My semi-regular message to First Time Buyers after 15 years in Real Estate investing : What's a GOOD real estate agent going to do for you?
I periodically write a message like this on some form of social media or other, be it Facebook, an online forum I'm active on, or even to random people I meet if the topic comes up. Today, it's Reddit's turn.
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TL; DR; You need a really really good buyer's agent. Don't skip the details in this post. If you're a first time home buyer, you'll regret not paying attention.
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If you're a first time home buyer, or a first time home seller for that matter, then you need to understand the difference between a good realtor and a bad realtor. I'm going to focus on this from the perspective of the home buyer, since you generally have to buy a home before you can sell a home, but I think this will be important to sellers too.
Credentials: Why would you listen to me? I bought my first home in 1995, and made some of the mistakes I'll be talking about. In 2002, I sold that home and bought a new one - and did a little better but still screwed up. In 2008 my wife and I got into real estate investing by buying our first rental property. We now own three duplexes, and have been landlords first then owners with a property manager for 16 years. In the last 15 years I've bought and sold more property than most people will over half a century. I haven't seen it all - but I've seen most of it.
Before I get into the specifics about agents - please hear me on this. This is targeted at the vast majority of first time home buyers, with very few exceptions: You are about to engage in the single largest type of financial transaction you will probably ever make. Unless you buy and sell businesses, you will never be putting more at risk than you will be by buying a house. You're making a purchase that will put you into debt for decades. The wrong decision here can cost you tens of thousands of dollars and even wipe out your life savings and lead to catastrophic prospects for your future finances. Please, please, please, slow down, take time to learn about how buying a house works, and how to make smart decisions about your price range, lending options etc. A future foreclosure or bankruptcy is a real possibility if you don't.
Now - onto agents and the importance of getting a good one.
First things first - as a first time buyer, you are easily exploitable. You don't know about the process, you've never been through it, and on top of that, you're excited about buying your new home. This makes you a prime candidate for getting bad or even no representation as you make a purchase. Why? Because of two factors:
- Every house with an agent associated with it works for the seller, not you; and
- You can get a buyer's agent, but many of them won't always act in your best interests.
The simpler one to understand is the first one - if you're driving around your dream neighborhood, and you see the perfect house, and holy smokes it's for sale, it's got the sign there and everything, you can't believe your luck! You snap a picture of the sign and call the number! You wanna buy this house!
Well, in that scenario, you've just called the seller's agent. An agent's job, in any kind of business deal, is to represent one party and look out for their best interests. They want to get the best deal for the person they represent and in this scenario, they don't represent you, the represent the seller. As such, while they still have to follow the law and help you with inspections and such, they're not in your corner, they're in the other guy's corner, and as such you are unlikely to get the best advice all the time. They can't outright lie to you or anything like that, but they won't fight for you. Their job is to fight for the seller.
One other detail - until recently (with a law change that admittedly I don't fully understand yet) - buyers and sellers agents split the commission but the commission comes out of the seller's proceeds. This means a sellers agent can make more money by bringing the buyer to the seller, because if only one agent is involved, the commission wouldn't be split. With the law changes, not sure what's gonna shake out, so please do more research on this topic.
This means, especially as a rookie in this field, that you want a buyer's agent. You want to engage with someone who is literally being paid to be your guy, your right hand gal, your rep. They're your advocate. They may still show you some houses that they listed - and in such cases they still will be the seller's agent first, yours second, but if they're doing their job, they'll be showing you houses you want to see, not just houses that they have listed.
When looking for a buyers agent - don't just call a random one. Ask people you know who own houses who they worked with and what their experiences were. Was there anything their agent failed to mention that took you by surprise. Was the inspection honest or a gloss over (meaning it didn't dig deep and you later found issues that the inspection should have caught)? Did they feel like the agent was really advocating for them, or were they just trying to close the deal? Take your time, and actually INTERVIEW the agents you talk to. Don't go with a family friend (or worse, relative) because you feel obligated. Remember: most significant financial transaction of your life! If there was ever a time to look out for number one, this is it!
Things to look for with a buyers agent:
- You may be asked to sign a buyers agreement. READ IT FIRST. This agreement should be a contract between you and the agent that if they show you a listing, and you buy it within x months, THEY get credit for being the agent. If it goes beyond that - if it tries to say that you can ONLY use this buyers agent and can't go to any other agents, forget it. This kind of clause is intended to trap you with a bad agent. A good agent doesn't need to lock you in, they just need the guarantee that if they (the agent) do the work, they get paid.
- You want an agent who will show you what you want to see. If they keep showing you properties that are out of your price range, don't fit your style, or are just those properties they listed, fire them. Get a new agent.
- You want an agent who brings in quality inspectors and doesn't try to push you not to get optional inspections. There can be times where certain inspections aren't needed - I'll give one easy example: you don't need to test for asbestos in houses built after 1980. Anything before that, you probably should spend a few hundred to check. If your agent is telling you not to bother, they need to have a good reason to skip the test. "You don't need it" isn't a good reason. "You don't need it because the house was built in 1985" is a good reason.
Lastly and most importantly: You want a pit bull.
Sound scary? Actually, I own a pit bull. They're the most loving, goofy, cuddly dogs around. Right up until their pack is threatened.
My own agent, who I've used since 2010, and who was the sellers agent on my 2nd investment purchase, is such an example. In 2018, we bought a larger house because my elderly mother couldn't live alone anymore, so we brought her to Baltimore from Pittsburgh to live with us.
We were in the inspection phase, and B (our agent AND property manager - she's that good) had engaged the best (IMO) home inspector in the region. This inspector would take 3+ hours to go over a house and give you a 3 ring binder with the report in it. No fancy coverings and bindings, just half a ream of paper full of details about the inspection. If she could see it, and it might eventually be a problem, it was in her report. Scary right? No - INFORMED. You don't wanna be surprised to learn that your water heater may need replacing in 3 years, you wanna be able to plan for it.
Anyway we had a LONG list of possible issues but there were only 3 we considered major enough to ask the seller to fix (the seller was a flipping company fyi).
- Buried oil tank in the back yard - get it removed and tested by the EPA
- Roof was missing some shingles, to be patched
- Deck wasn't properly secured to house and 20' high steps to the deck were sinking and needed shoring up
The seller didn't fuss about the oil tank, but weirdly tried to deny the problems with the roof and the deck. Ok - my agent sent her roofer up to take pictures. Seller still tried to push back. We happened to be with her looking at the new house when she took a call from seller and the conversation went something like this (bear in mind, the seller side is interpreted since we could only hear B's side).
S: Our roofer checked out the roof and it's fine, no repairs needed. Also our general contractor said the deck doesn't need any work.
B's face lights up. This is gonna be a fight, she's gonna win, and she's gonna enjoy it in the process.
B: Ok - first what's your roofers MHIC (Maryland contractor license registration number) number? My own roofer took pictures of the missing shingles and if your roofer is telling you it's ok, we'll have to report them. Also, what's your general contractor's MHIC number because the deck very clearly needs work based on our inspector's report.
S: You only had an inspector look at the deck. They don't trump a General Contractor's expertise!
B: That's fine, I'll have a structural engineer out here tomorrow to do a full inspection and well take the cost of their report out of seller's proceeds at closing after it proves that the work needs doing. What were those MHIC numbers again for your roofer and GC?
Two days later the flipping company had a crew of 12 people out here fixing the roof and shoring up the deck. (For the record, the deck steps had been built improperly and the stringers were hung off the side using a notch in the stringer that fit onto a 2x4. The landing they attached to had sunk and only 1/2' of wood was resting on the 2x4. It was literally ready to separate, that's what they'd said "was fine")
I know this was a long read, but trust me, your financial future is worth knowing the importance of having a good agent. I hope this saves you some of the headaches I went through over the years. Good luck finding your first new home!
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source https://www.reddit.com/r/RealEstate/comments/1cdhvi0/my_semiregular_message_to_first_time_buyers_after/
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