Practical Tips...


Should I Hire a Real Estate Agent or Lawyer to Buy a House?

It's no secret that real estate agents earn high commissions, and real estate lawyers charge exorbitant hourly rates. This raises the question -- do you really need a real estate agent or realtor to help you buy a home? For the most part, such help is not legally required, although most homebuyers enlist an agent or realtor to help them.

In some states, however, only a lawyer is allowed to prepare the home purchase documents and close the deal. Other states allow real estate agents or ordinary buyers and sellers to do these tasks. With a certain amount of effort and research, in these states you can understand and negotiate all the documents and other aspects of the transaction yourself. Many books and guides are available to help you.

Depending on your own skills and needs, however, you may want to hire a real estate agent or an attorney. Read on for information on when you might need professional help, how agents and lawyers are paid, and how to find a good one.

Reasons to Hire an Agent

One concern that drives many people to hire a real estate agent (or an attorney) is that paperwork will be flying around like a small tornado, and it can be very helpful to have someone familiar with the process to deal with it. Other parts of the transaction will be happening quickly too -- hiring inspectors, negotiating over who pays for needed repairs, and the like -- all of which is second nature to an experienced agent. What's more, experienced real estate agents usually have contacts with good inspectors, mortgage loan brokers, and others who can make your buying process easier.

One of the best reasons to hire a real estate agent, however, is that the sellers are likely to use their own agent -- and you want to keep that agent from taking over the process. In fact, the seller's agent may pressure you to let him or her represent both of you, in a “dual agency” relationship that primarily benefits the seller. (The less scrupulous sellers' agents don't make it clear that they're working for both people -- but if only one agent is involved in your transaction, it's fair to assume that the agent's loyalties are with the seller.) It's better to have your own agent than settle for dual agency.

Reasons to Hire an Attorney

Except in states where it's mandated, an ordinary real estate transaction doesn't require an attorney's help. By now, real estate transactions are so standardized that most people in your state will use the exact same purchase contract, just filling in a few blanks.

However, if legal issues arise that your real estate agent can't answer, you'll need an attorney's help. Although good agents know a lot about the negotiating and contracting part of the process, they can't make judgments on legal questions. For example, what if your prospective new home has an illegal in-law unit, including an existing tenant whom you want to evict in order to rent the place to a friend? Only a lawyer can tell you with any certainty whether your plans are feasible. Or, if you're drafting any unusual language for the purchase contract, you may want to have an attorney look it over.

Keep Control Over the Process

You're the only one who really knows what you want in a house. Even if your agent is scouting out homes for you, there's a lot to be said for scanning the listings and attending open houses yourself. You may find out that your agent doesn't understand your needs as well as you thought. For more on what you can do on your own to find your dream house.

Even if you do use an agent or a lawyer, it's wise to learn as much as you can about the home-buying process. For example, educating yourself about the market value of comparable homes in the area will protect you against over-aggressive agents who might urge you to bid high for a particular house.

In addition, educating yourself about common legal concerns -- especially if you have unusual plans for the property, such as adding a second story or changing the driveway -- will help you understand when it's time to consult with a lawyer. And you'll prevent misunderstandings and reduce the stress of being told to “sign here” if you study the contents of the various real estate documents in advance.

How Real Estate Agents Are Paid

Real estate agents normally work on commission, not salary. They receive their slice only after your home search is over, the contract negotiated, and the transaction complete. The seller typically pays the commission to both the seller's agent and your agent -- between 5% and 8% of the sales price, to be split between the two agents. This percentage isn't cast in stone, however. For example, the seller might negotiate the percentage down if the house is particularly expensive. (And in probate sales, the court sets the commission.)

Variations on the typical commission arrangement also exist. For example, some buyers prefer to hire an agent and pay the commission themselves, figuring it will make the agent more loyal to the buyer's interests, and provide grounds for a drop in the sales price. Or, less commonly, you may find an agent willing to perform limited tasks for an hourly fee (in which case you'd also want to ask the seller to bring down the sales price accordingly). Discount brokers are also available, usually providing you limited services, or interactions via the Internet, at a commission as small as 1%.

How Attorneys Are Paid

Attorneys normally charge by the hour, at rates ranging from $150 to $350. You may also find attorneys who charge flat fees for specific services, such as preparing real estate closing documents. Although attorneys prefer to handle your entire case with a blank check regarding hours to be spent and tasks to be accomplished, you're hiring the attorney, and you can call the shots. If you prefer to hire an attorney for only a limited number of hours, or for specific tasks, such as answering a legal question or reviewing a document, you can negotiate this (and you should record your agreement in writing).

Choosing an Agent or Attorney

The quality of real estate agents varies dramatically, from fabulous to frightful. To find an agent who rates at the fabulous end of the scale, look for one who is:

• a person of integrity
• in the full-time business of real estate -- you don't want a dabbler
• experienced with the types of services you need
• knowledgeable about the area where you intend to live
• sophisticated in business matters
• tuned in to your tastes and needs
• licensed by your state, meaning the agent has met minimum levels of education, training, and testing. You'll get someone with even more education if you hire a “broker” (someone with the power to oversee ordinary agents).
• a member of a realtor's trade association such as the National Association of Realtors (NAR), meaning the agent is privy to listings, market information, and other data that nonmembers must struggle to obtain, and
• a recipient of additional credentials from the local realtors' trade association, indicating higher levels of professional skill. (Look for initials on their business cards -- for example, NAR offers such credentials as a “GRI” (Graduate Realtors Institute) or the even more advanced “CRS” (Certified Residential Specialist).) You won't find too many agents with such credentials!

For recommendations, go to friends, family, and coworkers -- particularly those who've recently bought or sold a home. Once you've got a short list of promising real estate agents, let each know you want to interview him or her for 45 minutes to an hour. You can talk in person or on the telephone. You'll be testing not only the agent's knowledge, but his or her cooperativeness and punctuality.

During the interview, ask the agent questions from the list below. Consider how well the agent listens to your concerns and answers your questions clearly and directly. Only agree to hire an agent after you've found one you're enthusiastic about. Then, commit your agreement to writing, and play fair by not signing up additional agents to help you.

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