Home Buying Agent vs. Real Estate Attorney
Purchasing a home will likely be the largest and most significant transaction of your life, which is why many people choose to hire a real estate agent to assist in the search and negotiate on their behalf. Real estate agents generally fall into two categories: home buying agents and home selling agents. Home buying agents aim to level the playing field a bit for homebuyers (almost all sellers have seller's agents, whose job is to get the very highest price for the property) through the agents' knowledge of the industry and familiarity with the particulars of a neighborhood, sellers, contractors, etc. Some states require the use of buying agents to ensure fair dealing between buyers and sellers.
In addition to, and perhaps in place of, buying agents, homebuyers may also employ real estate attorneys to represent their interests in the purchase of a home. Attorneys are experts in real estate law and can provide counsel on legal issues which may arise. Whether you hire a buying agent or a lawyer, you'll be paying them for their services (more on agent commissions below), so the question is: which is preferable?
Some states require buying agents while other states stipulate that only attorneys can prepare home purchase agreements. You'll have to investigate to determine the laws in your state. This article will assume that there is no law requiring either a home buying agent or a real estate attorney.
Hiring a Buying Agent
The primary reasons to hire a buying agent are obvious--home purchases are significant and the process of finding a home is burdensome, therefore it's a relief and an assurance to have an agent who will walk you through the process and look out for your interests. Buying agents can be very helpful in hiring inspectors, negotiating over who will pay for repairs, finding listings, and other matters which are everyday activities for agents, but may be foreign to most homebuyers.
Choosing an Agent
Home sales have traditionally favored sellers. Sellers have selling agents, who sometimes aim to become buying agents as well. Be wary of so called dual representation, because in the end you can't be sure whose best interest the seller has in mind. Don't be shy about asking potential buying agents if they are seller's agents. You should be positive about whom the agent is representing.
When searching for a buying agent, keep in mind that they are in high demand during housing booms. In a depressed market, the demand for buying agents is quite low. You can use this fact to negotiate a lower commission and take your time in finding the right house.
How Buying Agents Are Paid
In a typical arrangement, real estate agents are paid through commission--generally around 5% of the home's purchase price. In the common two agent situation (the seller's agent and the buyer's agent), the agents split the 5% and the commission is paid by the seller.
Some buyers prefer to pay commission to the buying agent in order to retain the complete loyalty of the agent, however, because of the inherent conflict of interest when the buying agent, who is purportedly representing the homebuyer, is being paid by the seller. Whether or not you choose to pay the buying agent yourself, you shouldn't be shy in asking them directly who the agent really represents.
Keep in mind that during strong homebuyer's markets you can try to negotiate a lower commission for the agent if you so desire. Just remember that you'll already be getting an excellent value on your home due to the depressed prices. Driving a very hard bargain with the person whose job it is to find the perfect home for you may discourage them from zealously pursuing the purchase of your home.
Keep Informed and Stay in Control
No matter who you hire, you should stay in control of the process. Don't let the agent pressure you when it comes to homes, neighborhoods, or home attributes that you don't feel comfortable with or don't want. Particularly in down markets, the buyer reigns supreme and you should make sure that your buying agent knows exactly what you want.
Additionally, you should stay proactive in your search. There are plenty of commercial websites which not only provide listings of homes for sale, but give detailed information such as the market value of the home and the date and price of its last sale. Check out www.zillow.com or www.trulia.com and you will have a better idea of what a reasonable bid looks like and may even find listings which your agent may not know about or may not want to show you. Letting your agent know about what you've found will not only increase your options, but will keep the agents on their toes with the knowledge that their buyer has the ability to find a home on their own.
Reasons to Hire an Attorney
In most states, real estate attorneys are not required by law for the purchase of a home. While a home purchase is a significant investment, the actual sale is fairly standardized, with boilerplate clauses and lots of filling in blanks.
In the event of a legal problem related to the purchase of a home, however, only a licensed attorney may provide legal counsel and represent you in court (although you can, of course, always represent yourself). For example, if there are liens or other legal encumbrances on the property or there is a tenant who you want to evict in order to rent to another person--an experienced real estate lawyer can investigate and analyze the facts and then guide you on how, or even if, you should proceed.
Legal Review and Confidentiality
Attorneys can also be very useful in reviewing contracts. Particularly if you are purchasing a home without a buying agent, you should have an attorney review the contract to make sure that you will not be subject to terms which unfairly favor the seller.
In addition, attorneys are bound by strict professional rules of confidentiality. In the event that you wish to keep your cards very close to the vest, your attorney is prohibited from exposing information which you do not wish to make known. You can speak to an attorney with complete candor without worrying that the information will be released in any fashion.
How Attorneys Are Paid
Unlike real estate agents, lawyers are paid on an hourly basis, and therein lies the biggest drawback of hiring a real estate lawyer in the purchase of your home--attorney's fees range from $175-$400 per hour. However, there are attorneys who charge flat fees for certain services such as preparing or reviewing closing documents, and you can also tell an attorney upfront that you can only afford a specific number of hours. Communication with an attorney about payment should be clear from the beginning so that there are no misunderstandings, and it should always be put in writing.
The Bottom Line
Whether you choose to hire a buying agent, a real estate attorney, or both, remember that you are in charge of the process and they are there to provide you with a service. Be clear in communicating your needs and desires, get agreements in writing, and stay active in the process.
For more information on buying agents, check out www.naeba.org.