Buying a home is one of the most important financial decisions you can make. There are several different strategies potential homebuyers can use, each with their own set of pros and cons. Carefully considering the benefits and drawbacks of each approach can help you determine the best route for your situation.
Using a Real Estate Agent
One of the most popular methods for buying a home is to work with a real estate agent. These licensed professionals can provide useful guidance during the home search process.
Pros
- Knowledge and experience of the local housing market. Real estate agents are extremely familiar with home prices, neighborhoods, and school districts in your area. This can help you set realistic expectations and find options well-suited to your needs and budget.
- Access to listings. Many homes are listed in the Multiple Listing Service (MLS) database that agents have special access to. They can also leverage relationships with other agents to find out about houses coming soon. This gives you an inside look at the available inventory.
- Handling negotiations. Seasoned real estate agents know how to negotiate effectively with sellers to advocate for your interests. This can potentially save you thousands on the purchase price.
Cons
- Commission fees. While a buyer's agent typically gets paid through a commission split with the seller's agent, this fee gets baked into the home price. So you indirectly take on this extra cost.
- Potential bias. Some critics argue agents may guide you towards more expensive homes to earn higher commissions or discourage low offers to avoid insulting sellers.
Going For Sale by Owner
Another approach is to skip the agent and buy directly from a homeowner in what is known as a sale by owner, or FSBO.
Pros
- No agent commissions. Since FSBO sellers do not pay a commission, they may pass some of their savings along by accepting a lower offer price.
- Flexibility. FSBO sellers are often more open to different terms for things like included appliances, fixtures, closed sale dates, etc.
Cons
- Lack of experience. As a first-time home seller, an FSBO owner may not adeptly manage documentation, disclosures, and negotiations the way an agent would. This can result in delays or disputes.
- No representation. Without your own agent in the deal, no one is contractually working on your behalf in the transaction. You will need to protect your own interests.
Using a Mortgage Broker
Rather than going to your local bank, you can work with a mortgage broker to secure home financing. These lending experts are especially helpful for first-time buyers.
Pros
- Access to options. According to the experts at Mortgage Maestro, a Colorado home mortgage broker, home mortgage brokers have wholesale relationships with dozens of lenders. This lets them compare rates and loan products to find deals a typical consumer could not obtain.
- Guidance and expertise. Mortgage brokers understand and can explain the nuances of loans, credit, interest rates, and home prices to set you up for success in getting approved.
Cons
- Can be expensive. Some mortgage brokers charge 1-2% of the loan amount as their fee. This is on top of lender origination fees.
- Potential lack of objectivity. Critics argue some brokers may steer borrowers towards the loans and lenders that pay the highest commissions rather than the most cost-effective choice.
Conclusion
There are persuasive cases to be made for working with a real estate agent, going the FSBO route and utilizing a mortgage broker when buying a home. Most experts suggest choosing an approach based on your specific needs, experience level, and willingness to take on extra legwork. An informed decision sets you up for the most seamless purchase journey.