Ask Money

Buy on the fly?

Chris Farrell Feb 3, 2011

Question: My husband and I are moving to a new town for our first career-track job. (We are graduate students; I am graduating and taking a job as an Assistant Professor). We have never owned a home, but because interest rates and property values are both low–and because we will now have a livable income– we are considering buying a home. We have found a neighborhood we like, and have even seen some houses we like in the neighborhood online. So should we even bother with a realtor? We live a flight away from the town we are moving to, so we’ll only have a couple days to go there and look at houses. I realize there must be something a realtor can do for me, but does it justify 3-6% of the sale? Natalie, Durham, NC

Answer: I’m skeptical that realtors add much value to the home buying process. To put it somewhat differently, many realtors aren’t worth the full “tax” they impose on a home sale and purchase.

That said, I want to first focus on a different issue: Why are you in such a hurry to buy?

Yes, home prices are down and probably heading lower. Mortgage rates are attractive, too. But a home is also the most expensive and complicated investment most of us ever make. It isn’t just the mortgage, taxes and insurance costs. It takes money to maintain a home. When you move in, you’ll need some more furniture. You may be excited about finally having a garden to tend, But that pleasure costs money. At the same time, you’re trying to accumulate an emergency fund ,set money aside for your retirement, and settle into a new community and jobs. .

This isn’t a brief against you buying. My concern is that you’re making such a large transaction based on only a couple of trips?. I think you need way more than a couple of days. It’s a risky strategy. Perhaps you already know the town well and the rhythm of the neighborhoods. But if that isn’t the case I would recommend living there for at least a year and get comfortable with your jobs.

You’ll then have the time to figure out where do you like spending your time? What kind of commute makes sense for you? What amenities draw you in an area? What is the scuttlebutt about living in a neighborhood from current homeowners? You’ll be able to gather intelligence like this if you wait.

Of course, the risk is that you’ll miss the bottom in home prices and that interest rates will have climbed higher by the time you’re ready. But I think that’s a small price to pay for making a more considered judgment.

Now, as for realtors, like everything else in society, the realtor business has become more complicated, including how brokers are compensated. My own sense is that even though the seller officially pays the commission in reality the buyer always does. The cost is built into the home price. However, that general insight is less true in today’s weak market. Sellers are probably paying more of the realtor’s commission at the moment in order to get a deal done.

Who should you use? I’ve used both a traditional realtor (representing the seller) and a buyer’s agent (my representative). Although I think real estate agents are overpaid relative to what they bring to the change in ownership, I was more comfortable working with a buyer’s agent. A broker or agent that represents you–the buyer–limits your risks of not getting the knowledge a real estate professional can bring to the process. The risk-reward trade-off certainly leads me in that direction.

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