Should I hire a buyer's agent?

As a home shopper, there are three simple questions you should ask yourself when determining if you should retain a buyer's agent, sometimes called a buyer's broker.

1.What are the economics of a buyer's agent agreement?

In most markets the home seller covers real estate agent commissions from the sales price. The seller generally has agreed to pay a 5-6% commission if they have retained a real estate agent to market and sell their property. A buyer's agent simply splits the commission with the selling agent.

The issue may be a bit trickier if you retain a buyer's agent and end up buying a home from a seller who has not retained a seller's agent. This seller is counting every nickel of the sales price and may refuse to pay any agent commissions. In this case, you would either pay your agent's commission or other negotiated fee or the commission would become part of the home price negotiation.

These payment scenarios should be covered in a written agreement between you and your buyer's agent. Note the agreement should also have language that requires you to pay your agent's commission even if, during the time the agreement is in effect, you buy a house "on your own."

2.Are you house shopping locally or in unfamiliar territory?

If you're moving across town or to a nearby town, you may not need the market expertise, geographical knowledge and general hand holding a buyer's agent can provide. You may already have a couple neighborhoods in mind.

If you choose to shop on your own, you will have to contact the listing agent for each home you want to visit and schedule walk-throughs. This will take time, but if you don't plan to look at dozens of homes, you can probably handle this.

If, on the other hand, you are moving to an entirely new area, it's hard to imagine conducting a decent home search without the services of a buyer's agent.

3.Are you willing to handle transaction details yourself?

Once you've picked a home, you enter into price negotiations, submit a written offer, expect a counter offer, and so forth until you agree with the seller on a price. Some people enjoy doing this. For people who don't, it can be comforting to have a buyer's agent at your disposal to handle this dirty work. Next you need to schedule a home inspection. Most mortgage lenders require an inspection, and it's just a smart thing to do, even if you're paying cash. A buyer's agent would normally take care of this. Finally, you need to work with the seller on closing arrangements. While much of the paperwork responsibility here falls on the mortgage lender and, in many states, a closing attorney, the real estate agents often help coordinate the closing effort (they do want their commission) and can spot and correct problems when one of the players has dropped the ball.

It is a growing trend for home buyers to sign an agreement with a buyer's agent. The reasons are clear. First, the economics usually favor the buyer as the seller generally pays agent commissions. This is not the case 100% of the time, but it is the case most of the time in most market. Second, anyone moving to a new town would have a difficult time coordinating a home search without the help of a local real estate agent. A buyer's agent is likely the best way to see the most houses in the shortest amount of time. Third, even for local home shoppers, a buyer's agent would handle a number of transaction details many home buyers are either unable or unwilling to take care of.