As I pulled up to my driveway, I saw a woman stuff something into my mailbox. She was going door-to-door in the neighborhood hoping to find owners who would sell their home to her directly, without agents.

I asked if she had ever bought a house before. No, she had not, but she had just read a “How To” book that suggested she try this approach. I explained I am a Realtor and could help in her search.  She declined my offer, saying she thought she would save a substantial sum of money by going it alone. I asked if she understood the pitfalls. She just smiled and kept walking. This incident was the impetus for me to share my thoughts on why buyers need agents.

Understanding value

In the process of buying, some buyers do not give enough thought to the fact that, one day, they may have to sell. I have previously written about how a number of people who bought at the top of the last market rise are unable to sell without losing money. That is why it is essential to ask fundamental questions now, before you buy. How much is any property worth, how is that value established, and how will that evaluation effect me when it is time to sell?

The comparative market approach is the one customarily used to set value for single family homes. Comparable houses sold in a neighborhood during the past six months are compared to the subject property. Adjustments are made for “pluses” or “minuses” and a price is then determined. Unfortunately, even if the lender’s appraiser values the home at full purchase price, you can still have a loss when you sell.

Buyers working without an agent cannot make up for their lack of historical knowledge. They need a real estate professional who is on their side, and has been in the business long enough, to help give them perspective about the market and prices.

Location

Some buyers have an in-depth knowledge of various cities and their neighborhoods; others do not. Location is the key determinant of value. Realtors know, and can explain, why some areas are considered more desirable than others. As a buyer, you will want to have a good sense of location before you make an offer.

Negotiating

Few buyers realize the complications of dealing directly with a seller. Each party has opposite interests. In many cases, neither the buyer nor the seller is experienced in negotiating real estate transactions.

I know of an instance where both parties decided to bypass their agents. Over glasses of wine, they negotiated the contract and parted with promises of future social contact. It was not until after close of escrow that the buyers discovered, to their dismay, that their interests were never those of the sellers.

A qualified agent is an invaluable go-between who not only knows how to negotiate, but what to negotiate.

Purchase contracts

There are at least five different residential real estate contracts presently in use in the East Bay. How familiar are you with any one of them? Each contract contains some clauses that benefit and some that are detrimental to buyers. Will you be able to identify them and understand how they will effect you?

A technically competent agent can prepare a purchase contract that covers all the bases. He or she will also explain how a properly prepared contract is an indispensable first step to successful negotiations.

The lending process

Not many buyers are able to accurately assess how much house a lender will qualify them to buy. Neither are they aware of all the avenues open to them in the lending community.

Agents assist their buyers by referring them to local lenders so they can get pre-approved. This means the buyer has submitted all necessary documentation and has been approved for a loan up to a specific amount. The only remaining lender requirements are usually a satisfactory appraisal of the property and approval of the preliminary title report.

In today’s marketplace, there is a confusing array of loan products available. Long-time real estate professionals have built up relationships with trustworthy lenders who will offer options that are best for the buyer. A buyer without an agent may choose a lender who is not sufficiently knowledgeable, caring or diligent to suggest the most advantageous loans for the buyer’s situation.

Disclosures

Realtors recognize which disclosures are mandated by law, e.g., the Transfer Disclosure Statement, information on lead based paint, smoke detectors and hot water heaters. Full disclosure by sellers is imperative in order for buyers to have a clear picture of what they are buying.

Sellers frequently indicate that work on the property was done without permit or not to code. Do you, as a buyer, know which items are worthy of your concern and which are minor?

Disclosure of problems by the seller does not necessarily mean he will make corrections or pay for repairs. This ties into contract language and negotiations. Disclosures are also closely aligned with inspections. The two most common inspections are structural pest control (termite) and a general home inspection.

Termite inspections

Only buyers who have gone through the process have a sense of the nuances of termite inspections. Nonetheless, even seasoned buyers who have the good fortune of getting relatively clean, simple reports may not recognize the hidden dangers.

If you are buying without an agent, you might accept responsibility for “Section 2” termite work without realizing the possible consequences until it is too late. Powder post beetle infestation is another pest control variable you need to examine carefully.

A good agent will review with you why it is important to insist on a report only from a local company that is known and respected in the area you are buying. Your agent will also point out other potential booby traps in a termite report.

General inspections

Most real estate agents urge their buyers to hire a professional home inspector to give the house a thorough “physical.” Choosing the right inspector is an absolute given. Reading and appropriately interpreting the report requires know-how and experience.

It is not uncommon for a sale to fall apart as a result of unresolved issues arising from inspections. Real estate professionals have the facility for handling these mid-escrow crises.

In-laws

Do you know that most “in-laws” are not legal rental units? Some of these have “bedrooms” that are not considered safe for sleeping. If you do not have an agent, how will you protect yourself from future liability?

Escrow management

When an offer is accepted on a home, it is said to be a pending sale “in escrow.” Escrow is the neutral depository of funds and instructions. It acts only when instructions from both the buyer and seller are in harmony.

Escrow is also the process of making sure that specific milestones in the transaction are achieved. For example, the buyer’s inspection and loan contingencies are supposed to be removed in writing by a certain date.

What happens if these deadlines are not met? In transactions directly between principals (buyers and sellers), they may ignore the missed milestones. Rarely are they taken care of in writing and in a timely manner.

Realtors, on the other hand, are clear that “time is of the essence” and generally take quick written action. When contingencies are not waived as agreed, this is a sign of possible collapse of the sale.

Final thoughts

With the increasing popularity of the Internet and other technological advances, there is the likelihood of a growing number of direct sales between buyers and sellers. If both parties are completely versed in the myriad convolutions of residential real estate, working this way may be a positive experience. Nevertheless, this trend will not change one of the basic realities of real estate: few people buy or sell homes often enough to understand how to protect themselves.

Top agents make real estate seem simple. They shield their clients from behind-the-scenes, time consuming functions and aggravation inherent in most transactions. A majority of today’s successful residential sales are directly related to the skills of the agents.

Related Articles:

For Buyers: Buyers Do’s And Don’ts, Part 1 and Part 2; Home Inspections, Part 1 and Part 2; Hot Market Tips: Buyers; Outlaw In-laws, Part 1 and Part 2; and Are Permits Important?

For Sellers: Selling By Yourself, Part 1, Part 2, and Part 3; Sellers Do’s and Don’ts, Part 1 and Part 2; Hot Market Tips: Sellers