Is it dumb to buy a first home without a real estate agent?
October 26, 2014 7:45 PM   Subscribe

I am considering buying my first home, and the potential seller has floated the idea of a private sale to the mutual friend who told me about the house. Is this a totally terrible idea?

Some details:

• I'm in Ontario, Canada.

• The house is a semi-detached (duplex). A close friend has owned the other half of the duplex for 15+ years, so I have very reliable information about the condition of the house, the roof, the front porch (which needs replacing) etc.

• The current owner divorced her husband and became an Anglican priest, drastically reducing her household income in the process and is selling because she can't afford it any more.

• Originally my friend thought there was a realtor involved, but when she mentioned to her neighbour this morning that I was seriously interested in the house, she asked whether I would be interested in a private sale.

• The house is in perfectly liveable condition inside and out, but it's not in the kind of state that realtors like a house to be in. The hard wood floors need to be re-done, the paint needs a refresh and I think there are some other cosmetic issues. The current owner isn't thrilled at the prospect of having to sink a bunch of money into a house she can't afford--and I'm not thrilled at the idea of paying $50,000 extra dollars for $10,000 worth of improvements.

• I'm almost completely certain that I will qualify for a mortgage that will cover the cost of the house and payments would be within my budget (though more than twice what I currently pay for housing).


Here are my questions:

• If there is no realtor involved, how do we set a fair price? I haven't been super interested in buying a house, so I'm not at all up on any part of it, really. By coincidence the house (fully detached) right next door is up for sale right now, so I guess that helps? Would she or I hire someone to do an appraisal?

• I assume I would hire a lawyer for this--will they be able to do some of the things a realtor does?

Basically, I'm a total home buying noob. I haven't ever really given serious thought to buying a home so I don't really know all that it entails, so it makes sense to me that a realtor would be a good way to go. But I'm only interested in THIS particular house; I don't want or need someone who is going to take me to see a bunch of listings and find me something else. I would also happily see the equivalent of the realtor's commission come off the price of the house. On the other hand, I am a terrible at haggling and the buying process makes me feel a little intimidated. I basically trust the seller to not try to hose me, and I have no desire to take advantage of her, either, but I don't want my ignorance biting me in the ass, either.

I'm looking for answers to the above questions, plus any advice or anecdotes you can share about either buying your first house (with or without a realtor) or buying without a realtor (whether it's your first home or not). I'm not looking for advice about whether this particular house or home ownership in general is a good idea.
posted by looli to Home & Garden (21 answers total) 5 users marked this as a favorite
 
I'm a little confused by that statement that the house isn't in a condition that realtors like and the talk of having to do improvements (presumably to use a realtor). A real estate agent will sell or buy a house in any condition the buy and seller are willing to buy or sell in. Go to MLS.ca and you'll see plenty of falling-apart houses for sale as-is with realtors.

If I were you, I would talk to a realtor about this would work. The way it works with realtors (in TO from my experience) is that that the seller would contract with a realtor. The seller pays that realtor a commission, typically 5%, but there are discount realtors. Optionally, the buyer can have a buyers agent. This is free, so why wouldn't you? The thing is that the reason the buyer's agent is free is that the selling agent usually splits the commission with them. If you see the MLS listing with the additional info that realtors see, then you would see the selling agent's info about what they give to the buyer's agent -- typically 2.5% (half their commission).

So if I were you, I would talk to a realtor and ask how it would work if you wanted to have a buyer's agent for buying a house where there is no seller's agent. I found having a realtor super helpful in explaiing the whole process. The lawyer really did some paper signing etc. on the close date, but wasn't very useful in going through the complicated process.
posted by If only I had a penguin... at 8:00 PM on October 26, 2014 [1 favorite]


I bought my first house with a realtor, my second one was FSBO (for sale by owner). I'm in the USA, not sure how different things are in Canada
  • A fair price is what you both agree is fair. You can research comparable properties ("comps") in the neighborhood to at least figure out a range.
  • You probably don't need a lawyer.
  • You do need a bunch of other stuff, a lot of which will be mandated by your lender. You should get a list of pre-sale requirements from your lender. Oh, and you should have a lender lined up before you get too far down the road with this property. Anyhow, they will require the following:
    • A house inspection, almost certainly
    • An appraisal to make sure it's worth the amount they're lending you
    • A survey (if there's an existing survey, that may suffice, laws seem to vary on this).
    • Title search to make sure the title is clear
    • Insurance
Basically if you were paying cash for the house, you wouldn't need any of that stuff—you could take a flyer. But the bank is being grown-up and responsible and requiring that you cover its ass. If this all sounds daunting, a real-estate agent can hold your hand, but they're being paid handsomely for that handholding, since you've already found the place.

When I closed on my second home, an agent from the title company (oh yeah, you'll need to engage a title company to handle the paperwork) came over to the house and we all signed the pile of paperwork and then toasted with champagne. It was extremely convivial and civilized.
posted by adamrice at 8:01 PM on October 26, 2014 [2 favorites]


There's nothing inherently ''dumb'' about it, first home or not. The key is to hire a good lawyer who deals extensively with real estate. They'll protect your interests and make sure you go into the sale with your eyes open to problem areas.

You'll hire an appraiser to decide if the house is worth what your offering and a GOOD home inspector to make sure it's basically sound minus the issues you've detailed.

The bank will only loan you the money if their appraiser says it's worth enought to cover the loan. (In the U.S. the bank's appraiser is now hired from a pool via a 3rd party to make sure the valuation is unbiased by you or the bank.)
posted by no1hatchling at 8:08 PM on October 26, 2014 [1 favorite]


Get it appraised by an appraiser, get it inspected by a professional inspector, to uncover any problems, with this information, you and the owner can negotiate a price. There is all the title and escrow, legal whatnot, but these can all be flat fee based and not a % like an agent.
posted by nickggully at 8:18 PM on October 26, 2014 [1 favorite]


Adamrice: It sounds like what you're calling a "title company" is an org that does what the lawyer does in the TO real estate market. Oh, and buying with a mortgage in TO, I had no inspector and no appraiser. Though I think the bank did require the lawyer's report that my condo's paperwork was in order. That obviously wouldn't be relevant for a house.
posted by If only I had a penguin... at 8:19 PM on October 26, 2014


Definitely hire an inspector and appraiser. Btw, at least here in the states, the home condition matters to the lender with some types of loans.

I'm a real estate broker so of course I am going to tell you you want an agent. A good one would make this process much smoother for you. But at the very least, please get a real estate attorney involved.
posted by St. Alia of the Bunnies at 8:24 PM on October 26, 2014


Data Point

In California, both of the homes I bought in the last 10 years was with an agent. The custom here is that seller's agent took 6% commission from seller and buyers agent gets half of the 6%. I, the buyer, paid my agent nothing.

The things an agent provided for me that I did not know were:
1) guidance through the process (loan, title search, inspectors, etc)
2) understanding the difference between section 1 and section 2 repairs and how they relate to obtaining a loan. He also got a credit from the seller for those repairs for us.
3) Understanding who pays for what (customs vary from area to area as to whether buyer or seller pays for transfer tax etc)

I don't think it would necessarily be foolish, but you might end up paying more with out and agent. If you knew people who had been trough the process that you could lean on, I think you would be ok. If not, I think it would be much harder.
posted by poyorick at 8:52 PM on October 26, 2014


Call a real estate lawyer and a realtor, both, and say, "I am looking to buy a particular house in a private transaction with the seller. As a first-time home-buyer I want some guidance through the process of making the deal and closing, but there's no listing, search, etc., involved. What would you charge for the contract and closing?" That will get you some idea of whether it's a terrible idea, who's the right person to do it, and what the cost ballpark is. (I mean, really, call a few or get some recommendations from friends, but you know what I mean.)

Around here people usually hire a flat-fee real estate lawyer for what you're talking about, and each party pays their own, but I understand realtor things are pretty regional and practice can vary a lot by area. As FSBOs have gotten more common there are some realtors around here who do "closing only" stuff where they walk you through the checklist and the closing and the title stuff and all, and earn a drastically-reduced fee in exchange for not having to spend six weeks showing you houses, so in terms of hourly rate it's not a bad deal for them. Whether that's even allowed would vary by your jurisdiction since they're pretty tightly-regulated.
posted by Eyebrows McGee at 9:02 PM on October 26, 2014 [4 favorites]


I've sold a home without a realtor, and I think if you have already located a serious buyer, it makes a lot of sense to do so.

This is also from an American perspective, but I will say that at least based on my experience, if you're not going to have a realtor and the property is at all dodgy (i.e. not a very new property, needs work, etc), and you're don't really know much about real estate, you probably DO need to have a good lawyer - and a very good home inspector - to help make sure you don't get screwed in the purchase. Here, having an appraisal done is required for a mortgage company to give you a mortgage because they want to know that you're not paying far too much for what the house is worth (so that if they had to foreclose they would be able to sell it at a price that would make their money back).

As for setting a fair price, I would imagine she will give you an asking price, you will make a counter offer, she will either accept or counter your offer, and so forth - that is how things typically work (at least here, but generally with bargaining worldwide). In order to know that what you're asking is fair, you need to look at what other similar properties in the market are selling for (not just the ones on the market, but what has recently sold), and the condition of the house. In other words, if it needs a lot of work, you ought to be able to negotiate a price that takes that into account. In the USA, since the seller generally pays the agent's commission, people typically will be willing to sell the house for less if you are buying without a realtor, because they are saving on the commission.
posted by treehorn+bunny at 9:06 PM on October 26, 2014


The seller wants to do it as a private sale to save herself the realtor fee. This benefits her but not you. As a buyer you do not pay your realtor, and as a first-time buyer it seems sensible to take help that is ostensibly free to you.

If you choose to use a realtor, the seller may bump the asking price to cover the cost of realtor fees (although they won't ever say this).
posted by Joh at 9:30 PM on October 26, 2014


A lawyer will be able to do everything you would want a realtor for in this situation, and likely better.

You can use your knowledge of the discount this means to the seller (not paying commission) to seek a discount on the purchase price. While above commenters are right that buyer realtors are "free" in that you are not directly paying them, the commission would almost certainly be reflected in the sale price if either of you use an agent.

We bought a BC home 3 months ago with no agent, using our conveyancer (lawyer) to do some of the legwork, and secured a very favourable purchase price as a result.
posted by HoteDoge at 9:46 PM on October 26, 2014


We bought our first house without a real estate agent, but we did hire a real estate attorney.

My one regret with that purchase? It's the fact that we didn't see more houses! This one house was going up for sale and we heard about it through a family member and went to see it. We bought it because it was better than our apartment and we didn't know any better. It turned out to be OK, but I realized later on that there were far better houses to be had. We had never bought a house before and we didn't realize what we missed out on.

If we had hired a realtor, we could have picked a weekend and seen 20 houses! Then we would be well-informed and we would have known what was out there. We could have spent those 9 years in a renovated 3 bedroom house with more space instead of the fixed upper 2 bedroom house that SEEMED like a good deal to someone who was not familiar with what was available.

You could cover the realtor's fee (3% or so if just one realtor is involved) if the seller does not want to do so.
posted by Ostara at 10:01 PM on October 26, 2014


The agent can be a lawyer or real estate agent, and just bcs she is private seller doesn't mean you have to be private buyer.

If you each gave a realtor, each realtor gets a commission on the sale, which reduces the amount the seller gets.

You will need a conveyance lawyer. They do all the legal paperwork to transfer ownership.

I just bought a place with no realtor, in BC, (actually we do the final paperwork tomorrow and move in Saturday so forgive my rambles!) but i have a good friend who is a lawyer acted as my agent, and I wouldn't go ahead without a pro in my corner.

Things she did for me:

Helped me with bidding
Advised on our conditions of purchase
Gave me a good idea of normal expectations
Read all legal documents and advised on them
Reviewed property taxes into with me
Advised on conveyancy lawyer with a good reputation
Did all communication with seller's realtor... So handled any and all awkward conversations (is moving in and out times)
Advised on the whole process... Its complicated!
Advised on some tax implications (10 vs 20% down on first home, etc)

There was lots of process questions and advice i needed, so personally I would at very least get a lawyer to review paperwork, or find a realtor.

Btw You won't pay for the realtor, her commission comes out of the home price. So for the buyer the only disadvantage is that the seller may not be able to bargain with the price as much since she needs to pay the comission... But if she's smart she's built in the commission as most buyers will have a realtor.

My credit union paid for the assessment and will pay a portion of the conveyancy as part of the package for taking my mortgage to them.

The home inspection is not costly and was very, very useful I just went through better business bureau to find one.

Canada mortgage and housing has an excellent and informative website about first time buying.

Also important is legal relationship with neighbours in duplex for shared costs (is roof repairs... How do you save for this, etc).

TL;DR... Have never heard a buyer complain about their realtor and all the help they gave. This is the largest purchase of your life, it is earth getting lots of advice.
posted by chapps at 11:42 PM on October 26, 2014 [1 favorite]


Down here, real estate agents' fees are paid by the vendor. They are acting under contract to the vendor, so are not to be trusted by buyers.
posted by GeeEmm at 11:44 PM on October 26, 2014


CMHC website link.
posted by chapps at 12:25 AM on October 27, 2014


Hi. Sorry to dissent but first most of these answers are Americans. The Canadian home buying process is different.

1. Real estate agents don't inflate prices per se and they don't insist on repairs. You guide them to what you are looking for (in your case a fixer upper) and they protect you.

2. There is quite a bit of complex paperwork.

3. Lawyers are 100% always used 100% 100% in Canadian real estate transactions.

If you memail me I will put you in touch with a close friend who's a part time real estate broker and a great lawyer who handled two transactions for me. He will help you AND the seller working as a dual agent to come up with a fair price and generate a contract. He also has lots of great contacts for inspections which you ABSOLUTELY want.

The lawyer then executes the contract and handles money exchange.

Please don't do this without the professionals. There is NO real extra coat to you as the buyer and the seller only has to pay a small % of the established price for the agent. But you are mostly protecting yourself with the agent. Like it or not the system is designed to have these people involved. You're fighting uphill without them.
posted by chasles at 3:32 AM on October 27, 2014 [8 favorites]


One thing that is a blinking, neon light in your question is that you firmly beleive that there's nothing structurally or mechanically wrong with the house.

You can't know that without an inspection. Even with an inspection, you might not uncover deeply hidden flaws. (Wiring or plumbing behind drywall, foundation issues, etc.)

Spend the money for two things, a thorough inspection and a professional appraisal. The inspection should include putting a camera down your pipes to confirm that there's nothing wrong with the sewer pipe. There's a reason I always mention this in these types of questions. It's because I replaced the same pipe twice. Don't be me.

Also, be sure you have enough money for all of this. Even with the best inspection, that 15 year old furnace that looked good for another 5, might choose to die early. The roof, which hasn't leaked in 30 years, may start doing so. Your hot water heater may fizzle. It happens.

Your first stop should be your bank. They'll talk to you about how much mortgage you can afford, and provide valuable information about the process in your jurisdiction. As a buyer, not only do you need to put money down on a house, you pay closing costs, which can be substantial. You want to know how much money you need to bring with you on exchange day.

Once you have the financing squared away, shop around. Not because this isn't a good deal, but because what if there's something better for you? At least get the peace of mind of knowing that you looked at different properties before settling on this one right off.

Good luck.
posted by Ruthless Bunny at 5:52 AM on October 27, 2014


The seller wants to do it as a private sale to save herself the realtor fee. You should ask for at least 3% off the asking price.
Your bank or Mortgage broker will not finance a house that is not priced correctly. They will also require a title search, appraisal, title insurance, and home inspection to verify the bona-fides.
The bank will also figure out any leans, taxes, or other assessments (like how much fuel oil is in the tank, the water bill, etc.) These will be settled at the closing.
You need to hire a lawyer only for the P&S and the closing. In the USofA this costs anywhere from $400.00 to $700.00 for a typical single family home. This is to protect you. The bank will have their own lawyer.

Other than the above there is no reason not to buy without a broker.
posted by Gungho at 6:17 AM on October 27, 2014


Just want to clarify that when I say the house isn't in the shape a realtor would like, what I mean is that it hasn't been staged. The seller is overwhelmed by the prospect of the money and effort required to do things like re-finish the floors (which I guess is fixer-upper-ish) but also the whole thing of moving out furniture and taking down photos and baking fake cookies to make the place look like a magazine.

It's in good shape, and as I said I know what has happened to it in the past 15 years, but a housing inspector was always part of my plan.
posted by looli at 7:27 AM on October 27, 2014


Hire a really good home inspector. Do some googling and find some home inspection checklists to review, too. For me, that has been more important than realtor. Have a lawyer look over the closing documents and make sure you review all of the deed/title info. I bought a house w/ no real estate agents, worked out just fine.
posted by theora55 at 10:46 AM on October 27, 2014


We're in Toronto an had a buyer's agent for our first home. I can't see how that person had "our back" in any real way. Seller's agents only get paid when a sale goes through so all they'll do is say "go for it". They get a portion of the seller's agent's fee, so in my thinking, this could even entice the seller's agent to skew the sale towards someone without representation.

If the seller knows a prospective buyer and the prospective buyer hires an inspector and lawyer, then the middlemen are out of the equation.
posted by bonobothegreat at 5:29 PM on October 28, 2014


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