From Yahoo.com – My first home purchase was a For Sale by Owner (FSBO) that I completed without a real estate agent. I was initially quite happy to have avoided most landmines facing first time buyers, and in the end, owning and selling my first home was a smart financial move that set me on the right track for building long-term wealth. However, I did make a mistake as a first time home buyer by going the FSBO route without the free guidance of an expert real estate agent, one who may have saved me money and provided peace of mind.
Expert guidance at no cost
In states like New York, New Jersey and Connecticut, real estate agent’s commissions are typically paid by the seller. Oftentimes to reach more buyers, FSBO sellers offer a finder’s fee or buyer’s broker commission to a real estate agent who brings them a qualified buyer. Therefore, as a home buyer, I had no downside working with a real estate agent. Instead of painstakingly researching different neighborhoods and listings on my own, I would have saved time and been able to pick the brain of an expert, at no cost to me, had I gone with a good buyer’s real estate agent. In fact, when I did use buyer’s agents for subsequent home purchases, I double checked that my out of pocket cost of using one was indeed zero.
Robust sales comparisons
Doing comparable valuation analysis was part of my job, so drawing up comparable home sales (comps) was in theory not difficult for me. That said, I still struggled to aggregate information gathered from public sites. For example, I found square footage, previous sales and property tax information from the county website. However, for FSBO listings other details like how long the house was on market (DOM) and how many price reductions it had were tough to find since they were not on a public multiple listing service (MLS), like realtor.com. A sharp real estate agent who had eyes and ears into the local market might have provided that information to me, even though the listing was not on MLS.
Better price negotiation
Since home sellers typically have to pay commissions of 4-6 percent to a listing broker, I proceeded on my own under the assumption that FSBO would be cheaper by that amount compared to an agent listed home. This was substantiated by statistics from the National Association of Realtors (NAR). However, I wondered if this was really true since it is human nature to have a lofty opinion of one’s own property. The first home I bought was impeccebly maintained and perfectly acceptable to me, but I later realized that the kitchen and bathrooms were of circa 1980. A buyer’s real estate agent might have been able to advise me that the kitchen and bathrooms needed updating, and negotiated my purchase price lower.
An expert network
The next few times I bought houses, I discovered an additional advantage of using a good buyer’s real estate agent was an extended network of experts who could make the home purchase process smoother. For my first home purchase, I found these experts online. Similarly, I shopped around for my mortgage, feeling uncomfortable at having to provide personal financial information over the phone before I could get interest rates and terms. However, when I used a trustworthy buyer’s agent for subsequent home purchases, I was able to get multiple recommendations for real estate attorneys, home inspectors, mortgage brokers, even contractors.
When I started my home buying process, I could not tell the difference between a prequalification and a pre-approval. I did not understand why locations that commanded a premium price did not revert to the mean price of the general neighborhood. I gravitated towards the less expensive streets, which subsequently lost more value when the real estate bubble burst. I was very fortunate to have avoided the many missteps first time home buyers make, perhaps because I purchased in a period of rising home prices and sold before they crashed. When I bought my next home, I realized that despite all the valuable information gathered through my internet research, and the lessons learned from buying and selling my first home, I needed a good buyer’s real estate agent to help me navigate the home buying process.