Friday, July 10, 2015

Millennials: Should You Use a Real Estate Broker?

Reporter Brena  Swanson wrote this article for real estate trade journal Housingwire, and it got me to thinking about the Millennial generation and real estate agents. This post is directed at people in that generation who are thinking about buying a house in the next few years.

Millennial, there are two things you need to know upfront before I get into details on whether or not you need a real estate agent. The first is the inherent conflict of interest between you and your agent as soon as you start working together. The Freakonomics guys did this terrific video that explains why. It's about sellers and listing agents, but the reasoning applies to buyers as well.

If you're considering a house and the agent doesn't get paid unless the transaction closes, is that agent's advice in his interests, or yours? If he or she suggests you waive a contingency, who benefits?

The second is the purchase offer process. By the time you actually write an offer, you'll be in a stressed out, emotional mess. Maybe you've looked at dozens of houses, most stinky, ugly, or both, and you're sick of looking. Maybe you've been blown out of several deals. Whatever. By the time you actually write an offer, you're relieved to put the stress on hold.

And that's when an agent has you. Say your home inspector finds a half-dozen or so defects, including, say, a water heater about to blow. If your agent says something like,"The seller doesn't want to replace it, and if this house goes back on the market, someone else will get it within days," can you make a decision without duress? Is the agent telling you the truth, or to put it more fairly, is the agent casting the facts in the best possible light for you, or for closing the deal so she gets paid?

I don't mean to suggest that most agents are evil. In fact, it's the opposite. Most are decent people, some all of the time, some most of the time. But still. The conflict is there.

And I will also tell you that the conversation between buyer's agent and listing agent changes when the clients aren't in the room. It's far more about closing the deal than vigorously advocating clients' interests at the expense of closing.

In most states, when you sign a purchase offer, you're signing an agreement on what happens to the earnest money if the transaction doesn't close. It's less a purchase offer than it is an agreement to open an escrow on a house at some point.

That said, an agent's expertise in the home buying and selling process is valuable. They know markets, they know pricing, and they know how to manage the transactional process that's really foreign to most buyers--especially first-timers. The quest for (especially) Millennial buyers, then, is to find an agent they can trust.

Alternatively, you can find a real estate lawyer who will charge you for a few hours of time. If you go this route, ask the seller for a price reduction in the amount equal to the buyer-broker commission, usually two percent to three percent.

If you decide to find an agent:

  • Avoid those who say their services are free to the buyer. In fact,you're paying through the filter of a listing agreement.
  • View the moniker "neighborhood expert with great skepticism. In the first place, too many agents claim to be experts when they're not, and in the second place, what you think of as neighborhood expertise is different than what agents think it is.
  • Don't be overly impressed with "skilled negotiator." Anyone can make that claim. Negotiation is about leverage, not charm and guile.
  • Scroll through this blog and peek at several posts I've done, especially this one.