Sunday, April 22, 2007

Buying a house without an agent

Scary thought: Navigate the process of home buying without the help of an professional agent.

Turns out this isn't as scary as it sounds. Let's review what a buyer agent does for you to earn his (typical) 3 percent of the deal:

- Tour houses for sale with you

This seems to be by far the most time intensive, but also least skilled work in this set. When we bought our current home, our agent found homes we might like, arranged tours to show them, and accompanied Patricia (or me). We saw 40+ houses that way until we found the one we liked and eventually bought.

- Help write an offer and determine a fair price

The price question is probably the trickiest of the bunch. There is no regulation for home prices, aside from gut feeling, "what the market is doing", previous sales of comparable houses in the area, and some additional fudge factor. It's easy to spend too much, or not ask enough and leave money on the table. A good agent knows the neighborhood you want to buy in, knows of recent sales, and in what condition those houses where. A really good agent can find out how much horse trading happened during escrow and what concessions where made by the sellers during closing. The official sales price does not break out e.g. an allowance for old carpet.
A good agent helps write a compelling offer, with proper contingencies and makes sure the document is sound. In general, any conditions not in the offer can't be added to the sales contract later on.

- Negotiate with the selling agent

If an offer is accepted right away, you are probably paying too much. The offer/counter-offer game is common in real estate transactions. The agent helps getting the most for your money.

- Help with the closing and escrow process

The escrow process is full of stuff you need to take care of. Inspections, property records, dealing with the bank (well, that you have to do yourself, no matter what). And lots of signatures on closing day.

Pheww. That's a lot of stuff, and if you ask any agent they are going to tell you many more things an agent does for you.

Also, very often the agent doesn't actually get all of the money from their cut, they need to split with their brokerage firm. The difference between a $750,000 and $700,000 purchase in Silicon Valley translates to $200-$300 or less difference in take home pay for the agent on a commission north of $4,000. Assuming a sale value of $750,000, 1% real commission (after broker fees and expenses), and 40% taxes for the agent. 6% is over $40,000 for this transaction. Lots of money for me.

Here's my view:

- Tour houses for sale

Hmmm, I know my neighborhood. I want to upgrade within my neighborhood and don't want to move elsewhere. Patricia and I are going to pretty much every open house in the area, so we actually do know what's on the market, and in what condition the houses are.

- Knowing the right price to put into the offer

Houses are typically listed on the local MLS ( in the Bay Area). Some information is hard to get to if you are not a realtor. Additionally, most sites don't include history about previous purchases. For our area has some good information. A bigger database, but not as up to date is the information at They also offer an automated home valuation tool. From my experiments, that tools seems to come out a bit low. has a cool UI, but tends to be a bit high with their prices.

Bottom-line, go with your gut and get as much information has you can. BTW, asking prices of homes currently for sale can be some guidance since in theory sellers would do the same research with their agents. But, in reality the exact asking price seems to be more the result of what the seller wants and their specific circumstances of the sale (sell fast, can wait, contingencies, etc.)

- Negotiate

I can do that. Some people feel uncomfortable with that.

- Closing and escrow process

A lot of that is boiler plate. You need to make sure all details are taken care of. Get a lawyer familiar with real estate transactions for the paper work, and make absolutely sure all inspections are done properly. The bank is going to ask for them as well in many cases.

Overall, not too scary if you are willing to do the leg work.

Update (2007/05/04):

Of course, I'm not the only one who came up with this idea. This blog entry gives some nice background and similar reasoning. has a nice section on home buying as well. Sponsored aptly by LendingTree. A quick overview of contract content is here.