« Back: Get the bank's offer «

» Next: Get the Disclosure »

Benefits of using a realtor

        Once you've been pre-qualified can finally start looking at houses. Yay! Now you get to pick a real estate agent (aka "realtor"). A realtor who works for the buyer (you) is called the buyer's agent. Usually there's no downside to using a realtor, because their fees are paid by the seller, not you. Realtors have access to MLS, which is a database of all houses for sale that are listed by other realtors. The primary help a realtor can give you is to help you find the kind of house you're looking for by searching MLS. You can give your realtor a list of zip codes that you're interested in, and general specifications that you're looking for (price, size, number of rooms, etc.). Your realtor can easily find all the houses in MLS which match your needs.

The second important thing your realtor can do for you is to give you a professional opinion about how much a given house is really worth. This can help you avoid paying too much for a house. But note that the realtor has a conflict of interest: the realtor's fee (paid by the seller) is typically 3% of the sale price, so the more you pay for the house, the more the realtor makes!

HomeGain can help you find a realtor.

Realtors don't always offer a benefit

        The realtor's ability to search MLS for you is less of an advantage than it used to be, since in most areas it's now easy to find homes for sale on the Internet. For example:

• Here's the MLS for Austin, Texas, There may be a publicly-available MLS for your area, too. (Try searching Google.)
• Google has now integrated homes for sale into its Google Maps feature, though it doesn't appear to have all of them.
• Some sellers sell themselves without using a realtor, in order to save on commissions. These houses are called FSBO's (For Sale By Owner). You can find FSBO's in newspaper classifieds and on websites like Surf for Houses. Your realtor typically won't tell you about such houses, for two reasons: (1) They're usually not listed in MLS, so your realtor has no idea they exist, unless they start pounding the pavement looking for them, which they have no incentive to do because (2) usually the realtor can't make much or any commission on an FSBO. Owners who go the FSBO route are doing so in the first place so they don't have to pay realtor commissions.

If you can find a home on your own then you don't need a realtor to help you find houses. And you can still get an opinion of how much a house is worth by hiring a realtor to perform Competitive Market Analysis (CMA) of the property, which usually costs around $75. The market analysis will compare the house to other similar houses in the neighborhood which have sold recently, and their sales prices. You need a professional opinion of value to make sure you don't pay too much for the house. Most realtors will offer to prepare a CMA for free in hopes of getting you as a client, so if all you want is the CMA you should make it clear that you're not interested in having them represent you, and that you prefer to just pay their fee.

An alternative to getting a CMA from a realtor is hiring an appraiser to provide you with an estimate of value. The appraisal will be much more detailed and probably more accurate than a realtor's market analysis, but it will cost more, too ($400 and up). Then again, if you do decide to buy the house you'll have to hire an appraiser anyway at that point because the bank won't give you a loan without an appraisal, whether you use a realtor or not.

In a pinch there are websites will give you a free estimate of how much a given house is worth, using a combination of recent sales data and property appraisal records, but they're not terribly accurate. They're good to use to get a rough ballpark idea before you buy a CMA or appraisal, but they're no substitute for the real thing. Do not base your offer on a free web-based estimate of value! Anyway, here are the free sites for fun:

• Yahoo Real Estate. Shows you the results from Zillow and ePraissal on the same page.
• Zillow. The Wall Street Journal said Zillow come within 5% of the market price in about a third of cases, was off by 25% or more in 11% of cases, and was off by 50% or more in 3.4% of cases.
• ePraisal. Also provides demographic info about the neighborhood.
• Real Estate ABC. Lets you pick and choose which comparable houses in the neighborhod to use in estimating the value of the target house.
• House Almanac. Currently lists only major cities in Texas.
• Others. Dough Roller lists five other home valuation sites.

Advantages of not using a realtor

        Okay, so we've seen that a realtor isn't always necessary. But is there any advantage to not using a realtor? Possibly.

Remember that your realtor is paid by the seller, who pays 3% of the purchase price of the house. If you find the house yourself then the seller won't have to pay that 3% commission, and you might be able to convince the seller to lower the price by 1, 2, or even the full 3%.

Most realtors also won't tell you about houses that are For Sale By Owner (FSBO). If a private individual is selling his/her house without using a realtor, then the house won't be listed in MLS, since only realtors can enter houses into MLS. Owners often choose to sell by themselves because then they won't have to pay the 3% commission to their own realtor. (A seller typically pays 3% to her own realtor and 3% to yours.) A FSBO seller might still pay the 3% commission to the buyer's realtor, in order to get realtors to tell their buyers about the property. But if they don't, you won't hear about that house from your realtor, since they can't make any money from the sale if you buy it.

So the potential advantages of not using a realtor are the possibility negotiating a lower price with the seller, since the seller won't have to pay a commission to the buyer's realtor, and the ability to find FSBO's. But these advantages exist only if you take advantage of them. If you don't actually try to negotiate a lower price (or you're not good at it), or make no effort to find FSBO's in the first place, then you're not getting the benefits of not using a realtor. And remember, it will still be up to you to look for houses in MLS (if available to you) and to a professional estimate of value for each house you're interested in.

Should I use a realtor or not?

        Only you can answer that question for yourself. Above is everything you need to know to make your decision. Let's summarize it again here though.

With a Realtor	Without a Realtor
Realtor can find houses for sale in MLS.	You'll have to find the houses yourself. If MLS is available to the public in your area, great. If not, you might not be able to find much. Check the list above for tips on finding homes for sale by yourself.
Realtor can give a professional opinion of how much a home is worth. But the realtor has an incentive to inflate the price, because the more you pay for the house, the bigger commission they make.	You'll pay someone for a professional opinion of value -- either a CMA from a realtor for ~$50, or an appraisal from an appraiser for ~$400. You'll have to get an appraisal anyway if you actually decide to buy the house, whether you use a realtor or not. You can get a free estimate of a home's value at the websites listed above.
Realtors won't tell you about FSBO's unless the seller is paying a commission to realtors. In fact, some realtors won't tell you about FSBO's even if the seller is paying a commission, because the realtor might not want to go through the hassle of finding out whether the seller will pay a commission.	Every FSBO is an option for you, but you'll have to find the properties yourself. Look at the ads in the newspaper, and ride around the neighborhoods you're interested in, looking for yard signs that say "For Sale By Owner".
Realtor will be paid by the seller, usually 3% of the price of the home.	With no realtor the seller won't have to pay that commission, so you might be able to negotiate a lower price with the seller.

If you decide to use a realtor, then HomeGain can help you find a realtor.

Whether or not you use a realtor, all the papers for the sale are handled by and signed at the office of a title company, which makes sure (among other things) that the home is really the seller's to sell, and that there aren't any outstanding claims against the property. If you want further protection, you can hire an attorney to check the paperwork, though most people don't opt for this. I've never done it.

Researching cities and neighborhoods

There are lots of sites that provide detailed info about different cities and neighborhoods within those cities. I'm not going to attempt any kind of exhaustive list here, but here's one to help you get started.

• City Data. Provides detailed demographic info and pictures of lots of different cities in the U.S.

Amount spent so far.   Red items apply towards the purchase. Amounts are typical, not exact.
$40	Credit Check	To the Lender
$40	Total

« Back: Get the bank's offer «

» Next: Get the Disclosure »