Jim, I Am In The Market To Buy A Home. I Don't Know Whether To Try And Do This On My Own Or Work With A Realtor. What Are The Pros and Cons Of Using A Realtor?
First, as a disclaimer, I am licensed as a real estate broker in Florida (although I am not currently working in the field). This is really a very good question and one that will help a lot of people who are right now trying to make sense of the current real estate market.
Over the years, I have written on real estate in virtually all of my books. I have to admit that perhaps I have not given Realtors their proper due in my writing. I think there are times to use a Realtor and then there are times when you really don’t want to.
Depending on your market, about 90% or more of all properties for sale are going to be listed with Realtors in the MLS (Multiple Listing Service). So, the vast majority of available properties are tied to a Realtor, like it or not. If you are attempting to put together a ‘creative’ transaction, a Realtor will not be your best option. Realtors can be good at helping a client sift through the thousands of MLS listings and find suitable properties at good prices. They are also likely to be knowledgeable about the area, schools, financing, and other considerations important to a potential homeowner.
Most Realtors will limit you to straightforward transactions that do not involve ‘owner financing’ or other creative real estate strategies. Why? Generally, with a 5 to 6% real estate commission involved, owners need to sell to buyers that can obtain their own financing and come to closing with a check for the entire amount of the sales price. Without the real estate commission, many times owners can be more flexible. If you have a healthy down payment (say 10% or more) and are looking for the owner to hold financing for the difference, a Realtor may be able to put that kind of deal together. Because of the amount of cash you are putting into the deal, the real estate commission can be paid by the seller and a deal may still be possible. While there are occasional creative transactions like this that are structured by Realtors, don’t expect that to happen too often.
One of my favorite ways to buy and sell real estate is by using the concept of a lease option. The idea is that you rent (‘lease’) the property for an agreed on period of time (2 to 5 years), during which you have the option to buy at a predetermined price. Many times a motivated seller will go along with such an arrangement, but they most likely would not be able to if a Realtor was involved. Why? Again, the Realtor is interested in the sales commission today, not getting paid 2 or 3 years down the line if you ultimately buy the property.
So, if you are all set with your own financing (or are a cash buyer) and are simply needing someone to help you find a bargain, a Realtor can be a great asset. If this is your situation, I would suggest that you use a Realtor as well as look for properties on your own (for sale by owners ‘FSBO’s). If the Realtor produces the best deal, who cares if they are making a commission from the seller. Remember, you don’t pay the real estate commission (unless you sign a special buyers agent agreement). If, on the other hand, you need a creative transaction (e.g. no money down, lease option, etc…) you will most likely find that by working with FSBO’s and not Realtors.
This is a great time to buy real estate in many markets. A Realtor can be a great person to have in your camp if you have financing and don’t need to work a creative deal.
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