OT: Ethics regarding real-estate agents

[Fidatelo]

I have a situation that I was wondering if you guys could help me out on. We are currently house shopping and have been using an agent to show us homes. We haven't signed any contracts or whatnot. Last night we drove by a private sale home suggested by my sister-in-law without our agent. We looked at the house and are considering making an offer.

So, are we obligated, legally or morally, to bring in our agent (and thus pay him because the seller is not likely going to)? Or can we leave him out of this, given that we found the house ourselves and he hasn't been involved at all in looking at it?

We figure that legally he is just SOL, but we don't know if that is the 'right' thing to do. What makes it worse is that our agent is the father of one of our friends, so we don't want to do anything that is considered slimey in real-estate circles. However, we also don't really see why he should be paid thousands of dollars when we did the work.

Thoughts?

[Chubby]

Ow, tough situation with it being the father of one of your friends. Normally I'd say the agent is SOL because you found the house on your own but having it be someone you know complicates things.

[CraigSca]

Aren't the agents usually paid by the seller?

[Cuckoo]

My wife and I just bought a house and we discussed this same kind of thing with our agent. Her opinion seemed to be that it is something that happens, but they just like to feel that the work they did do was appreciated since they won't get any commission out of it. She recommended buying a nice bottle of wine or a $100 gift certificate to express your appreciation for their efforts. Either way, they're going to upset they didn't get the commission, but they can't be angry with you for doing what is best for you.

[stevew]

Its possible you may still need the agent to help with all the contracts/whatnot. He may be a necessary evil here, unless you use the sellers listing agent.

[John Galt]

Aren't the agents usually paid by the seller?

My thought as well.

[JonInMiddleGA]

AFAIC, you're free & clear as far as the agent goes. If they had found the house, or suggested it, they'd have claim obviously but if there's no connection between the S-i-L and the agent ... nada.

[WSUCougar]

I agree with stevew. And the seller usually does pay the agent's commission.

[JonInMiddleGA]

Aren't the agents usually paid by the seller?
Depends on the situation.

"Buyer's Agents" have become fairly popular over the past decade or so.

As a result sometimes you actually have one agent on each of the equation getting paid (which is a lot of fun when you realize that they've been colluding against both seller & buyer all along).

[Samdari]

The agent(s) are normally paid by the seller. However, it can be specified in the purchase contract that the buyer must pay. This owner is most likely selling himself to avoid paying this 6% fee, so is not likely to agree to pay a fee to any agent.

I would not go through a home purchase without the expertise of an agent, but if you like this house...

[Dutch]

The seller pays the agent. But if it's a FSBO and the seller says no % will go to an agent, it's up to the buyer to decide if they want the agent involved and would then be obligated to pay for the agent on their own.

[CraigSca]

I wouldn't go through the process without an agent, either. When we sold our last home, their agent raked us over the coals (had us install a radon ventilation system, had an engineer look at/seal a crack in the basement, etc.) and made us jump through hoops. We did it, because we didn't want to jeopardize the home we wanted to buy. However, without an agent steering them in that direction, I have a feeling they would have been less likely to ask for these things. It cost us a pretty penny, but it bought them peace of mind.

-Craig

[stevew]

Whatever you do, get a hellified home inspection. Make sure the guy rips the place apart.

[VPI97]

So, are we obligated, legally or morally, to bring in our agent (and thus pay him because the seller is not likely going to)? Or can we leave him out of this, given that we found the house ourselves and he hasn't been involved at all in looking at it?Same thing happened to me...leave the agent out of the process unless you are in the habit of giving away money. But be sure to get a top notch home inspector.

[Dutch]

The agent is good for those who are uncomfortable with the home buying process, are not well versed on the home buying process, or are not in the local area of where you are buying a home.

I am going with a realtor because of options 1 and 2. I considered a FSBO on a new home, but I was afraid I was getting in over my head as a first time home buyer. I'm back to searching with a realtor....a seller's realtor unfortunately. She's about to get dumped, because I'm much to patient for her tastes and she is too pushy for mine.

[bbor]

Did i see ethics and real estate agents in the same sentence??

What's next...Ethics and lawyers? :D

[Rizon]

Anyone from the OOTP boards know how I feel about Realtors ...

I've worked with over 6000 of them for over 7 years. It's ok to screw them over, as they do to everyone anyways.

[JHandley]

I'm in the process of buying a house right now. I have an agent that is being paid by the seller, but so far, he has been worth his weight in gold. It's not just finding the house, it's the negotiating, all the contracts, the inspections, being in the field and thus knowing more about the market than I do, the list goes on and on. Maybe I just got lucky, but I can't imagine having to do all of this on my own and hold down a full-time job at the same time.

[kcchief19]

Legally: No, if you haven't signed a buyer's agreement, you are under absolutely no legal obliation to use the agent for anything. It's pretty much up to you if you want to include the agent.

Agents can provide very valuable services regardless of the home you are buying. As has been noted above, it can be beneficial to use an agent so that a seller's agent doesn't try to pull anything. In a FSBO situation, I think an agent may be even more valuable because a home purchase is very complex and you need someone to take care of the appropriate disclosures and work with the mortgage company.

Personally, it would have to be an unusual situation for me to ever buy a FSBO. My observation is that FSBO generally go that route because they are cheap and don't want to negotiate or are trying to hide something. That is not to taint all FSBO, because you should always use caution. But agents are legally obligated to research and disclose certain facts about homes. FSBO people are too, but they usually don't know the law and they can't lose their job and their license if they don't disclose something.

If you don't use the agent, you'll save the commission, but the FSBO will probably make you pay it one way or another. Either they will want you to pay the commision or they'll want you to add 3 percent to your offer. Normally commission is 6% (3 percent to seller agent/broker and 3 percent to buyer agent/broker). Personally, I think it's worth the 3 percent to have somebody watching your back.

[Fidatelo]

OK, I was out for lunch discussing things with the missus. Thanks for all the advice and comments. Here are my thoughts on some of the things different people have touched on:

1) The seller does generally pay the agents, but as some people pointed out in the case of a FSBO they are trying to avoid fees so in all likelyhood they will not agree to pay an agent. Therefore it would be up to me to foot the bill.
2) In terms of home inspections and whatnot, unfortunately the market here makes that an unrealistic goal. Houses are selling in bidding wars and the sellers will basically throw out any offer that contains conditions other than on financing. It is really a crappy market to buy in, but given that house prices have already jumped 11% in the first 3 months of this year I am reluctant to hold off and watch the go up even more (they have risen dramatically in the past 3 years. A home that would have sold for about $120k in 2000 will sell for about $200k right now).

Anyways, we have talked it over and decided not to put an offer in on this house. Beyond just the realtor issue we are a little scared of the age of the house (90+ years) and a couple other things. However, the discussion here still applies as we may look at other private sales and I'd like to be more prepared next time. So keep those opinions coming guys!

[dawgfan]

I may be misinterpreting the 2nd point in your post, but under no circumstances should you forego a home inspection. I can understand not making issues found in the inspection part of conditional offer, but no way do you not want to know potential problems before buying.

[Fidatelo]

I may be misinterpreting the 2nd point in your post, but under no circumstances should you forego a home inspection. I can understand not making issues found in the inspection part of conditional offer, but no way do you not want to know potential problems before buying.

There is just no way to do it. You have hours to make a decision on the offer, and you will not succeed in making an offer with the condition in there. So the only way to do it would be if you had a house inspector who could immediately come and look at it at the drop of a hat.

[VPI97]

That's insane. Under no condition would I ever buy a house without a home inspection.

[digamma]

There is just no way to do it. You have hours to make a decision on the offer, and you will not succeed in making an offer with the condition in there. So the only way to do it would be if you had a house inspector who could immediately come and look at it at the drop of a hat.
I think you might be getting process and timing confused here. The inspection usually takes place after there has been an offer and the offer has been accepted. You are then in escrow (which typically lasts 30-60 days), when there can be adjustments to the agreed upon purchase price based on the inspection, or either party can walk away from the deal based on the inspection (or a variety of other factors). I can't believe the market would have driven out the escrow and inspection process.

[Samdari]

Fidadelo, this confusion about home inspections (digamma is right) is great example of why you need an agent the first time you buy a home. I live in one of the big-time seller's markets in the country (sound similar to what you deal with - you need to act fast and offer high to get anything) and a home inspection is an assumed, post contract part of every sale.

[Fidatelo]

I think you might be getting process and timing confused here. The inspection usually takes place after there has been an offer and the offer has been accepted. You are then in escrow (which typically lasts 30-60 days), when there can be adjustments to the agreed upon purchase price based on the inspection, or either party can walk away from the deal based on the inspection (or a variety of other factors). I can't believe the market would have driven out the escrow and inspection process.

I guess I am maybe confused, but I've never heard of the escrow portion. From my understanding you make an offer to purchase a house, and in that offer you include the price you are going to pay along with any conditions that must be met for the offer to be valid. For example all offers should be subject to approval of financing. In a normal market, one of the conditions most people attach is that the house must pass a home inspection. If it does not the offer can be terminated as per that condition.

However, in the current market a seller will simply not accept an offer with that stipulation. We do have an agent and he has made that clear to us, as have many people we've spoken with who have bought homes recently. Basically the way houses are selling right now is this:
1) Seller lists the house with a realty agency, which puts the word out that the house is for sale. However, "showings will start Apr 14 at noon. Offers accepted Apr 15 9pm".
2) At noon on Apr 14 agents start marching their clients through the home like cattle. You get there and see dozens of other people looking at the home. Sometimes there are lineups to get in.
3) When 9pm the next day rolls around buyers are in a frenzy. As soon as one person makes an offer everyone assumes it is a 'strong' offer. Then they start upping their 'bids'.
4) The seller starts calling people who have placed offers and informs them that other offers have been placed. "Is this the strongest offer you can make?" is then the favorite line. They are asked to remove any conditions they can and hopefully up their deposit. Now people feel they need to increase their offer, even though they might currently be the highest offer!
5) The house inevitable sells for $5000-$15000 above the asking price. Anyone who kept any condition other than financing on the offer is SOL no matter how strong the rest of their offer is, as sellers just don't want the hassle and the possibility of the offer being pulled at a later date.

Now, if there is indeed a way to get out of a house purchase because of a poor home inspection even though it was not written into the offer, I am all ears to here it because that would be the best news I've heard in weeks.

[Samdari]

Now, if there is indeed a way to get out of a house purchase because of a poor home inspection even though it was not written into the offer, I am all ears to here it because that would be the best news I've heard in weeks.

Well, they are standard clauses in every offer in the US (I believe). Some places, they would be absolutely necesary (for example, where I live, a home sale cannot be registered without a termite inspection).

Your profile says Winnipeg? If true, much of what people say here may not apply.

[Fidatelo]

Well, they are standard clauses in every offer in the US (I believe). Some places, they would be absolutely necesary (for example, where I live, a home sale cannot be registered without a termite inspection).

Your profile says Winnipeg? If true, much of what people say here may not apply.

Ya, I am Canadian so it very well could be that our laws suck :(

[tucker342]

My wife and I just bought a house and we discussed this same kind of thing with our agent. Her opinion seemed to be that it is something that happens, but they just like to feel that the work they did do was appreciated since they won't get any commission out of it. She recommended buying a nice bottle of wine or a $100 gift certificate to express your appreciation for their efforts. Either way, they're going to upset they didn't get the commission, but they can't be angry with you for doing what is best for you.
I agree.

he really shouldn't get any commission, but because you know the person and he did try to help you find a nice house you should probably do something nice for him.

But before you buy the house, make sure you get it inspected

[Senator]

Listen to these guys. Under no circumstances do you not get your potential home inspected by an INDEPENDENT inspector. You can put an offer on a home with a grace period for the inspection process following.

[JHandley]

Sounds like free agency to me. The only way to win is not to play.

I guess the only thing you can do is to buy a home warranty, I'm not sure how that works in Canada. I see the spot you're in, but if it were me, I'd wait a couple years, let the market swing the other way then buy. I know it sucks to throw away all that equity and money on rent, but right now, you have no idea what you're getting yourself into and it could end up costing you a hell of a lot more. Then, when you're ready to sell in 5+ years, if the market changed, you're stuck in a real bad situation and you have no way to get rid of it as no one will want to buy it.

I won't spend 25k on a car without driving it, there's no way I'll spend hundreds of thousands of dollars on a house without knowing what's there.

[Samdari]

Ya, I am Canadian so it very well could be that our laws suck :(

I am not sure that home inspections are strictly required by law in the U.S., but I don't know anyone who has purchased a home without getting one. I think one reason that they are not refused is that they provide some measure of protection for the seller as well - there is a record of the home's condition at the time of sale which is not likely to be challenged by the buyer, since the buyer hired the inspector. If there is major damage with the home at sale, and no inspection were done, the seller would likely end up paying for it later anyway, so might as well get it taken care of up front.

Besides, the multiple offer thing keeps the buyers from requesting too much. The buyer does not get carte blanche on which repairs he can demand - if he asks too much, the seller can simply say "no thanks" and move on to the next offer.

[Fidatelo]

Sounds like free agency to me. The only way to win is not to play.

I guess the only thing you can do is to buy a home warranty, I'm not sure how that works in Canada. I see the spot you're in, but if it were me, I'd wait a couple years, let the market swing the other way then buy. I know it sucks to throw away all that equity and money on rent, but right now, you have no idea what you're getting yourself into and it could end up costing you a hell of a lot more.

We have debated waiting, but our fear is that even though the market has risen so much in the past 2-3 years, we are still a relatively affordable housing market in comparison to other major Canadian centers. So we worry that not only will the prices likely not drop substantially after it peaks, it also might still not peak for a year or so. So if prices rise another 10% this year that would be a big expense to incur for the luxury of purchasing in a saner market. Ideally if we already had a home we wouldn't worry because our house would be rising along with the rest and we could wait it out. As it stands the more the market rises the further we fall behind.

Growing up sure is fun!

[JHandley]

Yeah, but a house is only an investment if you can sell it.

I do understand the spot you're in. You don't want to miss out on the rising market and you don't want to throw away money in rent. Personally, a lot of it for me is, I just want to own my own home.

Best of luck.

[Fidatelo]

Yeah, but a house is only an investment if you can sell it.

True enough.

[Subby]

We had a great buyer's agent for our last house - she negotiated the price down over 30K for us, hired a great home inspector and set me up with a good title and escrow attorney. During closing she even bargained for a few hundred extra dollars for us and the seller had to pull out his checkbook ;)

Of course if you are selling an existing home and buying another one...you just pay the 6% on the back side anyway...

[Subby]

Waiting to buy a house 2-3 years down the road is ludicrous. Think about all of the money you will be throwing away in rent...

Get a house, move in, and start enjoying the best investment you will ever make.

[Fidatelo]

Waiting to buy a house 2-3 years down the road is ludicrous. Think about all of the money you will be throwing away in rent...


I used to agree, but now I'm not too sure that living in an apartment is throwing money away. Considering that property taxes are $200-400 a month, bills would likely double, and other assorted things that 'go wrong' will need to be fixed, I figure an apartment really only throws away at most a couple hundred bucks a month.

[Samdari]

I used to agree, but now I'm not too sure that living in an apartment is throwing money away. Considering that property taxes are $200-400 a month, bills would likely double, and other assorted things that 'go wrong' will need to be fixed, I figure an apartment really only throws away at most a couple hundred bucks a month.

Well, in the US, assuming that rent and mortgage payments are similar for the same property, buying saves you all of the principal you pay each month, plus 33% of the interest and taxes (due to being able to deduct them). If the rent/mortgage were $1500 a month (real money, not that canadian crap :) ) this would be roughly $150 a month towards principal, and $1200 towards interest/taxes. That's a total 'savings' of $550 a month. Note that each month, the principal amount you pay goes up, and the interest amount goes down, resulting in a higher net savings each month. The sooner you buy, the sooner you get to those increased 'savings'.

That's not a huge amount of money, but it is a third of the payment. If you can afford to throw away $550 a month, I can provide you with an address to send me checks...

[Fidatelo]

Well, in the US, assuming that rent and mortgage payments are similar for the same property, buying saves you all of the principal you pay each month, plus 33% of the interest and taxes (due to being able to deduct them). If the rent/mortgage were $1500 a month (real money, not that canadian crap :) ) this would be roughly $150 a month towards principal, and $1200 towards interest/taxes. That's a total 'savings' of $550 a month. Note that each month, the principal amount you pay goes up, and the interest amount goes down, resulting in a higher net savings each month. The sooner you buy, the sooner you get to those increased 'savings'.

That's not a huge amount of money, but it is a third of the payment. If you can afford to throw away $550 a month, I can provide you with an address to send me checks...

I'll have to look into the tax situation, but I do know that I can deduct my rent on my taxes up here, which helps. And consider that in my original estimate I wasn't even including the mortgage payment. Property taxes, bills, and maintenance are all throw away and come close the same amount I throw away in rent each month. So if you consider that instead of spending and extra x number of dollars on interest to a mortgage each month I am instead placing that in an interest accruing investment, I think a house is really an expense not an investment. A house has its advantages (no paper thin walls next to neighbors that blast music all day, the ability to renovate to your hearts content, more space, a yard, etc) which are why I'm looking to buy, but I've thrown away the illusion that renting is a waste of money.

[Samdari]

I can deduct my rent on my taxes up here

How do you guys keep the poor down then?

Seriously, Fidadello, where you "save" money on buying vs. "throw it away" on rent is the equity. Consider that a portion of the money you are paying on the mortgage, you are actually paying to yourself, and the equation changes.

Look at it another way. Every expense your landlord has as the owner of the property, you are paying in rent. The landlord has conveniently added it up and presented you with a single monthly charge. You pay his principal, interest, taxes, insurance and average monthly repair cost. As a renter, you are already paying all of it. That principal you are paying, he keeps. If you own, you keep that. I am not trying to tell you that your immediate monthly expenses will go down if you buy - you are right in that they will likely go up. Looking at it long term, you essentially save the cost of a house 30 years from now by buying vs renting. Since the cost would be similar for rent or mortgage, you can either pay that amount for 30 years and have your landlord own it, or pay for 30 years and you own it.

[Fidatelo]

How do you guys keep the poor down then?

Seriously, Fidadello, where you "save" money on buying vs. "throw it away" on rent is the equity. Consider that a portion of the money you are paying on the mortgage, you are actually paying to yourself, and the equation changes.

Look at it another way. Every expense your landlord has as the owner of the property, you are paying in rent. The landlord has conveniently added it up and presented you with a single monthly charge. You pay his principal, interest, taxes, insurance and average monthly repair cost. As a renter, you are already paying all of it. That principal you are paying, he keeps. If you own, you keep that. I am not trying to tell you that your immediate monthly expenses will go down if you buy - you are right in that they will likely go up. Looking at it long term, you essentially save the cost of a house 30 years from now by buying vs renting. Since the cost would be similar for rent or mortgage, you can either pay that amount for 30 years and have your landlord own it, or pay for 30 years and you own it.

Except you're missing the part about how much the disparity is between total cost of ownership vs rent. If it costs me $500 more per month to own a house, and I am only paying off $200 per month of principle, I am losing $300. If I were to save $500 every month while renting and place it in an investment that accrues a reasonable rate of return I could easily purchase that home in cash in 30 years.

What I'm getting at is that in all likelyhood it is about even, but I just don't see the myth that renting is a 'waste'. It is simply a different way to spend your money.

[Subby]

Renting is a waste. I don't know what crazy tax laws you guys have up there ;) but down here, if you plan on living in one place for more than 3 years, renting is a waste.

Mortgage interest is deductible. Property taxes are deductible. You can take a loan against your home.

Your apartment will not appreciate in value while you are living there. Your home almost certainly will. So in addition to the priciple payments, you are building equity through nothing more than owning said home.

My wife and I have been in our house almost 3 years and it appraises for $115K more than we bought it. That's not what we could sell it for (which is probably $60K more taking recent neighborhood sales into account).

Obviously your mileage may vary - but there is no time like the present to get that easy equity building up...

[Fidatelo]

Renting is a waste. I don't know what crazy tax laws you guys have up there ;) but down here, if you plan on living in once place for more than 3 years, renting is a waste.

Mortgage interest is deductible. Property taxes are deductible. You can take a loan against your home.

Your apartment will not appreciate in value while you are living there. Your home almost certainly will. So in addition to the priciple payments, you are building equity through nothing more than owning said home.

My wife and I have been in our house almost 3 years and it appraises for $115K more than we bought it. That's not what we could sell it for (which is probably $60K more taking recent neighborhood sales into account).

Obviously your mileage may vary - but there is no time like the present to get that easy equity building up...

I think a lot of it might be due to rent controls. With the recent surge in house prices the cost of a mortgage far exceeds rent, as the landlords are stuck at 3-4% increases each year.

[JonInMiddleGA]

Except you're missing the part about how much the disparity is between total cost of ownership vs rent. If it costs me $500 more per month to own a house, and I am only paying off $200 per month of principle, I am losing $300. If I were to save $500 every month while renting and place it in an investment that accrues a reasonable rate of return I could easily purchase that home in cash in 30 years.

What I'm getting at is that in all likelyhood it is about even, but I just don't see the myth that renting is a 'waste'. It is simply a different way to spend your money.
Now, I'll admit straightaway that I know nothing off-hand about the average rate of return on investments in Canada, nor anything about the average inflation rate in Canada either. But ...somewhere in those calculations you're making, I believe you'd have to account several things:
1) Inflation will raise the price of the house you're saving to buy, eating up some of your interest earnings.
2) The value of your equity, assuming you bought now instead of saving up for a cash purchase 20 years down the road, would rise as the value of the house goes up.

In effect, you'd gain from inflation (in home prices) instead of losing from it.

Just something that struck me while reading the thread,
Jon

[JHandley]

Waiting to buy a house 2-3 years down the road is ludicrous. Think about all of the money you will be throwing away in rent...

Get a house, move in, and start enjoying the best investment you will ever make.

Here's another way to look at it.

1200 a month rent for 3 years = 43,000 completely thrown away.

Now, paying $15k over asking on a $250k house means overpaying by close to $30k. Plus, with no home inspection at all, repairs on a house can easily reach 6k a year. so, that's another 18K being thrown away. Now, if he manages to sell the house for what he paid for it, he may come out even. But, if the market changes, and suddenly the buyers have the power, then he's got a house that he may not be able to sell. That means the equity is worthless. Equity doesn't mean anything until you sell.


It sounds to me like if he's able to deduct rent, then the tax thing may work out about even as well.

[JHandley]

My first ever Dola-

In any other situation than the one Fidatelo described, then buying a home is absolutely the right thing to do. I'm buying a house right now because of those very reasons you outlined, Subby. I'm also not planning on living in my house for more than 5 - 7 years before upgrading to a nicer home. If he's planning on living in the house for 10-14 years, then he should go ahead and bite the bullet now.