Last year, Sam and Pam were in the market for buying a house up to $500,000. They were ecstatic to have found a detached home listed at $475,000.
Since they found the home themselves, they figured that they didn’t need a Buyer Agent and could make an offer directly to the Listing Agent (who represented the seller) for $450,000.
At $450,000, they thought it would be a good deal to buy the house for 5% off what they considered to be market price for it.
But, could they have gotten a better deal if they had hired a Buyer Agent? Let’s find out…
What is a Buyer Agent?
A Buyer Agent is a real estate agent who specializes in representing purchasers of real estate during a transaction.
Some of the many responsibilities of a Buyer Agent are:
- to protect the buyer from over-paying for the property,
- to protect the buyer from over-paying for the loan, and
- for ensuring that the buyer’s earnest money deposit is not unnecessarily lost.
How can a buyer agent ensure that a buyer doesn’t over-pay for the house she wants to purchase?
1. Don’t over-pay for a house
Sam and Pam made an offer for that “good deal” of a house. But, was $450,000 really a good price?
If Sam and Pam had hired a Buyer Agent, their agent could have told them that $450,000 would have been a good price two months ago, but that the local market had gone down since then and the two latest sales had been for $424,500 and $417,900, respectively.
Further, this home was in desperate need of an updated kitchen and was worth closer to $400,000.
In this case, the Buyer Agent could have saved them from over-paying $50,000 for the house.
But, since Sam and Pam were happy with their $450,000 find, they went online to apply for a mortgage loan to finance the property.
2. Don’t over-pay for a loan
Sam and Pam went online and received very competitive quotes for obtaining a loan. Some of them advertised very low interest rates. And they knew that low interest rates were a good thing. So they applied for one of those low interest rate loans feeling like they were getting a great deal.
What they didn’t know is that the low interest rates came with high lender fees which made the loans not a great deal after all.
A good Buyer Agent could have kept an eye out for them
Their agent would have warned them that the high lender fees were making the loan they had chosen more expensive than other available loans with higher interest rates.
Later on, Sam and Pam had a change of heart about the property
Luckily, Sam and Pam, having gotten some advice from some friends who had recently bought a house, realized that they were over-paying for this property and decided that this home wasn’t the right one for them after all.
They exercised their right to cancel the contract under one of the contingencies. This would allow them to get back their earnest money deposit of $4,500. They emailed the listing agent with a request to cancel the contract and requested their deposit back.
By doing so, the contract was canceled but they still didn’t get their deposit back.
3. Don’t lose your deposit
Unfortunately, Sam and Pam failed to follow the agreed-upon channel (per the contract) to deliver the notice canceling the contract. The sellers refused to return their deposit on this technicality.
A good Buyer Agent would have made sure to overnight the notice to the sellers’ home – following the agreed-upon terms in the sales contract and avoiding one of the most common ways of losing earnest money deposits.
But, surely, most transactions don’t run into these issues… or do they?
Ignorance is bliss – until you find out it isn’t…
If Sam and Pam had gone through with the transaction, they would have been blissfully ignorant of the fact that they had over-paid for the house, and that they had over-paid for the loan. They simply would have been happy with their new home.
However, if they had truly done their due diligence, they would have enlisted the help of a professional to point out the not-so-obvious pitfalls. In this case, a good Buyer Agent could have – at least – saved them over $50,000.
In summary, a Buyer Agent has the obligation to make sure that you:
1. Don’t over-pay for the house
2. Don’t over-pay for the loan
3. Don’t lose your deposit
These are only three of many ways a buyer agent can prevent you from losing money during one of the biggest purchases of your life.
If you want to talk about how one of our Buyer Agents can help you buy a house, give us a call at (703) 480-6575 and we’ll be happy to coach you through the process.