After years of trepidation, homebuyers 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 as a counterbalance to the agent who represents the seller. But, now, fewer buyers are taking that option.
Of the buyers who purchased a property through a real-estate agent, just 60% had buyer representation, according to a November 2011 report by the National Association of Realtors. That's down from 62% in 2009 and 64% in 2006, before the housing bust.
Many experts say 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 the agent can recommend a bidding strategy that targets comparable properties that sold for less, rather than the midrange. 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 were once available only to real-estate agents — median sale price in a neighborhood, the number of days a home has been on the market and how many price cuts it has endured — are now online. And because most buyer's 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 interests in mind, 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 because of declining home values, and some would prefer not to split them, says Ginger Wilcox, head of training for buyer's and seller's 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 with 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. Buyer's 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.