Last week the newspaper reader sent me a letter wanting to know how to complete a real estate transaction. So far, they said, they had found the house and agreed to a price. The only thing they needed was a contract form to sew up the deal. Turns out that in going to various office-supply stores they could not find quite the agreement they were looking for and wanted to know if I could help.
More than anything the letter described a do-it-yourself transaction, a situation where someone was buying a home without the need for any professional assistance. No real estate broker was involved, nor was the use of an attorney or professional home inspector.
When I first started in real estate, do-it-yourself transactions actually made some sense. Contract agreements ran one or two pages and real estate brokers did not have much training beyond what a reasonably informed member of the public might have. In fact, when I first began looking into real estate, I found it was possible to get a six-month temporary brokerage license, meaning you could buy and sell property for others with no training and no testing at all.
That was a very long time ago. The world has changed, and part of the change involves real estate. You can see this in the letter from my correspondent.
The buyer has found property they like and that's great news. However, what the letter does not say is how a price was determined. Did the buyer check other local houses now available for sale to see how they were priced? Did they engage an appraiser or at least hire a real estate licensee to provide a broker’s price opinion, or BPO?
I wonder if the buyer really did find the best house for their situation. How many properties did they physically visit? How many homes did they compare? Did they look at short sales and foreclosures, and did they consider the discounts widely associated with distressed properties?
The looming problem I see for my letter writer concerns the matter of getting the deal on paper.
Let’s imagine that a standardized real estate agreement was available from a local office supply store. Does that mean that the problem of finding a good contract is solved?
I see three problems here:
First, a standardized agreement may not cover all the issues associated with a specific property. For instance, who gets to keep the outdoor play set in the backyard?
Second, is the agreement pro-buyer, pro-seller or relatively neutral? Without a thorough reading of the agreement there’s no way to tell.
Third, does the agreement include all the requirements demanded by state and local governments? A real estate contract in my area must include the location of all local heliports. At a rural property that we own a buyer must agree to not sue neighbors because farm animals downwind sometimes give off curious odors.
Real estate brokers — good real estate brokers — know about these things. What they know about in particular is not published sale prices, but the discounts and concessions hidden within neighborhood transactions, the invisible pieces of the puzzle which often are the difference between a great deal and a marginal transaction.
The cost of brokerage services is commonly paid by the seller. Indeed, a buyer brokerage agreement can be written so the entire cost is paid by the homeowner and not the purchaser.
Long ago the idea of buying and selling without a broker was both attractive and doable. That’s just not the recommendation I would make today. I now tell owners to list houses with successful professionals and I tell purchasers to find an experienced buyer broker as well as a good home inspector. With something as important as a home purchase getting such help in today’s world simply makes sense.
What are your thoughts? Do we still need real estate brokers?
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