Value of a real estate agent?

[DangerMouse]

DH and I unexpectedly are thinking about buying a property here in Silicon Valley to live in. Reason this has come up is the house we are in, looks as if the landlord is going to sell. DH is liking his job and wants to work longer than the 12 months we had planned on. Given the rent we pay, we figure we could buy something and not be paying anymore taking into account property taxes and mortgage rates. It would be very helpful to us as a deduction as at the current time we have zero deductions and get slugged every year for AMT due to our income.

So we have started looking. We have not picked ourselves an agent yet, as this search is in its infancy. We went to an open house yesterday and spoke with the agent who we quite liked and she did take us to see some houses in the mountains yesterday afternoon. Probably spent a couple of hours working with us. The good thing is DH always had this fantasy about living in the mountains but after travelling 15 miles on a windy road and realising that would be his commute every day he soon changed his mind. For me it was the talk of the nest of king snakes that lived in the wood pile that did it for me. Never knew that having king snakes around could be a positive as it appears they keep the rattlers away. The lack of a coffee shop within walking distance also was a deterrent.

So given what we want to spend and we know the area we want to live we are curious as to why we need an agent. The area is we are interested in is covered by Redfin and if we bought through them we could save $9k, which is a substantial amount of money. These days everything is out there on the net, we are capable of getting onto the net to decide what we are interested in seeing. We don't need an agent to drive us around neighbourhoods or take us on viewings so what value would an agent be to us? Or should I say what would a traditional buyer's agent do that Redfin would not do?

The concept of having an agent working for the buyer is foreign to us as in Australia there is usually the seller's agent and we the buyer work for ourselves. We make the offer direct to the listing agent, once it is all underway we employ someone to do the property conveyancing who does title searches etc. on our behalf for the cost of about $600.

So what am I missing here? What would the buyer's agent do that would justify her earning her dollars? Why should we not consider using Redfin?

 

[JOHNNIE36]

First, clue me in about Fedfin. What is it? My first impression is that it the predominate real estate agency in the area.

 

[haha]

We don't need an agent to drive us around neighbourhoods or take us on viewings so what value would an agent be to us? Or should I say what would a traditional buyer's agent do that Redfin would not do?

I am definitely not an expert, but one question comes to mind. How do you get through those little lock-boxes that the agents have keys for? Do you only go to open houses or FISBOs?

Ha

 

[DangerMouse]

Johnnie, go to Redfin.com, it enables you to see all the listings in the area, provides info on what the property previously sold for, when the prices of property changed etc.

Ha, not sure how it works, however you do send a message to the Redfin agent and they set up the viewing. Not sure if the seller's agent shows you through or if they do. I am happy as long as someone lets me in the door.

 

[Texas Proud]

Not sure about where you are, but here the seller usually pays the agents fees.... even the one who is showing you the house... there are split agreements, so both share in the commission...

As to saving $9K, I do not see it happening... say the seller is not using an agent... he is not so HE can get a higher price, not to sell it net of a RE agent fee... I am sure you can get it a bit cheaper, but not the full amount of the fee..

 

[haha]

Not sure about where you are, but here the seller usually pays the agents fees.... even the one who is showing you the house... there are split agreements, so both share in the commission...

As to saving $9K, I do not see it happening... say the seller is not using an agent... he is not so HE can get a higher price, not to sell it net of a RE agent fee... I am sure you can get it a bit cheaper, but not the full amount of the fee..

Redfin rebates part of the buyer's agent's fee. $9000 is nowhere near to a full real estate commission where she is looking!

Ha

 

[schmidtjas]

Just a note on open houses. Most of the time these aren't really setup to sell the house, they're setup so that the agent can find buyers who need an agent and get new business.

But in any case I would talk to friends and family to get an agent recommendation. I would advise against simply using the same agent as the sellers. When dealing with agent listed properties I don't see any reason not to get an agent, the seller pays all of their fees (at least where I'm from) so the service is effectively free to you.

 

[DangerMouse]

Ha you are so right. Prices here are absolutely ridiculous. We are only looking at townhouses and they are in excess of $700k. For a house, we would have to be spending a minimum of $1.1 mil, an amount far beyond what we are comfortable spending. Agents must make a killing in this area due to the prices of housing.

Schmidtjas, you have misread the situation. The benefit of using Redfin is they rebate part of their commission to you, in our case we are talking about $9k. Personally I can't see anything that a real estate agent does that would justify them getting at least double that. As to the service being free, I think not because the seller has added in the cost of the agent's commission when they decided the price they would sell for.

 

[Rich_by_the_Bay]

Full Disclosure: DW is a Realtor, though these remarks are from me alone.

Theoretically, a buyers' agent would cost the buyer nothing. They could potentially offer:

1. Realistic "comps" or recent selling prices of homes similar to the one you are considering. Appraisals and comps can vary from one another widely.
2. Better negotiation, knowing the tricks and skills of the trade, and as a 3rd party it keeps emotional sellers and buyers from locking horns.
3. In-depth knowledge of the area including things a buyer might not be aware of.
4. Referrals to competent inspectors, contractors, insurance agents, mortgage brokers, etc.
5. Setting up of showings, previewing houses for you to save time.
6. In many markets, most uncomplicated sales do not require lawyers if a licensed realtor is involved.
7. A well established RE Broker offers an additional level of accountability for errors and omissions.
8. Claims by discount brokers of thousands of dollars saved seem implausible to me unless you assume the selling price would be identical with and without a buyers' agent. Not sure how you can know that.

That said, you can still find and buy a house on your own without a problem, and not all realtors provide a high level of professionalism.

We have done both, and the biggest hassle of buying on our own (before DW went into the field) was time: phone calls, call-backs, meetings with lawyers, back-and-forth amendments to the contracts, viewing homes we never should have even considered (we did not know the neighborhoods that well), and all that. Might not be as important if you have more free time.

I'll watch your progress closely since my son and family live in the Valley. Good luck.

 

[LoftyNotions]

Other than owning my own home, I have nothing to do with the real estate biz.

I agree with everything Rich says above. Having someone who knows the ins and outs of the business who can represent you and negotiate for you will very likely save you a lot more than $9,000. Assuming a $700K purchase with a 7 percent realtor fee split between buyer and seller agents, that "discount" keeps at least an additional $15,000 with the seller's broker or agent. And you feel like you're getting a good deal.

I'd rather have a pro whose duty it is to protect my interests than trust an agent who is looking out for the seller's interests.

 

[Texas Proud]

Redfin rebates part of the buyer's agent's fee. $9000 is nowhere near to a full real estate commission where she is looking!

Ha

OK.... I stand corrected....

 

[DangerMouse]

Umm think there is a basic misunderstanding of how Redfin works which probably explains why their business model hasn't expanded countrywide.

You do get an agent provided by Redfin that would work on my behalf. The only real difference is I am going to make the decision myself as to what I want to look at. They are liscenced, the big difference is they are cost efficient because they are not having to pay big bucks to their agency. Most of the stuff that I can see that my agent would regularly do is common sense that I would want to do myself. I get full access to comps etc. They would be looking after my interests entirely.

The way the commission splits is as follows. Say the total commission on the house is $40,000. Normally $20k would go to the selling agent and $20k to the buyer's agent. In this case the buyer's agent would retain $10k and the other $10k would be remitted to me the buyer. So no-one is retaining any extra commission.

I am not certain why anyone is convinced that a buyers agent is going to be feral in trying to get the best deal for the buyer as if you get an extra $5k off it is a lot to the buyer but is insignificant to the agent so why would they really care.

 

[Rich_by_the_Bay]

For completeness: the commission that is split between seller agent and buyer agent is split again with each realtor's broker, in amounts varying with their specific arrangement.

So you're right, a few thousand difference in selling price has relatively low impact on the agents. If you know that "the only real difference is I am going to make the decision myself as to what I want to look at" it may be a good arrangement for you. In a traditional arrangement, the realtor spends a lot of time and energy scoping out homes which meet the buyers' criteria. Plus, I gather you also know the area well.

I'm sure you'll end up fine whichever way you choose. You sound experienced and confident enough that you may save good money. Let us know how it goes.

 

[Gotadimple]

Full Disclosure: DW is a Realtor, though these remarks are from me alone.

Theoretically, a buyers' agent would cost the buyer nothing. They could potentially offer:

1. Realistic "comps" or recent selling prices of homes similar to the one you are considering. Appraisals and comps can vary from one another widely.
2. Better negotiation, knowing the tricks and skills of the trade, and as a 3rd party it keeps emotional sellers and buyers from locking horns.
3. In-depth knowledge of the area including things a buyer might not be aware of.
4. Referrals to competent inspectors, contractors, insurance agents, mortgage brokers, etc.
5. Setting up of showings, previewing houses for you to save time.
6. In many markets, most uncomplicated sales do not require lawyers if a licensed realtor is involved.
7. A well established RE Broker offers an additional level of accountability for errors and omissions.
8. Claims by discount brokers of thousands of dollars saved seem implausible to me unless you assume the selling price would be identical with and without a buyers' agent. Not sure how you can know that.

That said, you can still find and buy a house on your own without a problem, and not all realtors provide a high level of professionalism.

We have done both, and the biggest hassle of buying on our own (before DW went into the field) was time: phone calls, call-backs, meetings with lawyers, back-and-forth amendments to the contracts, viewing homes we never should have even considered (we did not know the neighborhoods that well), and all that. Might not be as important if you have more free time.

I'll watch your progress closely since my son and family live in the Valley. Good luck.

While it's not specifically in your list (but pointed out 2 paragraphs above), it is A VERY important part of why you need an agent:

9. Chases back and forth between you and the seller making the negotiation, between buyer/seller collecting documents, delivering documents to the escrow closing office, and any other chasing around you don't have time for that has to do with the final documents.

If the Redfin agent is just there to let you into the property and rebate 25% of the collected commission to you, then is it worth the rebate if you run into a snag in #9 above?

Good luck, DangerMouse in your home search.

-- Rita

 

[CuppaJoe]

I am definitely not an expert, but one question comes to mind. How do you get through those little lock-boxes that the agents have keys for?....

I'm no expert either, and I'm not even sure we are on the same topic but there are no photos on this thread yet. Psst, the neighbor next door still has a key that works. If that fails, try the fire escape; Lawrence Block used that method in one of his books.

 

[DangerMouse]

Ok, in case I have left this bit out - the Redfin agent does everything that a regular agent does with the exception of deciding which properties you want to see nor do they do previews. They do the negotiation, they do all the paperwork, everything that a regular agent does. They provide you with comps etc.

I can see the value in using a full service broker if you are new to an area of if you are a busy person, neither of which applies to me.

No need to worry about the lockbox because the Redfin agent meets you at the property to take you through.

People seem to question is it worth saving $9,000 commission, however my question is for the life of me what could any agent do for me that justifies paying them $18,000. It's not a bad hourly rate taking into account the work involved.

 

[DangerMouse]

I should add that we have probably talked outselves out of proceeding with purchasing anything in this area. It just seems ridiculous to be paying $750k for a 3 bedroom townhouse and not even get an attached garage to store the man-toys. Add in the $500 pm. HOA fees and I hate the thought of what we would be committing ourselves. If for this price we were getting something that even resembled a desirable residence where we could stay forever it would be a different thing.

 

[CybrMike]

For future reference you can also negotiate with a buyers agent to rebate you some of their commission money. A good Broker will still take this deal. Basically you can get a similar deal as Redfin except get a full service broker.

 

[Brat]

Buying RE in "The Valley" is different than almost any other market. The listing price is more like an opening bid in an auction. Typically the seller has a home inspection on the table so the buyer knows the property's issues. They hold a couple open houses over a weekend, open offers about 10 days later. Offers are considered not only on the basis of price. The seller's realtor advises the buyer as to which offer is most likely to close. I think RedFin has classes in the SF area about buying a house in that market.

The buyer needs to know what comparable homes have sold for recently in the area that interests you. There are programs right now for first time buyers in SJC, my daughter's nanny just purchased a home under that program within the last 60 days.

Whether to buy or rent in the Valley depends, IMHO, on whether or not you intend to spend the rest of your life there. The long term resident has great property tax deals. That said, study the RE market so that you can recognize value - attend open houses and learn what a house sold for. If you have done that a RedFin realtor should meet your needs. Zillow can provide recent sales data.

My daughter's first home was in Sunnyvale. It is a nice stable community, nothing fancy but with good schools and parks. She paid, by almost all measures except the Valley, a fancy price. Daughter made the offer on that house right after 9/11, when RE died, the USA was in slow motion emotionally, and their realtor was out of town. Because she had done her research she snagged a deal (in the context of Valley RE). She sold that house after the mortgage market collapsed for a decent gain. She now resides in Los Altos... enough said.

We can't afford to live in Sunnyvale, couldn't afford an out-house in Los Altos.

 

[clifp]

I don't claim to be a real estate expert even on the internet, and while I did spend 15 years in Silicon Valley,I have not lived there in 10 years.

I think Redfin is an excellent idea. If you were new to the valley, and we were in a sellers market and you knew of an excellent real estate agent than the story would be different.

In your case you have lived there several years, and in general it is buyer market for real estate, even in Silicon Valley. Originally one of the value added service that agent provided was to help you screen prospective houses. They had access to all of the information about home listing, and unless you were a licensed broker you couldn't get that info. Well guess what the internet has changed that business, in the same way that value added of a travel agent has been severely diminished. In my recent experience, agents typically expect the client to look on the internet themselves. All the agent does is contact the listing agent and arrange a time for you to look at the property. Pretty clearly that process can be computerized.

Undoubtedly an agent can be useful during negotiations, at close, and getting appraisers, home inspectors etc lined up. But unless they have changed the laws in California recently, or you specifically hire a buyers agent, both Real Estate agent actually represent the seller. The real estate agent has no fiduciary duty for you the buyer. The example from last week Time Magazine cover story, is unusual for it audacity but not all that uncommon.

The buyer's agent — a woman in a Gucci scarf and sunglasses — is a little more freaked out, trying to figure out how much this mess will cost to clean up. Which is strange, since she's offering $250,000 on behalf of her overseas client — $70,000 more than the asking price. There are no other buyers. Boemio goes over the offer three times with the Gucci lady to make sure she understands exactly what is going on. Gucci lady, she figures out, is just trying to score an extra $2,100 in commission and is screwing over her client for $70,000.

My first house "my" real estate agent clearly was not working for me, but since she was the bosses wife what could I do.) FreakEconomics has a great chapter, which describes that the primary motivation of both the buying agent and the selling agent is not to get the best price but rather make sure the deal goes through.

Personally, I think you probably wise to spend the money you are going to get back, on good home inspector and/or appraiser who could give you some could negotiating ammunition.

 

[FUEGO]

I should add that we have probably talked outselves out of proceeding with purchasing anything in this area. It just seems ridiculous to be paying $750k for a 3 bedroom townhouse and not even get an attached garage to store the man-toys. Add in the $500 pm. HOA fees and I hate the thought of what we would be committing ourselves. If for this price we were getting something that even resembled a desirable residence where we could stay forever it would be a different thing.

I was going to ask the annoying "Geez how much is rent in silicon valley if small townhouses are $750k/mo?". I held my tongue but see you came to the same conclusion as what I was thinking. Why pay a huge mortgage, huge taxes, huge insurance bill, and huge HOA when you can probably rent for a fraction of the total cost of ownership (of course you don't get to share in any appreciation/depreciation).

I know at the peak of the bubble I saw some California markets where the own vs rent cost was 3:1 or 4:1. Places you could rent for $2500 a month were selling at carrying costs of $7500-$10000 a month. Of course now we see how that story ended... Extremely bizarre to me since you can knock a zero off those carrying costs and get a modest home where I live (not as nice as the CA home, but a place to lay your head at night nonetheless).

 

[haha]

FreakEconomics has a great chapter, which describes that the primary motivation of both the buying agent and the selling agent is not to get the best price but rather make sure the deal goes through.

Note-none of what I have to say has anything to do with anyone on this board, or their wives or husbands, who if agents undoubtedly are very helpful. It has to do only with my own experiences, and those of my good friends and acquaintances.

Anyone who occasionally drops in on the real world knows this Freakonomics observation has to be true. The salesperson wants some% of something, the surer the better. There are a million things that can queer a deal; get 'er done is usually a practical salesman's motto. And if he/she forgets this, the sales manager/broker will quickly help them remember by reminding them of the many positions for former RE agents waiting tables, driving medical lab samples around town etc.

Another negative in my mind to getting an agent, even a pretty good one, is that they don't want a long period of showing you around. They want to convince you that what they have is a good deal, by setting up manipulative comparisons. They want to create in you a psychology of scarcity, and they want to minimize the real information that they give you because they never know whatever they might disclose that might cause you to walk away. And this doesn't even get close to the outright fraud that is less common but can be very important.

Even highly recommended agents withhold information if they think that knowledge is deniable should you be dissatisfied and come back to them. I walked into a co-op with a newly refinished, very nice hardwood floor. Nothing else in the apartment had been modernized. The unit directly above was the same. I asked the agent (who recently had moved out after living there for 11 years) what had happened to explain this rather odd redo. “Nothing I know about”. Right. So I hung around and talked to some members. A pipe in the walls in the unit above had burst, flooding that unit and the one below it. Next time the guy called me to tout another place I told him about this. “Oh yeah, I think I remember something like that a while back”.

This may be different if you can refer a lot of high earning couples or families from your work say, especially if it is a corporate environment where many will be transferring in from other cities or countries.

As far as research, here in King County at least I can go online for free, and look up the past history of the place. Sales prices, work permits, taxes, and recorded liens. In a fair amount of condo looking over the past 2 years, I have never had an agent offer me any of this information.


Ha

 

[Brat]

I agree with HaHA, a home buyer needs to educate themselves. Zillow provides a lot of information. I don't know if information about building permits is available online however. It would be on a city's website - I know in Portland it is.

What I have learned: In SV there are many fine neighborhoods and a few not so swell. The reputation of the local school impacts a home's value as most of the parents there have high expectations for their children. In some of the 'value' neighborhoods parents factor in the cost of private school tuition in the amount they will offer on a house. If you don't have children, and don't plan on any, those neighborhoods can be a good place to look.

The appraiser you will need to deal with is the mortgage company's. They are now really conservative. Once you have studied recent home sales and know what you think a house is worth you can make an offer contingent on the mortgage company appraisal.

In the education process put together your own team of inspectors, this goes too for new construction. In that area don't overlook a termite inspection.

What drives home values in SV is the impact of stock options, not wages.

Whether it is wiser to buy or rent really depends on your finances and values. If you save the difference between a mortgage payment and your rent for retirement renting may well be the smartest move.

 

[DangerMouse]

Without a doubt the SV real estate is a monster like no other. The good thing is with sites like Zillow and Redfin it is possible to gather the comparables that you need.

Like Brat says, here in SV the school district plays such an important part in pricing. I would not even consider buying anything unless it is in the right district as when it came time to selling the buyer pool is going to be limited.

As to the cost of renting, that is also scary. We pay $3k a month for a 3 bedroom house. Now taking into account this house was purchased in 2004 for $1.2 million and it is a knock-down. Even a 2 bedroom apt in a complex backing onto a freeway in a less desirable area of SV would likely cost $2500. We figured we got a good deal on this place, as most houses in our area rent for $3500+. There are a lot of places in this area that rent for $4500+ and they seem to get rented.

We were looking at Los Gatos so go to Redfin at put in zipcode 95070 and see what comes up for less than $1 million with 3 bedrooms.

 

[FUEGO]

As to the cost of renting, that is also scary. We pay $3k a month for a 3 bedroom house. Now taking into account this house was purchased in 2004 for $1.2 million and it is a knock-down. Even a 2 bedroom apt in a complex backing onto a freeway in a less desirable area of SV would likely cost $2500. We figured we got a good deal on this place, as most houses in our area rent for $3500+. There are a lot of places in this area that rent for $4500+ and they seem to get rented.

We were looking at Los Gatos so go to Redfin at put in zipcode 95070 and see what comes up for less than $1 million with 3 bedrooms.

$3000 a month is probably a relative steal versus buying. What is property tax in that area? 1%? So $1000 a month on that $1.2 million house. HOA fee? Insurance? 5% interest only mortgage on $1.2 million would be $5000 a month. So the ratio of buy to rent is still roughly 2.5:1-3:1 it sounds like.