Is It Worth It For You to Buy a House Without an Agent?
The recent National Association of Realtors settlement means that buyers now have to negotiate their agents' commissions. Experts we spoke with say this could still be cheaper than buying without an agent.
The recent agreement by the National Association of Realtors to end the practice of bundling buyers' and sellers' agents' commissions into the purchase price of a house now means that buyers will have to negotiate commissions with their agents directly.
This, in turn, will lead some buyers to consider "cutting out the middleman" and buying the house they want on their own, without an agent.
They will save on the commission if they do, but does that make it a good idea?
Opportunity Costs
Local real estate market analyst Kevin Gillen doesn't think it's a good idea to forego an agent. Especially for someone buying their first home.
"First-time buyers don't really know the complexities and the steps of a real estate transaction," says Gillen, the senior research fellow at Drexel University's Lindy Institute for Urban Innovation.
"You can read up on that [process] now and do your own research," he continues, "but if you've got a good job that pays pretty well, the opportunity cost for your time is valuable. So you can spend more time at work, working on that raise or promotion, or you can spend time schooling yourself on real estate transactions, negotiations, all the legal compliances and inspections and insurance when, in fact, it actually might be cheaper to just pay someone to handle that stuff for you while you concentrate on what you're good at."
Terry Upshur, a real estate agent who leads The Upshur Group at Compass Real Estate, decided to become an agent himself after purchasing his first home.
And he used an agent to buy that house.
"There's no way I could have done this without an agent," he says of buying the Point Breeze home he and his husband occupied. "There were a lot of things I didn't know" about the process, "even as an educated person. There are so many nuances to the real estate transaction, and with our own first transaction, when I was not an agent, I relied heavily on my agent to get us through those."
Not Everything Is Online
Some of the things buyers used to rely on agents for can indeed be obtained online, such as information about schools and school districts, general information about neighborhoods and communities, and, of course, listings on the multiple listing services. "The days of the agent really helping you find the home in the community or neighborhood that you want are gone," says Gillen. "When people come to an agent now, they already know where they want to live for the most part. They may have narrowed it down to two or three separate communities, but they don't start blind like they used to."
Nonetheless, Michael Martin, chairman of Tri-County Suburban Realtors, says that agents still have access to knowledge that buyers can't acquire on their own. (Tri-County represents realtors in Chester, Delaware and Montgomery counties.)
"A realtor is an advisor, and the advisor you get the knowledge from," he says. "Like, where is the best loan program for me? Is this area the right fit? Is there anything going on in the marketplace that I need to be aware of so I can make the right decisions?"
Martin adds that agents also have access to listings that may not appear on the search engines. They know of quiet listings and others in their areas that may not be on the multiple listing services.
Gillen points out that this knowledge can be especially useful in the city. "I'd say a good 25 to 35 percent of all transactions in the city are off-MLS," he says. "They're either direct between buyer and seller, where they're not brokered, or they're what are known as office exclusives. These are brokered, but they're not listed on the MLS." And new rules being enforced by Bright MLS, the super-regional service covering all of Southeast and South Central Pennsylvania as well as most of South Jersey, mean that any listing where a seller may compensate a buyer's agent has to be listed as an office exclusive.
A Really Big Deal
Both the complexity and the size of the purchase lead Upshur to recommend seeking out an agent.
"Purchasing a house is one of the, if not the, biggest investments you will ever make at one time in your life, and to try to navigate the complexities alone can be an uphill battle if you come across obstacles along the way during the transaction," he says.
"And there are a lot of things along the way" that a buyer has to deal with. "You have to deal with title insurance. You have to deal with home inspections and knowing what to look for. You have to know the difference between something that is a potential deal-breaker and something you can deal with during your time as a homeowner. Doing all that alone can become overwhelming. And I've had homebuyers who were overwhelmed from the gate" when they came to him for advice.
A Fair Negotiation
Another reason to engage an agent: Unless the owner is selling their house directly, they will have an agent representing them. And that agent is contractually obligated to act in the seller's best interest — not the buyer's. "It's like walking into a courtroom and saying, 'I'm not going to have an attorney,'" says Upshur. That puts the buyer at an instant disadvantage against the opposing side that is represented. In the case of a real estate transaction, unless a buyer has the knowledge and skills needed to represent themselves, they may not get the best deal they could get on the house they want.
Gillen approves of the NAR settlement because, in contrast to the old arrangement in which the seller paid both agents' commissions out of the sale price, unbundling the commissions puts the buyer's agent firmly in the buyer's corner. "The agreement still allows side deals," he says. "You just can't hide them from either the buyer or the seller." As he explained it, sellers paying buyers' agents commissions may have brought more buyers to a property, but it also meant that the goal of the buyer — to buy the house for the lowest possible price — may not necessarily have been the goal of their agent as a result: The higher the sale price, the bigger the agent's commission.
Having buyers negotiate commissions directly with agents gets rid of that conflict. And buyers can still ask that sellers pick up all or part of their agent's commission. The only difference is that now, this is out in the open.
And that's a good thing, says Gillen. "More transparency is almost always better than less," he says. "Not only will it benefit buyers and sellers with better prices, but it will benefit the industry and the economy as a whole."
And it means that the buyer will get more value out of the services of their agent.
In the end, the question "Should I hire an agent or not?" boils down to: Time is money. If you are willing to devote the time needed to learning about the ins and outs of real estate sales transactions, you can save money on commissions. But given the time required to do that, paying an agent for their expertise may ultimately be the better value.
