Resident's Guide to Buying a Home and Using the Doctor's Loan
Getting a Realtor
Let me preface this entire article with the fact that everyone you encounter in this process is a salesperson and will in some way be making money off of your purchase. Never forget this fact in regards to anyone that you are dealing with, no matter how nice or well-intentioned that person may seem. I would, however, strongly suggest getting a realtor if you are planning to buy a house, especially your first house. The realtor makes his or her commission off the sale of the house, but that comes entirely from the SELLER (in most/all states). So when you obtain a realtor (a.k.a. a Buyer's Agent) you do not pay that person a fee. They are paid 3% of the selling price of the house from the seller. On the other hand, the seller's real estate agent is also paid 3% of the selling price of the house from the seller. Therefore, a total of 6% of the selling price is paid to the realtors who participate in the sale of the house (none of that comes from the buyer). This is the reason why so many realtors prefer to be buyers' agents. They simply need to show the buyers any house that is in their price range and once they settle on one it is a quick 3% to that agent. It is significantly much less work to be a buyer's agent than a seller's agent and that is why they will be very aggressive in trying to attain you as a client.
There is one ill-conceived idea that people have about getting a realtor that may have crossed your mind. You might be saying to yourself, "I don't need anybody to show me a house because I can go look on my own. This way when I purchase a house the 3% that would have gone to the buyer's agent will come back to me or be taken off the price of the house." Unfortunately, this is not how it works in the real estate agent business. There are rules set up to protect real estate agents and their profession. A prime example is the fact that when a seller agrees to sell a house using a real estate agent they are contractually bound to pay the 6% commission no matter what. The catch is, when you show up without a realtor, the seller's agent gets really excited because instead of you some how saving 3%, the seller's agent gets the whole 6% to his or herself. You really do not lose anything by having a buyer's agent as far as finances are concerned. This should also be a warning that if a seller's agent or a builder promises you things if you do not use a realtor that something is not right (if it is a "for sale by owner" I'm not sure).
In summary, there is really no downfall to using a buyer's agent with a lot of experience. Make sure it is someone who is knowledgeable, trustworthy and has a good personality and everything should work out. In addition, be aware that there is a contract that your realtor may ask you to sign if you choose to work with them. Make sure that when you sign this contract you are sure that it is with the realtor that you definitely want to work with. Once you sign this contract, that realtor is legally bound to 3% commission that will come from the purchase of your home. If you sign this contract and decide you don't like your realtor, there is no going back so you need to be sure. Most realtors will show you homes for one day and if you like their style they'll ask you to sign a contract. Exhibiting caution here is appropriate. Signing a contract before getting accustomed to a realtor's style is certainly premature. Some Realtors will ask for a pre-approval letter from a financial institution before working with you. See the next section.
Written by: Randon T. Hall & Ben Rosenbaum, Copyright © 2008