It's no secret that real estate agents earn high commissions. Although the commission is usually paid by the seller rather than the buyer, the cost could be indirectly passed on to you, such as in the form of a higher list price. And real estate lawyers charge exorbitant hourly rates. This raises the question—do you need a real estate agent or attorney to help you buy a home?
Every state in the U.S. has its own set of real estate laws. For the most part, a real estate agent's help is not legally required, though agents can help you with tasks that border on legal ones, such as preparing a home purchase contract.
It's a different matter with lawyers. In a few states, such as New York and Massachusetts, only a lawyer is allowed to prepare the home purchase documents, perform a title search, and/or close the deal. That leaves plenty of tasks for the real estate agent to handle, but there will be a certain amount of teamwork involved. Any real estate agent can tell you what's customary in your state.
The process of buying a house is complex, and most people find it's easiest to get through with an agent by their side. Paperwork will be flying around like a small tornado. Other parts of the transaction will be happening quickly too—hiring inspectors, negotiating over who pays for needed repairs, keeping up good relations with the sellers (through their agent), and more.
All of this is second nature to an experienced real estate agent. What's more, experienced agents usually have contacts with good inspectors, mortgage loan officers or brokers, and others who can make your buying process easier. And they know what's considered appropriate behavior and practice in your geographical area.
One of the best reasons to hire a real estate agent is that the sellers are likely to use their own agent—and you want to keep that agent from taking over the process.
In fact, the seller's agent might pressure you to let them represent both seller and buyer, in a "dual agency" relationship that primarily benefits the seller. (The less scrupulous sellers' agents don't make it clear that they're working for both people, but if only one agent is involved in your transaction, it's fair to assume that the agent's loyalties are with the seller.) It's better to have your own agent—or, some experts assert, no agent at all—than to settle for dual agency.
You're the only one who really knows what you want in a house. Even if your agent is scouting out homes for you, there's a lot to be said for scanning the listings and, if possible, attending open houses yourself. (After the start of the COVID-19 pandemic, some areas of the U.S. limited or canceled traditional open houses in favor of individual tours in the company of one's agent; but they're making a comeback.)
You might even discover that your agent doesn't understand your needs as well as you thought, or won't take you to see "FSBO" (for sale by owner) listings, in which case you'll definitely want to be proactive during this process.
Even if you use a real estate agent (or a lawyer), it's wise to learn as much as you can about the home-buying process. For example, researching the market value of comparable homes in the area will protect you against over-aggressive agents who might urge you to bid high in your offer for a particular house. Also, you'll prevent misunderstandings and reduce the stress of being told to "sign here" if you study the contents of the various real estate documents in advance.
Except in states where it's mandated, an ordinary real estate transaction doesn't require an attorney's help. By now, real estate transactions are so standardized that most people in your state will use the exact same purchase contract (usually prepared by the state real estate agent's association), just filling in a few blanks.
However, legal issues might arise that your real estate agent can't answer. In that case, you'll need an attorney's help. Although good agents know a lot about the negotiating and contracting part of the process, they can't make judgments on legal questions.
For example, what if your prospective new home has an illegal in-law unit with an existing tenant whom you want to evict in order to rent the place to a friend? Only a lawyer can say with any certainty whether your plans are feasible. Or what if you'd like to rent the home for an extended period, such as a year, before you're obligated to buy it? That will require drawing up an unusual lease. Or, if you're drafting any non-standard language for the purchase contract, or are concerned about some language in your mortgage, you might want to have an attorney look the documents over.
For information on finding and choosing an attorney, see How to Find an Excellent Lawyer.
Real estate agents normally work on commission, not salary. They receive their slice only after your home search is over, the contract negotiated, and the transaction complete. (In many cases, they end up doing a lot of work for nothing, perhaps because the buyers lose interest or can't close the deal.)
The seller typically pays the commission to both the seller's agent and your agent—usually around 5% of the sales price, to be split between the two agents (sometimes evenly, sometimes favoring the seller's agent, who does most of the work). This percentage isn't cast in stone, however. For example, the seller might negotiate the overall percentage down if the house is particularly expensive. (And in probate sales, the court sets the commission.) Some buyers' agents have even been known to offer the buyer a percentage of their commission at closing.
Variations on the typical commission arrangement also exist. For example, some buyers prefer to hire an agent and pay the commission themselves, figuring it will make the agent more loyal to the buyer's interests, and provide grounds for a drop in the sales price. Less commonly, you might find an agent willing to perform limited tasks for an hourly fee rather than a full commission (in which case you'd also want to ask the seller to bring down the sales price accordingly).
Attorneys normally charge by the hour, at rates ranging from $150 to $500. You might also find attorneys who charge flat fees for specific services, such as preparing real estate closing documents.
Although many attorneys prefer handling the entire case with a "blank check" regarding hours to be spent and tasks to be accomplished, you're hiring the attorney, and you can call the shots. If you prefer to hire an attorney for only a limited number of hours, or for specific tasks, such as answering a legal question or reviewing a document, you can negotiate this (and should record your agreement in writing).
To learn more about working with real estate agents and attorneys to bring about a smooth, affordable house purchase, see Nolo's Essential Guide to Buying Your First Home, by Ilona Bray, Ann O'Connell, and Marcia Stewart.