Home Buying 101

Step One: Choosing Your Realtor

What is the Cost of Representation

The first question people ask about realtor representation in the purchase process is how much it costs. In Maryland, the answer is zero dollars. As a buyer in Maryland, you can have a realtor represent you in the purchase process at no cost to you.

There are two ways that a realtor can get paid in this State: Through a real estate commission and/or through a fee. As the buyer in a real estate transaction, you are not responsible for paying the commission because the seller’s agent splits the percentage of the sale price that constitutes the commission sum with the buyer’s agent. So, in a real estate transaction in Maryland, the seller pays the commission for both the seller’s agent and the buyer’s agent. This principle applies to traditional home sales as well as short sales, foreclosures, or new construction purchases.

Some realtors get additional compensation through charging a fee. These can be called administrator fees, processing fees, or the like, and can range from a few hundred dollars to thousands. These fees are not required by law and in Red Cedar’s opinion, the tasks that the fees are being charged for fall within the range of duties inherent to the job which the commission pays for. Ask a realtor upfront if he or she charges administrative fees, and if so, know that they are negotiable. If you are working with someone you like but find out that he or she charges a fee, you can ask to have the fee waived. Which brings us to the next point…

How to Choose Your Realtor

If you have begun your search by browsing online home listing services, it is very likely that you will be contacted by a realtor. Bear in mind that the realtor who contacts you does not necessarily represent the properties in which you are interested, so there is no need to rush into a business relationship.

Just as you would research and vet any contractor, you should research and vet your agent. Ask around, read reviews, and stay alert for signs that suggest you may not have your agent’s full attention. There is a lot of information available online through a simple search, so make good use of online resources. Run a search for reviews on independent websites such as Yelp, and definitely look for anything that suggests an agent is involved in a lawsuit. Also ask about the agent’s track record. Having one’s picture on multiple For Sale signs throughout town does not mean much if the houses aren’t selling… An important statistic to ask for is what percentage of homes he or she lists actually makes it to settlement, how long that takes, and what the house sells for in comparison to the original list price.

If upon first meeting your agent insists on a buyer agency contract right then and there, be wary. As far as we’re concerned that’s like getting married on a first date. Meet with your agent three times. Discuss your goals, tour a few homes, and if the relationship seems like a good fit, then sign. While it is true that your agent cannot represent you in the offer-making process without an agency agreement, if your agent is more focused on an immediate signature than on establishing a mutually beneficial partnership it may be a signifier of one-sided interests. Choosing your realtor carefully is one of the more important facets of the home buying process, because the representation of an honest and experienced agent can save you thousands of dollars.

Saving Money

You may hear from listing agents that you are better off without representation in the buying process and that going it alone will save you money. This is not true. When listing agents are hesitant to work with buyer’s agents it is because they do not want to split the commission, so ask yourself whose interests that agent is looking out for… Not yours… Furthermore, the listing agent’s fiduciary responsibility lies with the seller. Since you might not know the ins and outs of the real estate industry and might not know how to properly structure an offer or a contract, the seller and the listing agent have more bargaining power at the negotiation table if you are winging it.

The level of experience that your agent brings to the transaction is key. An inexperienced agent might not know the differences between loan types and what they entail for the buyer. For example, an agent who is not familiar with VA loans might assume that the buyer is only allowed to receive 3% of the purchase price toward their closing costs, as is the case with other loan types. However, buyers using VA loans are currently allowed to request 4% of the purchase price toward closing costs, so if a realtor does not look to maximize this closing credit it could cost the buyer. To put it in dollars and cents, on the purchase of a $400,000 home this oversight would cost the buyer $4,000. It’s always worth finding out if your agent is a full-time realtor, and if your agent has a broker’s license. If the latter is not the case, make sure to meet the broker who is ultimately responsible for the transaction.

The Difference Between Agents and Brokers

The requirements for real estate agents and brokers vary significantly, which relates to the experience thing we talked about. Brokers need at least three years of experience working as agents before they can qualify for their broker’s license. They also have more rigorous educational requirements through continuing education credits, seminars, and testing.

Even if the day to day tasks of your home search are being handled by an agent, you are always being represented by that agent’s broker, whether you realize it or not. In Maryland, there is no such thing as an independent real estate agent, because all agents need to be licensed under a broker who acts as the supervisor/administrator. That duty entails making sure that all transactions are being handled properly. If you are working with a large brokerage that employs hundreds of agents under one broker you may never meet the broker, and he or she may not be familiar with your specific situation. This is fine if everything goes smoothly; however, if there is a hiccup in the transaction, your interests will be better represented by a broker who has first-hand, detailed knowledge of all the transactions for which he or she is responsible. Again, proper vetting is important. If you are working with an agent rather than a broker, ask to meet the broker. If the broker does not have time to meet with clients, ask yourself if you can be as much of a priority to the brokerage as you deserve to be. You are preparing for a large financial and personal transaction, and your representation matters.

Do your homework, and choose wisely.

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