Next to purchasing a car, paying for college, getting married and having a baby, buying a home is one of the most significant financial decisions you'll ever make in life. A decision this big requires working with experts to help you navigate the process.
So, it's head-scratching that some homebuyers — especially those starting the process for the first time — question whether they should even hire a real estate agent. Unless you have a real estate license (or are already an established real estate tycoon), the answer to that question is likely yes.
Your real estate agent will serve as your partner and advocate throughout the homebuying process, so it's important you choose wisely. If you don't know where to start, here are a few things to consider.
To Hire, or Not to Hire
Trying to save 2 or 3 percent on commission isn't a good enough reason not to hire a real estate agent. Real estate agents get a small share of the sales price of a home for good reason: They put in the work.
But not every real estate agent will be right for your needs, so it's important to hire someone who has the appropriate experience and real estate knowledge. Search for a licensed agent with several years of experience in the market.
Depending on where you're looking, find an agent who's a neighborhood expert and is familiar with the areas you're targeting. It's even better if this person has sold several homes in your desired community and is armed with information like the average price per square foot, the median sales price and the average number of days on the market in the communities you're targeting.
As a homebuyer, you also want to get the best price for the home, and your agent's job will be to negotiate a fair — and realistic — price. Real estate agents are great for guidance. They can share information about comparable recent sales in the neighborhood and help you craft the right offer to give you the best chance of getting the house of your dreams.
What to Ask a Real Estate Agent
Before you enter into a listing agreement — which is the contract you sign for an agent to represent you and help you find a home — there's a laundry list of questions you should ask:
- Are you licensed? This is especially important to ask — and to check — if the agent is coming to you by way of referral. Only licensed agents are authorized to represent buyers and sellers. The Association of Real Estate License Law Officials (ARELLO) has a real estate licensee verification database you can use to check an agent's credentials.
- How long have you been in the business & how many homes have you sold? Buying a home is an emotional decision, so you may feel more comfortable working with an experienced professional who has several home sales under their belt. Though this isn't a guarantee of excellent service, chances are someone who has worked as an agent for several years will have more expertise than you do. After all, isn't that the point of hiring an agent?
- What's your fee? Real estate commissions on home sales are usually around 6 percent, according to real estate agency Redfin, which is split between the buyer's agent and the seller's agent. While sellers typically pay this fee, in some real estate markets buyers must share this cost. Make sure you're clear on how this arrangement will work before you hire an agent.
- What memberships do you have? Ensure your agent is a member of the National Association of Realtors, which has a code of ethics by which all members must abide, and that he or she is a member of the multiple listing service (MLS). This service offers an extensive database of homes for sale — and not just homes your agent or their agency represents.
- What's your average list-price-to-sales-price ratio? The list price is what the seller has put the home on the market for. The sales price is the dollar amount a buyer was ultimately willing to pay for it. Ideally, your agent should have a ratio that's 99 percent or below (the lower, the better). This ratio means they're skilled at getting buyers a sales price that's below asking. However, in hot real estate markets where sellers have the upper hand, it may be harder for an agent to achieve a lower ratio. Still, keep this in mind as you're interviewing potential agents.
- What is your work schedule & work style? Most, if not all, real estate agents show homes on weekends. If your agent doesn't keep a similar schedule, this could be a red flag. Find out how the agent communicates with clients, and how often. If you've begun interviewing agents and some of them take several days to respond to a simple email, that may be an indicator of how responsive the person will be when you're working together.
- Can you provide references? Before you sign a listing agreement, get feedback from the agent's previous clients. If an agent is hesitant to give you this information, consider that a warning sign and move on to someone who's willing to provide references.
Buying a home is a huge purchase, so take the time to find the right agent who can help you. And once you've purchased your first home, consider taking steps to help protect your investment. Buying a life insurance policy equal to the amount of your mortgage, for example, could help you ensure your loved ones have money to protect what's probably your family's most expensive and most important asset. After all the time you've spent saving and looking for your first — and hiring the right agent — following all these steps could help you safeguard your purchase.