You’ve been searching for your dream home for months. You’ve looked online at properties and walked through dozens of neighborhoods in search of ‘for sale’ signs. You’ve found a couple that you’re interested in, but you’re wondering, do I need a realtor to buy a home? Not necessarily.
Less than 20 percent of home sale transactions get done without agents in any given year, and that saying in the law: a person who represents himself has a fool for a client, that isn’t true in real estate.
A potential homebuyer who researches markets, contracts, closing costs, and disclosure statements can buy a home without a buyer’s agent. You’ll still need the services of a real estate lawyer, home inspector, and mortgage broker. You’ll also need a seller who is acting in good faith.
This guide provides tips on buying a house without a realtor, as well as the pros and cons of doing so.
Tips on Buying a House Without a Realtor
There are several reasons you may not want representation in a home purchase. You may be looking for lower closing costs, or maybe you don’t trust real estate agents. Whatever your reason, here are a few other things to consider before moving forward:
First Things First
The first thing you’ll need to do is find out if the seller will deal with you directly, with no representation. Doing so may make them uncomfortable and you’ll have to decide whether to walk away or use an agent.
Doing work on the front end to prepare for the transaction lowers stress levels later on. Getting pre-approved for a mortgage shows the seller that your serious.
Finding out what forms and contracts you’ll need in the sale is hugely beneficial. You can find free real estate forms online.
Brush up on Negotiating Skills
You may be unsure how to make an offer without a realtor. Unless your first offer gets accepted immediately, you’ll need to know how to negotiate. Price isn’t the only thing that’s on the table. Fixtures may need repair before you close. The timeline for the payment of earnest money and scheduling of the closing are things you’ll need to work out as well.
Hire a Real Estate Lawyer
You can skip the agent but you cannot skip the lawyer. You need a real estate lawyer to review contacts and to represent your interests at closing.
Get a Home Inspection
A home inspection from a licensed home inspector is an essential part of purchasing a home. They will root out potential problems. Their report will help you negotiate with the seller on what they need to fix before the sale.
Get Title insurance
The title is proof of ownership. Ask the seller to get title insurance to protect your interests in the sale. The title insurance company conducts a search for the title, orders a survey of the property, issues an opinion letter, and then issues the insurance which protects you from unforeseen events that could affect the sale. This ensures the title is clean with no liens or unpaid taxes.
The seller must inform you in writing about any potential problems with the property. This includes recent repairs or prior damage caused by storms or other structural problems. They must provide this information by law, but the buyer should know what to ask for.
It is in your best interest to ask the seller a lot of questions. How long has the house been on the market? Have you had problems with neighbors? What fixtures come with the home sale?? What were the major repairs and how long ago were they completed? Ask questions and get them answered to your satisfaction.
Knowing the Seller
Many transactions get done without real estate agents because the buyer and seller know each other. They may be friends, coworkers, or relatives. If trust is already there, things could be easier. However, if things go south that could sour the relationship. Some people believe you should never do business with friends or family. Others say the opposite and have no problems. It’s up to the individual to access the possible risks in this transaction.
Risks and Rewards
Your tolerance for risk is a determining factor when deciding to buy without an agent, but there are rewards too.
Know the Risks
One big risk is inexperience. You are at a disadvantage if you don’t know the rules or the market. Losing money on closing costs or the sale price is a real possibility. You may not know what additional inspections you need and the seller may not choose to help you. The neighborhood is a risk as well. A good real estate agent will know the scoop on crime rates. They also keep up on new developments likely to increase the home’s value as well as nearby schools, and current property taxes. There’s a lot to know and it requires a significant amount of research and industry knowledge. A real estate agent help get all the necessary paperwork including any disclosers regarding things like lead based-paints, radon, lead pipes, or any material facts that may give the buyer cause for concern.
Reap the Rewards
The biggest reward is the satisfaction of negotiating a deal. While the seller technically pays the agent’s fee, it gets figured into the closing cost. With no buyer’s agent, the closing costs should be lower which saves the buyer money.
For Sale by Owner
You’ve no doubt seen the acronym FSBO. FSBO (pronounced fizbo, by realtors) means For Sale By Owner. It’s exactly what it sounds like. The owner has opted to not use a real estate agent to represent them in the sale of their home.
While this is a scary thought for many of us today, this wasn’t always the case. Forty years ago, FSBOs accounted for 15 percent of home sales. That percentage has been dropping ever since.
This doesn’t seem to make sense in the digital world where the internet has made everything easier and virtual home tours are common. Real estate agents have the most to lose if this trend changes. They would argue that their expertise and knowledge of the housing market allows them to get more money for sellers.
Who Sells Their Own Home?
For many people the thought of selling their home is stressful. They don’t know the first thing about setting the price or hosting an open house. That stress is only increased if they were to go it alone without the help of a real estate agent. For others, the thought of the profit from their investment sliced up and served to so many other parties is abhorrent. Why not cut out the middleman?
The thought of buying a home directly from the owner may make you nervous. You may think you have no recourse if things go wrong. An FSBO is not a red flag. An unrepresented seller may simply want to save on fees. Real estate commissions can be expensive. Factor in legal fees, filing fees, and other closing costs, and this takes a big chunk out of both the seller’s and the buyer’s end.
The thinking is that real estate agents negotiate better deals so it’s worth their fee. Does it really work like that? Our real estate agents motivated to save you money? If their fee gets based on a percentage would they want a higher price?
There is also the fear of the unknown. Why would someone want to do an FSBO sale? It raises suspicions, but like everything else in real estate, there are risks. Representation by a buyer’s agent takes much of the risk out of the deal.
Yes, it is perfectly safe to buy a house from someone without a seller’s agent. That said, there are some things you should keep in mind.
Know the Market
Many FSBO homes sell for under market value. This may be due to the seller’s inexperience or they may not want to get involved in a long negotiating process. Either way, it’s important for buyers to educate themselves. Research the market, find out what other homes have sold for in the area. If you choose to use an agent, they will have access to listings and information you don’t, but you should still arm yourself with as much knowledge as possible.
Let the Dance Begin
We hope this article answered your questions about buying a house without a realtor. Buying a home is a negotiation. The buyer wants to get the most out of their investment, the seller wants to pay the least and so the dance begins. As long as both parties are acting in good faith, both parties are likely to come to a mutual agreement.
Visit our website to learn more about how to buy a house without a realtor and check out our blog for more great advice on house sales.