Should I hire a Real Estate Agent or an Attorney to buy a home?

It's no secret that real estate agents earn high commissions.  Although the commission is usually paid by the seller, the cost may be indirectly passed on to you.  And real estate lawyers charge exorbitant hourly rates. This raises the question -- do you need a real estate agent or attorney to help you buy a home?

 

What the Law Says

Every state has its own set of real estate laws. For the most part, a real estate agent's help is not legally required, though agents can help you with tasks that border on legal ones, such as preparing a home purchase contract. In some states, however, only a lawyer is allowed to prepare the home purchase documents, perform a title search, and close the deal.  This does get done anyways when your lender opens escrow and requires a title search.  You do not need an attorney for that.

 

Reasons to Hire an Agent

The process of buying a house is complex, and most people find it's easiest to get through with an agent by their side.  Paperwork will be flying around like a small tornado, and it can be helpful to have someone familiar with the process to deal with it.  Other parts of the transaction will be happening quickly too -- hiring inspectors, negotiating over who pays for needed repairs, keeping up good relations with the sellers (through their agent) and more. All of this is second nature to an experienced agent.  What's more, experienced real estate agents usually have contacts with good inspectors, mortgage loan brokers, and others who can make your buying process easier. And they know what's considered appropriate behavior and practice in your geographical area.

 

Don't Use the Seller's Agent

One of the best reasons to hire a real estate agent is that the sellers are likely to use their own agent -- and you want to keep that agent from taking over the process. In fact, the seller's agent may pressure you to let him or her represent both of you, in a "dual agency" relationship that primarily benefits the seller. (The less scrupulous sellers' agents don't make it clear that they're working for both people, but if only one agent is involved in your transaction, it's fair to assume that the agent's loyalties are with the seller.) It's better to have your own agent -- or, some experts assert, no agent at all -- than settle for dual agency.

 

Keep Control Over the Process

You're the only one who really knows what you want in a house. Even if your agent is scouting out homes for you, there's a lot to be said for scanning the listings and attending open houses yourself. You may find out that your agent doesn't understand your needs as well as you thought, or won't take you to see "FSBO" (for sale by owner) listings.

 

Educate Yourself

Even if you do use an agent (or a lawyer), it's wise to learn as much as you can about the home-buying process. For example, educating yourself about the market value of comparable homes in the area will protect you against over-aggressive agents who might urge you to bid high for a particular house. And you'll prevent misunderstandings and reduce the stress of being told to "sign here" if you study the contents of the various real estate documents in advance.

 

Reasons to Hire an Attorney

Except in states where it's mandated, an ordinary real estate transaction doesn't require an attorney's help. By now, real estate transactions are so standardized that most people in your state will use the exact same purchase contract, just filling in a few blanks.

However, if legal issues arise that your real estate agent can't answer, you'll need an attorney's help. Although good agents know a lot about the negotiating and contracting part of the process, they can't make judgments on legal questions. For example, what if your prospective new home has an illegal in-law unit with an existing tenant whom you want to evict in order to rent the place to a friend? Only a lawyer can tell you with any certainty whether your plans are feasible. Or, if you're drafting any unusual language for the purchase contract, or are concerned about some language in your mortgage, you may want to have an attorney look the documents over.

 

How Real Estate Agents Are Paid

 

Real estate agents normally work on commission, not salary. They receive their slice only after your home search is over, the contract negotiated, and the transaction complete. (In many cases, they end up doing a lot of work for nothing, perhaps because the buyers lost interest or can't close the deal.) The seller typically pays the commission to both the seller's agent and your agent -- usually around 5% of the sales price, to be split between the two agents. This percentage isn't cast in stone, however. For example, the seller might negotiate the percentage down if the house is particularly expensive. (And in probate sales, the court sets the commission.) Some buyers' agents have even been known to offer the buyer a percentage of their commission at closing.

Variations on the typical commission arrangement also exist. For example, some buyers prefer to hire an agent and pay the commission themselves, figuring it will make the agent more loyal to the buyer's interests, and provide grounds for a drop in the sales price.  Less commonly, you may find an agent willing to perform limited tasks for an hourly fee rather than a full commission (in which case you'd also want to ask the seller to bring down the sales price accordingly). Discount and rebate brokers are also available, usually providing you limited services, or interactions via the Internet, at a commission as low as 1%.

How Attorneys Are Paid

 

Attorneys normally charge by the hour, at rates ranging from $150 to $350. You may also find attorneys who charge flat fees for specific services, such as preparing real estate closing documents. Although attorneys tend to prefer handling the entire case with a "blank check" from you regarding hours to be spent and tasks to be accomplished, you're hiring the attorney, and you can call the shots. If you prefer to hire an attorney for only a limited number of hours, or for specific tasks, such as answering a legal question or reviewing a document, you can negotiate this (and you should record your agreement in writing).

Do I need a Real Estate Agent?

Though the Internet has made it easier to sell your home without an agent, about 93 percent of home sales are still done with some type of real estate agent.  An agent can work independently or for a company that acts as the broker. The broker signs the agreement with the seller. Agents usually get 30 percent to 40 percent of the commission.

There are many reasons why hiring an agent can be helpful:

• Education and experience - A good realtor understands the complex procedure and paperwork involved in selling a home. He or she has hopefully also gone through a licensing program.
• Saves time and energy - You won’t have to spend time scheduling and conducting tours of your home, which cut into your work and weekends.
• Gauging offers - An agent can help discern serious buyers from those who are simply looking.
• The market - A good realtor knows the market and understand trends, which can help your bottom line.
• Negotiation - An agent has the negotiating skills to help you get a good price.
• Professional contacts - Your agent’s contacts with other realtors and with contractors, inspectors, landscapers and the like can help you find a solution for any problem you may encounter.
• Sale price - In some cases, buyers will offer less money to someone who’s not using an agent, believing the seller is trying to save money by not paying commission.
• "Caravans" - Agents sometimes conduct open houses just for buyer agents where buyer agents arrive in groups ("caravans") and check out the house. This is usually a quick process, is more convenient than a traditional open house and allows buyer agents in the area to tell their clients about your home. 

A key tool for real estate agents is the Multiple Listing Service (MLS), a massive online database, which 900,000 agents subscribe to, that contains listings of 90 percent of properties for sale across the United States.  Buyers can access the service for free at realtor.com.  Usually, only subscribing agents can list properties, though in some cases home sellers can pay a fee to list their property.

With all of the benefits that come with using an agent, there are some drawbacks.  Most importantly, it’s very expensive.  Commissions can run up to 6 percent of the house’s sale price, though many agents are willing to negotiate commission, especially in a good housing market.  Working with an agent also requires a certain degree of trust, a willingness to place your most valuable possession in a stranger’s hands and say, “Please help me.” But that, along with letting go of any sentimental attachments you may have to your house, is part of the sale process.

If you’re considering hiring a real estate agent to help you sell your house, you have a choice between a full service agent and a discount service.  A full service agent does it all -- prepares your home, conducts open houses, uses the MLS, produces slick marketing materials and a nice sign for your yard and in some cases, hires a professional photographer to take pictures of your house.

A discount service provides less, though what you get depends on the company. Certainly you will pay less: discount brokers usually charge 2 percent to 4.5 percent commission.  Some discount services pre-screen for qualified buyers, and they should list your house on the MLS. You will have to conduct tours, however, and buyers agents may be more reluctant to show your house because of the lower commission involved (buyer and seller agents generally split commission on a sale). But the service may be worth it if you think you can save money and still get a good price on your house.

I want to buy a Home... What do I do now?

Here are some of the first steps on what to do when you are ready to purchase your First Home... I will go into detail in a different post.

The first thing you want to do is find out how much you'll be able to afford so you can have a price range in mind.  You need to talk to a Mortgage Lender first, the most common mistake people make is they think, well, I want to buy a house, I'll call a Realtor... Well, that is not the best first step.  If you have a good realtor, most likely he or she will send you to get pre-qualified or pre-approved for a mortgage.  Really, nobody wants to be wasting time.  You don't want to go see a home that you might not be able to afford or he doesn't want to be showing you houses, taking you around town when you are really not sure if you are going to buy anything soon.

Choosing your Mortgage Lender; You want to look at your local bank first, people are afraid to go their own bank sometimes because they think the process is too long or they simply don't know that they do offer mortgages.  Ask, most Banks and Credit Unions now offer Mortgage loans.  Some banks offer no fees, (not all of them, and you have to keep in mind that there is no such thing as free lunch either, they will charge you somehow, either in the interest rate or application fee).  Other banks offer concessions, maybe if you have a checking and savings account they do offer you a discount.  If you have direct withdrawal you might also get a discount.  It will all depend on the institution.  It does not hurt to ask.  Keep in mind not all institutions offer these benefits.   You can also ask friends and family and see where they have gotten their mortgage loan from, they are your best chance if you are unsure on where to get a mortgage loan from.  Talk to the loan officer, if she or he was able to explain the types of loans, downpayment, loan fees, the process, time frames, you have to go to a meeting with lots of questions.  Loan Officers like that,  you need to ask, so don't be afraid to bring a notebook with questions if you need to.  Ask about rates, monthly payment... how much will you be qualified for?  Now, don't make the mistake a lot of people do.  Don't get into too much.  Nobody else than you knows how much you really can afford.  If you know you can only do $1000.00 a month, and your loan officer tells you, you qualify for a payment for up to $1500.00 don't go for it... you have to consider that your mortgage payment is only one of the many new payments you will have, specially if you are not used to paying utilities, maintenance and such.  So be honest with yourself and be wise.  Don't over do it.  That's the main reason why there are so many foreclosures in the United States at the moment.

Now, you are ready to go house shopping.. This will be a very fun time but could be really stressful and at the same time discouraging.  Specially if you are looking at houses weeks after weeks and you can't find anything you like!  Yes! Hire an agent... he or she will be your best friend for the next few weeks or months...  It will have to be somebody you will be comfortable with so choose wisely, again, ask advise from your friends, relatives or co-workers.  If all fails look in the real estate book and call an agent.  This agent can usually show you any house that is available for sale through a Real Estate Agency.  Depending on the State you live, You do not have to pay your agent unless you are selling a home or they tell you they charge for their services, they usually get paid once they sell the home and they do get a percentage from the sale.  Tell them how much money you are pre-approved for and whom you are working with as a lending institution.  It is your choice on how much you want them involved in the loan process, basically both the Lender and the Real Estate Agent work for you, they are both working to get you in your house as fast and easy as possible.  The agent will be the contact in between you and the selling agent.  It is best if you don't have the same agent working for both buyer and seller, it is kind of a conflict of interest and really as much as you can you want to try to avoid that.

Once you have found a house go back to your lender and give them or have your realtor send them the purchase and sale agreement.  This will get started with the loan process.  This process depending on the institution will take between 30 - 60 days.  Don't fret, this is just normal for these times.  Be prepared to be asked for a LOT of paperwork.  You will wonder, why do they need that?  Well, you have to remember, in times like this, Banks have gotten really tight and have more and more guidelines and things change basically daily, so don't be surprised if they ask you:  Where did that $25.00 deposit come from?  Really, it has happened.  True Story in times like these.  Try to give your lender all the information they request in a very timely manner and if you have questions ask them, but usually there is a big reason for them to ask for a certain document.  Will explain the Loan process in a different Post.

When the loan is approved, and closing documents are sent to Escrow.  You will go sign your final loan documents.  These will be:  the lender disclosures, the Note and Deed of Trust and some closing and state disclosures.  You will most likely not get your keys that day.  Again, depending on the State you are in.  Usually you will get keys to the house the day that your money is wired to Escrow and Loan is Funded and Deed of Trust Recorded.