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The new first rule of home buying: fire your realtor

Albert Fox Cahn   

The new first rule of home buying: fire your realtor

Last summer, when I told my then-girlfriend that I had just hired a real-estate agent to help me buy an apartment, her response annoyed me: "Sounds like a scam."

I didn't understand her suspicions. She had never purchased a home, and as a lawyer, I just assumed I knew how the system worked: The buyer has an agent, but the seller pays a commission (typically 6% of the sale price) that's split between their agent and the buyer's agent. So it's like I get free help to guide me through the morass of homebuying.

I quickly learned how foolish I was, and how right she was. Three months later, when I bought my Brooklyn apartment, I ended up being my own agent. In the coming years, with real-estate agents facing pressure from sites like Zillow and from the National Association of Realtors' agreeing to an industry-shifting $418 million price-fixing settlement in March, it's likely that a lot more people will do what I did and represent themselves. That's because commission splitting may soon be a thing of the past.

If you're thinking about buying a home, ask yourself the following three questions: Do you have an internet connection? Do you have at least a seventh-grade reading level? Do you like saving money? If you answer yes to all three, you're in fantastic shape to be your own agent.

I wish someone had told me this before my house-hunting journey began.

The thought of buying a home has always terrified me, but as New York City rents were ticking up by the millisecond in a historic housing crisis, I felt like it was now or never.

For months I searched on my own, first zeroing in on my ideal neighborhood and then fumbling through the harrowing math exercise of deciding just what my price limit was. I even made custom maps on StreetEasy, plotting down to the block where I envisioned my future life.

But having grown up hearing the NYC apartment market likened to the Hunger Games, I had no idea how to actually go from looking to buying, and — I thought at the time — I desperately needed help. So when a close friend vouched for an agent who had represented her in several deals, I was ecstatic.

Then I met my agent, and things began to feel off.

The best part of having an agent was realizing just how much I had already figured out on my own. He said he'd want to know what my "requirements" and "nice to haves" were, so I made a chart, listing dozens of items. At least 900 square feet: requirement. In-building gym: nice to have. In-unit laundry: really nice to have. Looking at the list and the map, the agent told me what I'd known months before meeting him: "You might need to be more flexible." Strike one for Captain Obvious.

Do you have an internet connection? Do you have at least a seventh-grade reading level? Do you like saving money? If you answer yes to all three, you're in fantastic shape to be your own agent.

But also: Wasn't an agent there for my pickiness? I knew that what I wanted was at the very outer limit of my budget, especially at a time with record-low inventory. But my list of "must haves" truly were the things I needed for buying an apartment to make sense. The list was already a small fraction of what I would have written when I started looking (farewell, pipe dreams of river views and sprawling private decks). And where I looked had already expanded far beyond the spots I ideally wanted. I wasn't asking for the impossible, just something very particular and very hard to find. Wasn't that the whole point of having an agent, someone paid to pluck for you your personal paradise from the endless haystack of units you don't want or can't afford?

Rather than find this magical listing, however, my agent went into sales mode, trying to explain to me why I should settle for places I had already ruled out. He was always very responsive and polite (until he wasn't, more on that later), sending me leads as soon as he saw something promising come on the market. But with a few exceptions, the "leads" my agent "found" were always things I'd already seen on StreetEasy, sometimes weeks earlier. Strike two.

In fairness, all agents have a disadvantage here, because the internet has come to democratize homebuying. For many years, even though sites like existed, buyers were at the mercy of agents to know what was for sale. This was because, a 2005 antitrust lawsuit from the US Department of Justice lays out, Realtors used their control of the listing services to strangle the nascent online housing market and punish agents who listed homes publicly. All that ended in 2008, when a massive settlement opened up the floodgates of public listings. These days, most agents largely have the same listings the rest of us do.

So my agent wasn't going to find me my dream house, and the work of hunting was basically on me. But I still needed his expertise to vet the apartment and negotiate a deal that would surely come with reams of byzantine paperwork. Didn't I?

According to Stephen Brobeck, a senior fellow at the Consumer Federation of America, many of us don't. Homebuying, he says, is "not rocket science." But the real-estate industry has made it hard for many buyers to understand just how little having an agent can help. "I call it the 'Alice in Wonderland' world, because things are not as they seem. And when you understand them, they don't make much sense."

For me, I finally climbed out of the rabbit hole and woke up when my agent led me into a bidding war.

The apartment was bright, airy, just a few blocks from McCarren Park, and more than 1,200 square feet — practically a mansion by Williamsburg standards. But there were worrying signs. The unit's bottom floor was below street level, and the block itself was in a flood zone. After touring the unit with the agent, I had a bunch of questions. The inquiries I parroted, most of which I'd learned from Googling, were pretty straightforward: Any pending or anticipated building repairs, assessments, or compliance measures? For example, in New York City, larger buildings need to periodically erect costly scaffolding to inspect their facade — you want to know if that's around the corner. But to almost every due-diligence question I asked, my agent said, "That's something for the lawyers in diligence."

It turned out that almost all the things that really concerned me — from the condo association's financial health to the building's historical flood data — were to be investigated after the sale had been negotiated, after my agent had done his part.

I've read tweets from reply guys longer than bidding documents.

Despite my concerns, my agent prodded me to go for a bid. He kept telling me that the apartment might sell very quickly, that we had to move soon. So we put in a bid. And when I saw it, I was shocked — not at the amount, but at the document. The whole thing was maybe a third of a page, summarizing the apartment's location, the amount of the offer, and a few other easy-to-understand details (like cash offer or mortgage). I was expecting something massive, confusing, and formal, but, again, it turned out that was for later, something for a lawyer to review, not the agent. I've read tweets from reply guys longer than the bidding document.

The bid almost worked. It was down to me and one other buyer, someone very similarly situated and with a similar bid, according to my agent.

This is when he finally struck out. When I made my bid, I went to the absolute maximum of what I felt comfortable spending, leaving zero wiggle room. But now my agent said that wasn't enough. He knew my finances and kept telling me how he knew I could afford to go higher. "What's 50k really going to mean to you over the lifetime of the apartment?" But I knew that was $50,000 more than I was willing to spend, $50,000 more than I thought it was worth. Buying a house can make even the largest sums seem negligible if you're not careful. But $50,000 is still $50,000. When I held firm, my agent couldn't hide his exasperation. He said something about me needing to "get serious." I realized he wanted the deal to go through more than I did. After all, that was the only way he got paid.

I lost the bidding war, and a couple months later I was cosmically relieved I had. During record-breaking rains in New York City last fall, the corner with that apartment flooded several feet above street level. I imagined just how awful it would have felt to have overextended myself to buy that apartment only to end up financially and literally underwater.

Brobeck described the real-estate industry as "rife with conflicts of interest," including many scenarios far worse than what I faced. Where my agent was merely pushy, others have gone on to "double-dip" on payments from both buyers and sellers, to drive up the price their client pays to increase the commission, and even share confidential information from one client with another. The National Association of Realtors' own 2015 report says, "The real estate industry is saddled with a large number of part-time, untrained, unethical, and/or incompetent agents."

I didn't want to pay someone who I felt was working against me, especially when I didn't see what they were bringing me in return. So I fired the agent and had a go on my own. I typed up my own bid form (all of 174 words) and kept an eye on StreetEasy, and a few weeks later I toured an open house.

The price was out of my budget, but the unit had been sitting on the market for a few months. So I came in with a low bid, the sort of tactic my agent had discouraged. Rather than toss it out, the seller and I negotiated. By the time they said "best and final," the seller had carved six figures off the asking price. Not bad for my first negotiation. Just before closing, while on a walkthrough with the seller's agent, I asked how my representing myself had affected things. He was candid: "Not splitting the commission meant they could do $50,000 lower." Like so many sellers, the prior owners had baked my agent's 3% commission into the selling price, and without it, I could save the difference. $50,000 is $50,000.

The class-action settlement with the NAR is going to make it a lot harder for sellers to be forced to pay for buyers' agents. Going forward, for people like me without an agent, a savvy seller may pay just 3% of the sales price to their own agent instead of 6% to be split with a buyer's agent. Some homebuyers may still want an agent, especially those who don't feel comfortable representing themselves or don't have the time, but faced with the prospect of paying directly for agents who offer less and less of an edge, I expect many more people will go their own way, and save tens of thousands of dollars in the process. Experts estimate that nationwide, after the NAR settlement, buyers may save up to $30 billion a year.

A few weeks after I moved into my new apartment, I ran into my ex-girlfriend. I told her I had bought a place, and she was thrilled for me. Then I sheepishly added: "So, that whole agent thing, turns out you're right. It was a scam after all." She just beamed more broadly.

Albert Fox Cahn is the founder and executive director of the Surveillance Technology Oversight Project, or STOP, a New York-based civil-rights and privacy group.

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