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Wednesday, April 7, 2010

Which comes first? The Realtor or the house?

Many times when talking to people about buying a home this question inevitably comes up. Why do I need a real estate agent if I don't have a house picked out? Or why can't I just use the one with the sign in the yard?

Most people tend to rank real estate agents right up there with lawyers and dentists. OK, maybe not that bad. Perhaps buyers feel they will be pushed into something by the realtor. Maybe they think there is a special incentive that the realtor gets by steering a buyer to certain properties. Most of the fears that buyers have about Realtors are just plan false. It could also be due to a lack of basic knowledge on how the process works.

When a property is listed for sale, most of the time the commission that the seller is willing to pay is set. The commission to sell the home is usually around 6% of the sales price. So if you are a buyer and walk into a house for sale without your own realtor, the realtor that put the sign in the yard is going to make the entire 6% commission of the sales price if you chose to buy it through them. Does he have an incentive to get you to pay the highest price possible? Sure, he works for the seller. The more you pay, the happier his client is.

If however, you hire your own real estate agent to help negotiate the transaction, then the 6% commission is generally split between the two real estate agents so each realtor makes 3%. The seller is still paying the same amount regardless of how many Realtors are involved. The big difference here is that your real estate agent's job is to represent your interest only. They want to get the deal done for you! If you are a happy client, you are likely to refer business to them for doing a good job.

Some people might feel that the real estate agent is pushing them to pay a higher price because then they get a higher commission. Rarely would this ever be the case. Let's say the difference in what you want to pay and what you agent is recommending is as much as $10,000. The commission on that increase is only $300. Many agents split that with their real estate broker so they get about $150. Would it be worth $150 in extra income to possibly lose a sale? Remember that the difference was $10,000. Most price differences are usually just a couple of thousand dollars apart.

If you want a real estate agent to work hard for you in finding the perfect home at the right price - you need to be loyal to them. No real estate agent wants to spend hours researching information for a buyer, only to have them go use another real estate agent. One way to show that you are serious about working with an agent is to sign a "Buyers Brokerage Agreement." This document basically states that you will work only with them in finding a house, and if you go off and use another agent without first getting out of the contract, then you owe the agent a commission. You will find that by using this contract you get more time and effort on your agent's part.

However, before you ever sign one of these contracts you want to make sure that this is the real estate agent and brokerage company that you want to work with. You should interview the agent. Ask questions about their typical deals, typical clients, experience, communication style, and anything else you feel is relevant. Remember you are hiring them to work for you.

Some questions that may be helpful to you are:

1. How long have you been an agent?
2. How many transactions did you close last year?
3. What was the average price of the homes that you were in involved in the sales process?
4. How many clients are you currently working with?
5. Can you provide me with references?
6. How will you update me on new properties?
7. Can I review documents that I will need to sign ahead of time?
8. Why should I hire you to help me find a home?
9. If I agree to sign a Buyers Brokerage Agreement and we find that we cannot work together, how is this handled?
10. What advanced designations do you currently hold?
11. What is the length of the agreement?
12. Do you have an objective policy for handling conflicts of interest?

Once you think that this is the right real estate agent to represent you, then you should definitely consider signing the Buyers Brokerage Agreement.

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