Homebuyer Mistakes – Part 2

Last week I hoped to give some encouragement to those who might feel frozen out of the housing market. This week, I’d like to discuss a problem that affects people who are actively in the market for a home.

First, in times like this most buyers in most markets need to be working with a real estate agent. There are a few homebuyers who have real estate savvy, who have lived in an area for a long while, and who are familiar with property values. They can afford to go it on their own if they. But the great majority of people assume that the real estate market is easier than it is and do not understand how valuable an agent can be to them.

It is important to understand, however, who is working for whom. Specifically, let’s talk about the term “agent.” Under the laws of most, if not all, states, an agent has a fiduciary responsibility to his/her principal. In the old days, all real estate agents were agents of the seller who was paying their commissions. Agents who worked with buyers were sub-agents of the seller. More specifically, their legal obligation was to the seller, not to the buyer they were working with.

Let’s say you tell the person you think to be your agent, “Let’s offer $250,000 but I’m willing to go as high as $265,000.” If the agent were acting as sub-agent of the seller, s/he would be obligated to present the offer like this, “Their offer is $250,000 but they are willing to go as high as $265,000.” That pretty well destroys your negotiating power.

Now, that said, the best agents ignored that legal nicety and acted as if they were the agents for their buyers, but there were a lot of people dealing with other agents who weren’t the best agents. Who were those agents working for? If you have to ask that question, something is wrong.

You have the right to be represented by someone who will be your agent without your having to worry about it. There are companies that work only with buyers. If you can’t seem to find one locally, go to the webpage of the National Association of Exclusive Buyer Agents.

You can also check with your local real estate companies for agents who work only with buyers. In many states the real estate industry has created a Buyer’s Broker Representation Agreement that you can use with an agent. I have posted a sample of the form used in California for your guidance. It’s in .pdf format so you can download and print it.

Regardless, you should understand that you ought to have someone in your corner, someone who will help you understand the process, help you understand values, help you develop a negotiating strategy, and help you execute it just as if s/he were dealing with a member of the family. That person is out there and it is really important that you make an effort to find him/her.

Finally, I haven’t yet run out of mistakes to talk about as we’ll have more in the weeks to come. For those who can’t wait, who want thorough coverage of this topic, don’t miss Gary Eldred’s fine book, The 106 Common Mistakes Homebuyers Make (and How to Avoid Them). You can order this book at my website’s bookstore if you can’t find it at a store locally.