Expert: Jim Root - 5/31/2008

Question
Hello!

My question pertains to taking on a buyer's agent or trying to purchase a home on my own.  Let me explain the details.

I am 24 years old and my annual income is around $55,500.  My wife-to-be and I have been looking at home locations that will best serve both our needs...Our job sites are roughly 60 miles away from each other, so we want to move as close in between as we can.  We have found the exact neighborhood we want to move into.  Driving around looking at houses in this neighborhood, we found one house in particular we really like.  The home is listed at $172,900.

Here's my question...We have found the neighborhood and house we would really like to view and potentially make an offer on.  I am concerned that I cannot comfortably afford a loan to cover the purchase of this home.  I believe I may be able to negotiate a better price for the home on my own without an agent by writing in the contract that the seller's agent waive all commission fees greater than 3% of the agreed upon sale price of the home.  I'm told that the seller signs a contract such that 6% of the sale is commissioned between the seller's agent and buyer's agent.  Well, cutting 3% of the asking price right up front would knock the asking price down $5187 without affecting any of the parties' bottom line one bit except mine.  From here, negotiating down from $167,700, I feel like I could more easily talk the sellers down to a home loan I could afford.

I have roughly $20,000 in the bank that I can put towards a down payment/closing (and my parents have both offered to loan me a few thousand each if needed).  I had considered setting my maximum purchase price at $160,000.  Doing this, I would like to try and take out an 80/10/10 loan and pay $16,000 down and borrow only $128,000 as a primary mortgage loan.  Wouldn't this be my lowest monthly payment option if I can afford to do such?  The only other recurring monthly payment is my car loan which I financed at 0% for 36 months.  My monthly payment is $582 on this car, but I was looking to refinance at a local credit union offering no payments for 3 months and a 3.75% 60 month loan term in order to cut my car note to $300 a month and also put ~$1800 in my pocket over the next 3 months to comfortably build some rainy day cash.

So to sum up, if my wife-to-be and I have found our "dream starter home", can I handle the buying process myself dealing with the seller's agent?

Will they help me take all the necessary steps and paperwork to complete the purchase (me knowing all the while that they DO NOT represent my best interest...I would definitely read, understand, and ask all questions)?

Is it true the seller signed a contract to offer 6% to the realtor?  If so, is it ok to write in the contract that the seller's agent waive any commission of the agreed upon sale price above 3% (and as we get through the negotiation process I will even try to knock this down to 2.5% as I intend to offer $140,000 as an opening offer with a 3% waive and seller to pay 3% of closing costs).

And finally, in this single neighborhood a friend recently closed on a home that is about 150 sq. ft. smaller at $160,000 (appraised at $165,000) after the home sat on the market for 10 months.  There are other homes in the neighborhood that have been on the market from 8 to as much as 14 months!  Are roughly 10 homes for sale within 3-4 blocks of this small subdivision, this being the nicest of the homes currently on the market for sure.  So, I don't expect the seller's to agree to sell a home for $140,000 with a list price of $172,900 and a fair market value that would appraise for around $170,000.  Would offering $140,000 be seen as a "slap in the face" or would their seller's agent simply tell them that this is a common tactic and I am simply gauging how much they are willing to negotiate?  Do sellers ever consider breaking negotiations with a potential buyer over a really poor first offer?  Would making an offer like this be viewed differently if I had a buyer's agent as opposed to going it alone?

I have asked you a lot of questions.  I apologize for the length of this and greatly appreciate any feedback you may provide.  Thank you so much in advance!

Steven

Answer
STEVEN--

Please don't take this as criticism, cause it's not meant that way.But you asked for my "feedback," and I'm going to "call it like I see it!"

First of all, the abundance of questions you've posed to me makes it obvious that you know very little about the "workings" of a Real Estate transaction! That in itself leads me to believe that you would benefit greatly from a Buyer's Agent's involvement!

You have little or no knowledge of--nor skills, I'd guess--in negotiating with a Seller. Your description of how you'd go about presenting your proposal for waiving 1/2 of the 6% commission AND then,offering to buy at a price equal to the new "net", and then later "low-balling" that agreed upon price by some $7700 more, has very, very little chance of being sucessful.And,your later $140,000 "counter-offer" wouldn't work well for you!

**NOTE; The commission that the Seller agrees to pay isn't always 6%--it could be 5 or 7%. And the agreed-upon split with a Buyer's Agency isn't always 50/50!

**Once an "Earnest Money Agreement/Purchase & Sale Contract" is executed, ANY changes requested must be in writing and "signed off" on by both the Buyer & Seller. If the Buyer requests a change in  price (or anything for that matter) the Written /Signed Request becomes a "Deal Breaker"--as if the Seller doesn't agree, the Contract "Self-destructs!

** If you ever got to the point where you offer some $30,000 less than the Seller had originally listed for,the $140K, I'm certain it would be considered "a slap in the face!")

**And there's more I could speak to, but let's go to the BOTTOM LINE!

Steve, if you really want this house, I strongly urge you to get a Buyer's Agent on your "team." A good Buyer's Agent will advise you on how best to approach this Seller with an initial offer, he/she will be able to negotiate with the Seller & that Agent for you, and will help you get the best possible price and terms! Your working directly with the Seller's Agent will most likely be an "exercise in futility!" And if you agree to pay the Buyer's Agent yourself, he/she may be willing to take less than his/her "split" from you, as you've foujnd the home "on your own," he/she didn't have to help you with that part of a Buyer's Agent's job!

Even in today's "Buyer's Market," it takes an experienced, skilled professional to get a Buyer the "best of deals!" Again, my response  shouldn't be taken as a criticism of your Real Estate knowledge & skills. The Buyer's Agent you employ probably couldn't do your job very well either! And I'd bet you're really good at whatever your profession is! GOOD LUCK!

--JIM

P.S. You mentioned your income as $55,000 annually, but didn't address your Fiance's annual income. You also said that you could only qualify for a certain amount of loan. You didn't say whether or not, you and the Fiance were borrowing "Jointly" and based upon your COMBINED income. If you are NOT doing so, you MAY --even though not yet married-- if you want to, and that should INCREASE the loan amount that you can qualify for! (JR)