The Big Move: I’m thinking of buying a home directly from the seller. He says I have to pay him a commission. Is that true?

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The Big Move’ is a MarketWatch column looking at the ins and outs of real estate, from navigating the search for a new home to applying for a mortgage.

Do you have a question about buying or selling a home? Do you want to know where your next move should be? Email Jacob Passy at TheBigMove@marketwatch.com.

Dear MarketWatch, 

I am hoping to be a first-time homebuyer soon. I have worked with a real-estate agent for a few months, who has shown me some nice places, but nothing has really felt like the “right” place yet. One potential spot popped up for sale recently but it is “for sale by owner.” The real estate agent told me that would mean the commission would be factored into the sale price for me to pay, as opposed to the owner of the home paying that bill. 

I’m wondering how this works, and if there are any ways to lower the fees on my end? I know buying real estate is a long, arduous process, and it’s not always exactly fair, but is there any way to make this arrangement work to my benefit as well as the owner’s? Homes are expensive enough as it is! 

Thank you for your time. 

Sincerely, 

New and totally confused 

Dear New,

This seller may increase the price to account for the buyer’s agent, but they won’t necessarily give a “discount” because there’s no listing agent. Either way, that’s not your problem. That is the problem for the seller. Negotiate and pay the price you believe to be fair, like you would with any house purchase, and let the seller’s commission chips fall where they may.

What is this house worth to you? And what are you prepared, if push comes to shove, to pay in order not to lose it? If there were two brokers here instead of one, you would not worry about the seller’s commission; the seller pays it out of the final sale price. The same is true here. Just because the seller does have their own broker does not mean that the commission for your broker is your problem. It’s not.

Buying a home that was listed for sale by its current owner, without a seller’s or listing agent involved, can also have some benefits. Because you’re not also dealing with a seller’s agent, communication may be faster. Also, the seller is saving money on the real-estate commission they would pay to a listing agent, so remember that if the seller raises the issue of the commission again.

Pitfalls when buying directly from a seller

There are pitfalls to watch out for when buying a home directly from the seller, without a listing agent involved. And you’ve stumbled on one of them. It is not uncommon for the buyer to front the cost of their own real-estate agent when buying a “for-sale-by-owner” property or, for that matter, to be asked to front those costs. That choice is yours, and you don’t have to agree to it.

You, as the buyer, have options to negotiate the cost of hiring a buyer’s agent. If you found this home on your own, you may only wish to pay the buyer’s agent to handle negotiations and look over the purchase agreement to spot any red flags. In that case, the seller could negotiate a lower commission as your agent is likely to not have done all the leg work they might typically do.

Be mindful of encountering higher-than-expected costs throughout the home-buying process. Most Americans, unless you live in a city like New York, are finding themselves smack-dab in the midst of a seller’s market. Because there are so few homes for sale across the country and historically-low mortgage rates, there’s perhaps more competition than ever to buy a home.

Retain your own buyer’s agent for protection

I strongly advise you to retain a buyer’s agent to make sure your interests are protected. They are an impartial and, hopefully, highly skilled professional who have gone through this many, many times before. They are also removed from the situation emotionally. Prepare to be a tough negotiator. A buyer’s agent will be well placed to know if the list or agreed price of this home is over-inflated, said Bill Gassett, a real-estate associate with RE/MAX Executive Realty in Hopkinton, Mass.

Aside from actually finding you the house of your dreams that you may not find yourself (two pairs of eyes are better than one) and helping you with paperwork to get accepted by the bank, finding a good lawyer, insurance broker, they also look out for your interests, and can advise on market value of comparable homes in the area, as well as spot things you may miss (weird paint jobs, cracks in the walls, the quality of the overall workmanship).

Alternatively, the lender may require you to make a larger down payment to cover the gap between what they appraised the home for and what the seller thinks it’s worth. If this happens, you may be able to negotiate with the seller — though in today’s competitive market that could prove challenging.

Be careful if the owner is selling the home ‘as-is’

One final red flag to watch out for: Beware of the seller claiming that they are selling the property “as-is,” meaning they won’t pay for any upgrades, fixes or improvements you believe are necessary. Some buyers might take this as a sign that they should forego the home inspection, but that’s inadvisable.

People who are selling their own homes may not be aware of all the disclosure they need to make in the purchase agreement for starters — and in some states, it’s actually up to the buyers to make sure those disclosures are made. What if there’s a problem with the foundation or some kind of dry rot? You don’t want to be left with those expenses and/or a costly legal case against the former owner.

Ultimately, it’s a competitive market, so it’s understandable to feel some pressure to accede to a seller’s demands, especially in a circumstance like this one. But this could be the biggest purchase you make in your entire life, so it may be better to walk away than find yourself regretting the home you buy. Your money, your house purchase, your choice. The seller can accept those terms, or not.

Whatever path you choose, I wish you the best of luck!

And, remember, the seller may decide to forego a broker and do it all himself, but that doesn’t mean you have to take your lead from him.

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