suggest looking into securing the services of a rebating Realtor, which will give back a portion of the buying agent commission. I just went through this in Michigan and felt he was worth the money at 1.5% commission, while I got 1.5% back.

I went with this option as well. It was a local real estate agency that had a rebate deal for customers of a local credit union. I'll have to say I had a rather mixed experience with the process.

The first realtor the agency matched me with was not good. She unwilling to do the foot-work to screen houses for my criteria, pushing houses on me that were not a good fit, and would not put in the offer I was willing to make on a property I did end up liking but felt was overpriced (I found out was the property was being flipped by another realtor). So I just called the main agency number and said the rebate wasn't worth it for the hassle of that person.

The agency assigned me another realtor within the agency rather than have the agency lose out on the commission. The second realtor was good at screening houses, but rather hands-off on things like pricing advice. She would get me the comps, but it was up to me to crunch the numbers and determine what I wanted to offer. I ended up offering on a different house in a better neighborhood, and she did handle matters in closing, which turned out to be a bit complex due to the demands of the homeowner's insurance company.

mrpotatoheadsays
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Re: Buying a house without a realtor

Post by mrpotatoheadsays » Sun Oct 19, 2014 10:36 pm

investor1 wrote:Is my understanding correct? Am I missing something? Honestly, I haven't really decided if I want to go without an agent. I just want to make sure I understand my options.


I recommend you buy a book on the topic. I purchased Nolo's How to Buy a Home... and purchased a condo without a realtor. The book had all the legal forms I needed, an understanding of the law, the steps to take and instructions on how to write the offer. The process is quite bizarre and full of silly forms; I noticed realtors have even more silly forms.

Jonathan
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Re: Buying a house without a realtor

Post by Jonathan » Mon Oct 20, 2014 12:26 am

We bought a house last year without a realtor. We were very familiar with the area, and all the listings were online anyway. We did use a real estate lawyer to look everything over and to tighten up some mining rights documents.

Normally, the seller's and buyer's agents split a 6% fee. If, as the buyer, you aren't using an agent, you have this 3% bonus that you can use to influence the deal. Two options:

1. The seller's agent gets double the fee for selling to you. That's a huge incentive for the agent to convince the owners to sell to you and not someone else.*

2. The seller's agent gets the standard 3% fee, and agrees to pay the other 3% to the sellers. This directly incentivizes the sellers to sell to you, because they get 3% back on the deal. This is what we ended up doing, and it was useful when we were negotiating the price down.

If you're using a house inspector, try to choose one that does NOT know the seller's agent. If the agent and the inspector have a mutually beneficial referral relationship, the inspector is disincentivized from warning you not to buy a questionable house, because, in the future, the seller's agent won't recommend that inspector, for fear of souring the deal. The inspector has plenty of leeway to spin his recommendation, and unless he thinks you can refer him more business than the agent, he's incentivized to spin for the agent.

*Regarding #1, yes, there are various weakly-defined "fiduciary duty" or "suitability" requirements that are supposed to mitigate the realtor's advantage, but I doubt they can trump double commission on a house sale. Similar laws exist in many relationships between investment advisers and investors, and those advisers no doubt swear on scout's honor to uphold their sworn duties to their clients. For example: NYT: Before the Advice, Check Out the Adviser.

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TheGreyingDuke
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Re: Buying a house without a realtor

Post by TheGreyingDuke » Mon Oct 20, 2014 8:11 am

Jonathan wrote:If you're using a house inspector, try to choose one that does NOT know the seller's agent. If the agent and the inspector have a mutually beneficial referral relationship, the inspector is disincentivized from warning you not to buy a questionable house, because, in the future, the seller's agent won't recommend that inspector, for fear of souring the deal. The inspector has plenty of leeway to spin his recommendation, and unless he thinks you can refer him more business than the agent, he's incentivized to spin for the agent.


Quite true; I was recently present when the agent's selected inspector did his review. After a couple of hours he presented us with a checklist, that had been approved by some self-serving organization, that essentially said everything was OK. When I asked about the huge tree branch that was overhanging the roof, or the potential problem of inadequate attic ventilation, he was stymied. He did nothing that I couldn't have done and saved the $500.
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WhyNotUs
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Re: Buying a house without a realtor

Post by WhyNotUs » Mon Oct 20, 2014 9:47 am

See if your local library has or can get "Home Buying Kit for Dummies" by Eric Tyson. Not that you are a dummie but rather than this is your first home and your post suggests that a little homework on the process will help you be a better buyer.
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investor1
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Re: Buying a house without a realtor

Post by investor1 » Mon Oct 20, 2014 10:15 am

Thanks for the advice, everyone. There is a some good info here. I think I'll take the advice of picking up a book too.

retiredjg
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Re: Buying a house without a realtor

Post by retiredjg » Mon Oct 20, 2014 10:28 am

This has sort of been intimated, but I don't think it has been stated. If the seller has an agent, the cost will be 6% (or the local rate) even if you don't have an agent. It just all of that 6% goes to the seller's agent. As mentioned above, this can be negotiated, often to both the buyer and seller's benefit.

The only way your transaction won't include something near 6% (other than negotiating with the agent as mentioned above) is if you go for sale by owner and neither of you has an agent.

sls239
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Re: Buying a house without a realtor

Post by sls239 » Mon Oct 20, 2014 11:39 am

Where I live, if you only went by signs, zillow, or even MLS, you'd miss the best houses.

It is rare to see a "for sale" sign without the "sold" part on top. The realtors mostly just use it to advertise themselves. The ones that do have "for sale" signs that aren't already sold tend to have something wrong with them. And the FSBOs were even worse.

I know that many owners don't want a "for sale" sign in their yard, even when their house is for sale.

And no, my part of Arkansas is not a "hot market." LOL.

Herekittykitty
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Re: Buying a house without a realtor

Post by Herekittykitty » Mon Oct 20, 2014 11:59 am

I am thinking of buying a home in the future so am reading up on it. I just read the book below. It is written by an exclusive buyer's agent so is written from that perspective and is not objective. I still found it interesting, especially the difference between exclusive buyer's agents who work for a company which only represents buyers, as opposed to an agent who may represent either and/or who works for an agency which may represent either.

Buying a Home Don't Let Them Make a Monkey Out of You
http://www.amazon.com/gp/product/148253 ... PDKIKX0DER

Many years ago I sold a house for significantly less than the market value. I didn't know and I trusted the agent who presented herself as representing me. But - lo, and behold! It turned out that she was also representing the buyer, who had an ongoing mutually productive relationship with the agent who fed him properties to flip. Once I realized what had happened, I got a lawyer who wrote them a letter that resulted in their voluntarily cancelling the contract. At the time, I had no idea that an agent could represent both parties nor how rife with conflicts of interest the business was. Apparently although it was in fact legal for an agent to represent both parties, it was not legal to sneak the fact up on one of the parties.
I don't know anything.

drawpoker
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Re: Buying a house without a realtor

Post by drawpoker » Mon Oct 20, 2014 12:02 pm

sls239 wrote:...I know that many owners don't want a "for sale" sign in their yard, even when their house is for sale.



I don't care about the For Sale sign in the yard, but when I list my house I am going to insist on no lockbox on the front door.
Realtors love this, too. As it means the lazy ones don't have to bother to pick up and return a key from the listing broker anymore. But it also means that any realtor could show the house at anytime without notice (even if you specified you wanted 24 hr notice before a showing is allowed)

Jonathan
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Re: Buying a house without a realtor

Post by Jonathan » Mon Oct 20, 2014 12:06 pm

TheGreyingDuke wrote:
Jonathan wrote:If you're using a house inspector, try to choose one that does NOT know the seller's agent. If the agent and the inspector have a mutually beneficial referral relationship, the inspector is disincentivized from warning you not to buy a questionable house, because, in the future, the seller's agent won't recommend that inspector, for fear of souring the deal. The inspector has plenty of leeway to spin his recommendation, and unless he thinks you can refer him more business than the agent, he's incentivized to spin for the agent.


Quite true; I was recently present when the agent's selected inspector did his review. After a couple of hours he presented us with a checklist, that had been approved by some self-serving organization, that essentially said everything was OK. When I asked about the huge tree branch that was overhanging the roof, or the potential problem of inadequate attic ventilation, he was stymied. He did nothing that I couldn't have done and saved the $500.


Agreed; I wouldn't use a house inspector again. I did have a bit better luck using a structural engineer. Like you, I was able to parse the minor problems myself, but I needed someone to examine for potential serious issues. The house inspector's report was filled with fluff like - no joke - "bulb missing from bedroom closet light fixture".

investor1
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Re: Buying a house without a realtor

Post by investor1 » Mon Oct 20, 2014 12:31 pm

sls239 wrote:Where I live, if you only went by signs, zillow, or even MLS, you'd miss the best houses.

It is rare to see a "for sale" sign without the "sold" part on top. The realtors mostly just use it to advertise themselves. The ones that do have "for sale" signs that aren't already sold tend to have something wrong with them. And the FSBOs were even worse.

I know that many owners don't want a "for sale" sign in their yard, even when their house is for sale.

And no, my part of Arkansas is not a "hot market." LOL.


There maybe be houses up for sale without a sign, but in my area I see a ton of signs without a sold part. I live in a fairly hot market.

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hand
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Re: Buying a house without a realtor

Post by hand » Mon Oct 20, 2014 4:43 pm

Professor Emeritus wrote:
investor1 wrote:
And it isn't all about the agent fees. IMO, there isn't anything that requires the buyer's agent to have the buyers best interest in mind (that I am aware of). They make money by making the sale. Once they find a house you are even considering, they benefit by convincing you to buy it. I don't need anyone trying to talk me into something I am on the fence about. Sure, a good realtor won't do this, but I don't know many realtors. The ones I do know reinforce the thoughts I have already typed.


Your understanding of the law is incorrect A buyer's agent is a fiduciary who owes a total duty of loyalty to the client.


Excluding outright fraud, I would think it is borderline impossible to hold an agent to any so-called legal requirement of fiduciary duty because of 1) the dual mandate of closing a deal and getting the best price and 2) the difficult task of precisely valuing an individual property.

Given that agents also have fiduciary duty to themselves, their families and their brokers which is often in conflict with their "fiduciary" duty to their clients, I find it hard to accept the notion of fiduciary responsibility for buyer's agents with a straight face irrespective of the law. They don't call realtors "used house salespeople" for no reason!

Jonathan
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Re: Buying a house without a realtor

Post by Jonathan » Mon Oct 20, 2014 5:00 pm

hand wrote: I find it hard to accept the notion of fiduciary responsibility for buyer's agents with a straight face irrespective of the law.


You nailed it right there. In fact, anytime I see the phrase "fiduciary responsibility", it's a red flag for me that the exact opposite relationship is in effect. Subjective valuation makes it nearly impossible to pin down any agent (real estate or otherwise) for not performing his or her fiduciary duty. It's almost a scam whereby the government places their imprimatur on an agent's faux motivations. The agent would have to try to convince you to buy the Brooklyn Bridge to provably fall afoul of that responsibility.

Professor Emeritus
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Re: Buying a house without a realtor

Post by Professor Emeritus » Mon Oct 20, 2014 5:21 pm

TheGreyingDuke wrote:
Professor Emeritus wrote:Your understanding of the law is incorrect A buyer's agent is a fiduciary who owes a total duty of loyalty to the client.


That is true BUT...

I remember an article in the WSJ some years ago that showed (this was in Chicago I think) that when selling their own houses real estate agents held out longer for a better price, and got it. No conflict there with fiduciary duty but there is an incentive to close a deal to earn the commission.
k.


I was responding to an question of law i.e. IMO, there isn't anything that requires the buyer's agent to have the buyers best interest in mind (that I am aware of). You are raising a different issue. you are describing a sellers agent, not a buyers. Sellers agents have a massive conflict of interest that is very hard to deal with. WE are selling a house right now. It would sell INSTANTLY for 600K. We are asking 800K. The extra value produced by an agent cannot exceed 200K . So what is a suitable fee for 200K in real value. I'll go with 25% (close to a lawyers contingent fee) Net is a 50 K fee. So a fair fee is 25% of the selling price over 600K. But that is not the way the services are priced. they want 6% of the entire cost. its the same 50 k but they have an enormous incentive to try to get you to drop the price to make the sale. Their fee as a percentage of real value skyrockets as the price drops. if it was 700 k they have a fee of 42% of the real value. That is the big problem with agents. It's on the seller side, not the buyer.

Jonathan
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Re: Buying a house without a realtor

Post by Jonathan » Mon Oct 20, 2014 5:39 pm

Freakonomics covered this previously. By comparing standard house sale prices against sale prices of houses owned by brokers, they found that, while the broker is incentivized to push for a quick sale of your house, when a broker is selling his own house, he will hold out for the higher price.

Also: http://www.nber.org/papers/w13796. TLDR; brokers sell your house more quickly, for a lower price.

nber.org wrote:Our central finding is that, when listings are not tied to brokerage services, a seller’s use of a broker reduces the selling price of the typical home by 5.9 to 7.7 percent, which indicates that agency costs exceed the advantages of brokers’ knowledge and expertise by a wide margin.


And, see "Principal-Agent Problem" on Wikipedia.

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Re: Buying a house without a realtor

Post by Herekittykitty » Mon Oct 20, 2014 6:17 pm

Professor Emeritus wrote:
TheGreyingDuke wrote:
Professor Emeritus wrote:Your understanding of the law is incorrect A buyer's agent is a fiduciary who owes a total duty of loyalty to the client.


That is true BUT...

I remember an article in the WSJ some years ago that showed (this was in Chicago I think) that when selling their own houses real estate agents held out longer for a better price, and got it. No conflict there with fiduciary duty but there is an incentive to close a deal to earn the commission.
k.
aware of).

I was responding to an question of law i.e. IMO, there isn't anything that requires the buyer's agent to have the buyers best interest in mind (that I am aware of You are raising a different issue. you are describing a sellers agent, not a buyers. Sellers agents have a massive conflict of interest that is very hard to deal with. WE are selling a house right now. It would sell INSTANTLY for 600K. We are asking 800K. The extra value produced by an agent cannot exceed 200K . So what is a suitable fee for 200K in real value. I'll go with 25% (close to a lawyers contingent fee) Net is a 50 K fee. So a fair fee is 25% of the selling price over 600K. But that is not the way the services are priced. they want 6% of the entire cost. its the same 50 k but they have an enormous incentive to try to get you to drop the price to make the sale. Their fee as a percentage of real value skyrockets as the price drops. if it was 700 k they have a fee of 42% of the real value. That is the big problem with agents. It's on the seller side, not the buyer.


I'm befuddled. It looks like the two statements I bolded in your comments above contradict each other, so I assume I am not understanding correctly. Is a buyer's agent and/or an exclusive buyer's agent have a fiduciary responsibility to the buyer? And if so, does this require the buyer's agent to have the buyer's best interest in mind?
Last edited by Herekittykitty on Mon Oct 20, 2014 7:01 pm, edited 1 time in total.
I don't know anything.

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Dutch
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Re: Buying a house without a realtor

Post by Dutch » Mon Oct 20, 2014 6:24 pm

HoosierJim wrote:IMO the Realtor was worthless


+ 1

I have no idea how this racket got started. Charging 6% of the purchase price for doing next to nothing. Nice work if you can get it.

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Re: Buying a house without a realtor

Post by investor1 » Mon Oct 20, 2014 7:16 pm

Herekittykitty wrote:
Professor Emeritus wrote:
TheGreyingDuke wrote:
Professor Emeritus wrote:Your understanding of the law is incorrect A buyer's agent is a fiduciary who owes a total duty of loyalty to the client.


That is true BUT...

I remember an article in the WSJ some years ago that showed (this was in Chicago I think) that when selling their own houses real estate agents held out longer for a better price, and got it. No conflict there with fiduciary duty but there is an incentive to close a deal to earn the commission.
k.
aware of).

I was responding to an question of law i.e. IMO, there isn't anything that requires the buyer's agent to have the buyers best interest in mind (that I am aware of You are raising a different issue. you are describing a sellers agent, not a buyers. Sellers agents have a massive conflict of interest that is very hard to deal with. WE are selling a house right now. It would sell INSTANTLY for 600K. We are asking 800K. The extra value produced by an agent cannot exceed 200K . So what is a suitable fee for 200K in real value. I'll go with 25% (close to a lawyers contingent fee) Net is a 50 K fee. So a fair fee is 25% of the selling price over 600K. But that is not the way the services are priced. they want 6% of the entire cost. its the same 50 k but they have an enormous incentive to try to get you to drop the price to make the sale. Their fee as a percentage of real value skyrockets as the price drops. if it was 700 k they have a fee of 42% of the real value. That is the big problem with agents. It's on the seller side, not the buyer.


I'm befuddled. It looks like the two statements I bolded in your comments above contradict each other, so I assume I am not understanding correctly. Is a buyer's agent and/or an exclusive buyer's agent have a fiduciary responsibility to the buyer? And if so, does this require the buyer's agent to have the buyer's best interest in mind?

The second set of text that you have in bold was in italics in his post because it was a quote from the OP rather than his statement.

Professor Emeritus
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Re: Buying a house without a realtor

Post by Professor Emeritus » Mon Oct 20, 2014 7:52 pm

Herekittykitty wrote:
Professor Emeritus wrote:
TheGreyingDuke wrote:
Professor Emeritus wrote:Your understanding of the law is incorrect A buyer's agent is a fiduciary who owes a total duty of loyalty to the client.


That is true BUT...

I remember an article in the WSJ some years ago that showed (this was in Chicago I think) that when selling their own houses real estate agents held out longer for a better price, and got it. No conflict there with fiduciary duty but there is an incentive to close a deal to earn the commission.
k.
aware of).

I was responding to an question of law i.e. IMO, there isn't anything that requires the buyer's agent to have the buyers best interest in mind (that I am aware of You are raising a different issue. you are describing a sellers agent, not a buyers. Sellers agents have a massive conflict of interest that is very hard to deal with. WE are selling a house right now. It would sell INSTANTLY for 600K. We are asking 800K. The extra value produced by an agent cannot exceed 200K . So what is a suitable fee for 200K in real value. I'll go with 25% (close to a lawyers contingent fee) Net is a 50 K fee. So a fair fee is 25% of the selling price over 600K. But that is not the way the services are priced. they want 6% of the entire cost. its the same 50 k but they have an enormous incentive to try to get you to drop the price to make the sale. Their fee as a percentage of real value skyrockets as the price drops. if it was 700 k they have a fee of 42% of the real value. That is the big problem with agents. It's on the seller side, not the buyer.


I'm befuddled. It looks like the two statements I bolded in your comments above contradict each other, so I assume I am not understanding correctly. Is a buyer's agent and/or an exclusive buyer's agent have a fiduciary responsibility to the buyer? And if so, does this require the buyer's agent to have the buyer's best interest in mind?


A buyers agent owes a fiduciary duty to their client who is the buyer. A fiduciary duty is the highest duty imposed by law.
My point is that buyers agents rarely have the inherent conflict of interest in the current pay system that sellers agents do.
As a practical matter you will rarely save any money as a buyer not using an agent. The sellers agent simply collects the whole fee. you may believe that "I think I can likely negotiate between the seller and their agent to either lower the overall price or the percentage going to the agent. but it doesn't work that way. You don't "negotiate" You make an offer. You are far better off to make an offer you like and walk away if they don't like it. Take advantage of the seller's agent's conflict of interest. The sellers agent wants the deal at the lower price more than the seller does.

epilnk
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Re: Buying a house without a realtor

Post by epilnk » Mon Oct 20, 2014 8:31 pm

There's little advantage to avoiding the buyer's agent, and they can be helpful. They have the contacts, can talk you through the pros and cons of various houses, can make sure things move smoothly along.

However fiduciary duty or not, keep in mind that even though one realtor represents the buyer and the other represents the seller, the two realtors' interests are closely aligned. Making sure the sale goes through is their first priority, having it go through quickly and at a high price is in both of their interests. (All commissions are based on the selling price, and every house acts as a comp for the assessment of the next comparable house, so an inflated housing market is desirable.) As long as you keep their interests in the front of your mind, though, you might as well bring another realtor in.

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Re: Buying a house without a realtor

Post by noco-hawkeye » Mon Oct 20, 2014 9:40 pm

... As long as you keep their interests in the front of your mind, though, you might as well bring another realtor in.


If the seller is using a realtor and you don't have one yet, have the seller's realtor work both sides of the transaction. They will likely help lower the price by lowering the commission to 4-5%. If you are already comfortable going without a realtor, this is the best way to go. A realtor working both sides of the transaction will give you the exact same experience as a dedicated buyers agent. They will answer questions, provide access for home inspections, etc.

If you find a house FSBO, then make extra sure you know the market and don't pay more than you need to. (Though the banks will help ensure mortgage holders don't pay too much too)

Professor Emeritus
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Re: Buying a house without a realtor

Post by Professor Emeritus » Tue Oct 21, 2014 4:21 am

noco-hawkeye wrote:
... As long as you keep their interests in the front of your mind, though, you might as well bring another realtor in.


If the seller is using a realtor and you don't have one yet, have the seller's realtor work both sides of the transaction. They will likely help lower the price by lowering the commission to 4-5%. If you are already comfortable going without a realtor, this is the best way to go. A realtor working both sides of the transaction will give you the exact same experience as a dedicated buyers agent. )


IMHO There is no such thing as a Realtor "working both sides of the transaction". The seller's realtor works for the seller and owes the seller a fiduciary duty and therefore owes you NOTHING. E.G. The seller's realtor cannot advise you that in his professional opinion the seller may be motivated to accept a significant price cut. the sellers realtor cannot help you compare multiple properties.

As a current property seller I would love to find a buyer taking your advice. Absolutely love it.

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4nursebee
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Re: Buying a house without a realtor

Post by 4nursebee » Tue Oct 21, 2014 6:15 am

FSBO homes are tougher to come across.
Listed with a realtor are easy as they get on MLS, likely then easier on the real estate websites.
Not having a realtor when one is already listing the home gains nothing.
Get a realtor! An older one that has worked the area for a while, can help you better flush out what you want, save you from bad decisions.

When selling FSBO there is no incentive for a realtor to show the home. You would either have to give a commission or the buyer would have to pay up extra.

After the deal is done, the small worries over what the realtor got will never cross you mind again. If you worry over a few percent perhaps you lose out on a great place?

If the purchase is a long time away go to open homes and interact, learn, meet.
4nursebee

JoeliusZ28
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Re: Buying a house without a realtor

Post by JoeliusZ28 » Tue Oct 21, 2014 8:37 am

I bought my first house a few months ago without a realtor. I had my grandmother who is a retired agent help me through the process. Honestly, there wasn't much that i would consider difficult about it but there are two things i would say are important to do it: 1) Have a good offer form template that covers all of your bases. 2) Only purchase from good people. You have to gauge this on your own. There were FSBO homes I looked at that I walked away from because the owner made me uncomfortable. I wanted to trust the seller that if i made a mistake somewhere, they wouldnt come after me or try to burn me. The people i bought from were down to earth and understanding of my position. It also really helps your deal go through if you can find some common interests with them in small talk :) I'm quite sure that was at least part of the reason my offer was selected of the 4 that were submitted.

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