After years of trepidation, home buyers are finally beginning to wade back into the housing market. But as they do, many are making the surprising choice to hunt alone, rejecting the assistance of what's known in real estate as a buyer's agent.
For years, house-hunters have had the option to work with a real estate agent who shows them properties and may ultimately negotiate the price a counterbalance to the agent who almost invariably represents the seller. But now fewer buyers are taking it. Of the buyers who purchased a property through a real estate agent, just 57% had buyer representation, according to a 2010 report by the National Association of Realtors. That's down from 62% in 2009 and 64% in 2006, before the housing bust. Also, fewer buyers are first learning about the home they purchase from real estate agents: just 37% are reporting real estate agents as their first source of information on the home they purchased, down from 50% a decade ago, according to NAR.
Many experts think this is a bad move worse, for example, than trying to sell a house without an agent. For one thing, in most cases, a buyer doesn't pay an agent; the buyer's agent splits the commission with the seller's agent, so the services are essentially free to the buyer. Also, a buyer's agent can usually access historical price data for home sales in the area, which means he can recommend a bidding strategy that targets comparable properties that sold for less, rather than the mid-range. John Vogel, adjunct professor of real estate at the Tuck School of Business at Dartmouth College, calls going through this process alone "a mistake."
There are lots of reasons buyers may choose to represent themselves. The real estate listings and detailed information that was once only available to real estate agents -- like median sales prices in a neighborhood, the amount of days a home has been on the market, and how many price cuts it has endured are now online. And because most buyers' agents don't get paid until a home is purchased, they have a strong incentive to see you buy something quickly, Vogel says: They may not tell a client to wait for prices to fall further.
On the other hand, some house-hunters may think they are working with a buyer's agent, when in reality, they're actually dealing with a seller's agent. Many buyers contact the agent listed with the property or walk into an open house thinking the agent is working in their favor, says Paul Howard, a buyer's-only broker licensed in New Jersey and Pennsylvania. Or some buyers may start working with an agent who has their interest at hand, but the house they want to buy is listed with the real estate company the agent works for; at that point, buyers should have the option to find an agent not tied to the property. Some seller's agents may also discourage prospective buyers at the beginning of their search from seeking out a buyer's agent. Commissions are already lower due to declining home values, and some would prefer not to split it, says Ginger Wilcox, head of training for buyers' and sellers' agents at Trulia.com. "Agents are fighting for their commissions."
Still, in many cases buyers may be at an advantage when they work with a buyer's agent at least compared to relying on a seller's agent for advice or guidance. A seller's agent is contractually obligated to help make the sale happen in the seller's favor, often as close to the asking price as possible. Buyers' agents can also suggest home inspectors and financing companies they've worked with before, says David Kent, president of the National Buyer's Agent Association; they're not supposed to make money off the referrals.
When searching for a buyer's agent, experts recommend putting a few through their paces first. The most helpful agents won't just rely on what's listed online, says Vogel. Instead, they might drive around a neighborhood looking for signs of properties that are for sale by owners or mail letters to existing homeowners alerting them to a buyer who's interested in a similar property to theirs. And by the time a buyer enters into a contract, his agent should be there to look for red flags.