When Homebuyers Represent Themselves In Real Estate Transactions – Bad Things Happen 😊
Many years ago when I was new to the business, I wrote a purchase contract for one of my borrowers for a property in the hills of Oakland, CA.
I thought it would be an easy way for her and I to share in the commission, as I kicked back some to her.
I was wrong.
Not only did I not understand the nuances of the market, I was also confused by the various inspection reports, as there were all kinds of foundation and easement issues.
The listing agent quickly figured out how ignorant I was, and while justifiably irritated, she still very kindly (but tersely) walked me through the transaction as much as she could while not compromising her own clients’ interests. But if not for her help, the transaction probably would have blown up and I could have been sued as well.
That was in the late 1990s and it was the last contract I ever tried to write.
I often share that story with our borrowers who insist on representing themselves because every time they do, things seem to go very awry.
Things Go Wrong When Homebuyers Don’t Use A Real Estate Agent
Here are just a few of the issues we see when homebuyers don’t use a real estate agent:
NOT UNDERSTANDING CLOSING COST CREDITS. Seasoned agents all know that credits from sellers and lenders cannot exceed the actual closing costs, or the credits are just wasted. We often see homebuyers, acting on their own, negotiate credits without consulting us – and they are far too large to use.
NOT GETTING OFFERS ACCEPTED. We had a homebuyer come to us in 2012, when the market was at rock-bottom, who insisted on representing herself because she was “not going to waste 3% paying a Realtor…” Long story short, after two years, she still had not gotten any of her low-ball offers accepted. By the time we stopped working with her (she never did get an offer accepted), the market had appreciated about 20%. So, her efforts to save 3%, cost her many times more than that. Skilled agents know how to get offers accepted in ways that homebuyers cannot on their own (knowing the market and other agents is obviously a major factor, as well as knowing how to engage listing agents).
OVER-PAYING. In hot markets, homebuyers often under-bid (and don’t get offers accepted). But in slower markets, I have seen homebuyers (on their own) overpay on several occasions because they did not understand the neighborhood and/or market dynamics.
NOT UNDERSTANDING INSPECTION REPORTS. This one is huge, as many homebuyers overreact to the long list of “CYA” issues listed by inspectors, while also missing more serious issues. A seasoned agent, who has seen myriad inspection reports, will obviously know what is serious and what is common for the area (and what not to be worried about).
Given that most of our blog readers are agents, I know I am preaching to the choir. But, our website has tremendous SEO presence, so this blog will eventually get read by thousands of buyers who might have been tempted to not obtain an agent.
The book Freakonomics famously made the case that buyers and sellers are sometimes better off if they don’t use an agent. But, I am 99% sure the authors never made an offer in the Oakland Hills, or in a very hot market, or…in dozens of other areas where a skilled agent is absolutely necessary.
