“This will be a great investment for you.”
That’s what the real estate agent told my then-husband and me as we began searching for a home back in 2007.
I was skeptical of the realtor’s claims that a house we lived in “counted” as an investment. But my spouse was interested, and there were plenty of non-investment reasons we were excited to buy.
Overall, I was reasonably happy with the result. We ended up with a house we enjoyed for several years at a price we could afford. (Although at the end, the inconvenience and cost have me unsure that I want to buy again.)
As you decide how to choose a realtor, it’s important to consider your options. No matter how wonderful your real estate agent is, you need to take what they say with a grain of salt.
Know how your real estate agent gets paid
Even a good real estate agent has it in their best interest to see that you pay a little more for a house and buy it as quickly as possible.
As the buyer, chances are you don’t have to pay a commission to your agent. The seller usually handles those costs, deducting them from the sale price of the home. Most realtors split commissions. When the seller pays their realtor, the total commission is split with your realtor.
This means it’s in the best financial interest of your real estate agent to encourage you to pay a little more for a home and talk you into accepting a deal — even if the price isn’t exactly right for you.
Say a home’s asking price is $220,000. You decide to offer $180,000. A good real estate agent isn’t going to stop you from negotiating, but they might nudge you in a different direction.
Perhaps your realtor tells you that you’re lowballing; you could offend the seller and lose the deal altogether. Subtly, you’re encouraged to offer a number closer to $200,000 instead.
A typical commission is 6 percent, turning that $20,000 difference into $1,200 more for the agents. Split between the two of them, that’s an extra $600 your agent could earn for spending just a few minutes convincing you not to lowball the seller.
Your agent is interested in a fast sale with minimal negotiation
It’s important to know that your agent benefits from a quick sale. This doesn’t mean your real estate agent is bad, and when deciding how to choose a realtor, it doesn’t mean everyone is a crook.
But you should be aware of the fact that even a buyer’s agent has an interest in helping you find a home quickly and getting you into it.
Think about it: Your agent doesn’t get paid until the deal is done. If you don’t find something you like, that means you take weeks of the agent’s time and energy. Plus, the better the price you pay, the less the agent gets in commission.
A good real estate agent is valuable because they know the market and can quickly bring you the latest listings. And, because you aren’t directly paying the bill, you can benefit greatly from the help of a realtor.
Just be aware that your interests and the agent’s interests don’t perfectly align. Do your own homework as added insurance.
How to choose a realtor
As you learn what to look for in a realtor (especially if you’re a first-time homebuyer), carefully vet your choice. You don’t want to be oversold on a mortgage or pushed into a home that you aren’t quite sure about.
This is the largest purchase you’ve ever made. You don’t want to pay more than you have to.
Here are some things to keep in mind as you learn how to pick a realtor:
- Watch out for a dual agency agreement.
In some cases, you might be asked to sign a dual agency agreement. This means that your agent (or the firm) can represent both the buyer and seller. This is something of a conflict of interest. Instead, seeking out an exclusive buyer’s agent can be very helpful.
- Is this a full-time job?
Someone working on the side as a realtor might not have the time to devote to helping you find the right home. They might miss some ideal listings.
- Check the number of other clients.
You don’t want someone who only has you for a client; that’s a red flag. You also don’t want someone too busy to handle your needs. Look for someone with between two and four other active clients.
- How familiar is the real estate agent with what you’re looking for?
You want someone who knows the market and the neighborhood. If you’re a first-time homebuyer, you also want an agent who understands the programs available to you.
- Ask about credentials.
Make sure the realtor is properly accredited with the National Association of Realtors and your state’s licensing agency. When vetting an exclusive buyer’s agent, you want someone who is an Accredited Buyer Representative or a Certified Buyer Representative.
Don’t be afraid to interview two or three real estate agents before making your decision. It’s also a good idea to find your own mortgage broker before entering into an agreement with a realtor.
A real estate agent can work with most mortgage brokers in your area, and you want to be careful that you aren’t being steered toward someone that might hold the agent’s interests higher than your own.
Most real estate agents want to help you find a good home for a reasonable price, and they’re earnest in their desire to do right by you.
However, it’s still important to go in with research, an idea of what you’re looking for, and what you’re able to spend. It will make your BS detector more accurate.