Q: I’ve read your home buying book with great interest, especially the part about not giving your agent all of your financial information.
Realistically all brokers, buyer or seller, are actually working for themselves and it is only natural for them to seek the most commission possible. In your book, you write that it’s better to not let a broker know how much money you’d consider spending for a home in order to protect yourself. But, aren’t you doing so the moment you give them a range to search?
Also, what do you do if you’re paying cash and not getting a mortgage? What could you tell the broker in this case?
A: I think most real estate agents are professionals who don’t start counting their commissions until they’ve earned them. That’s because most agents are truly concerned with making sure the buyer finds the right house, not whether the purchase will give them an extra $500 in commission.
That said, you have to protect yourself when it comes to your finances. When it comes to talking about how much you can afford to spend, I think your real estate agent shouldn’t necessarily know all the fine details. Why? It might work against the interest of the buyer.
If your agent isn’t a buyer’s agent, but in fact works for the seller (even though he or she is taking you around, setting up appointments for you and seemingly negotiating on your behalf), the agent could be legally obligated to reveal what you have told him or her about your finances to the seller.
If you’re working with a seller’s agent, or an agent who represents both you and the seller in the same transaction, here’s what could happen: You tell your agent that you love the house and want it even if you have to pay full price — but you’ll start the bidding process at 5 percent below the asking price.
By telling the agent that you’d be willing to pay full asking price, a seller’s agent is obligated to reveal that information to the seller. So now
that the seller knows you’re willing to pay full price, there is no incentive to negotiate price at all.
What we’re talking about is a fine line. You want you your agent to know the price range so she can set up appointments, but not the exact specifics about how much you can afford to spend and what particularly you’re willing to spend on a given house.
I believe in playing your financial cards close to the vest whether you’re buying with a mortgage or cash. It doesn’t really matter how much money you have. What matters is that you don’t reveal how much you’re willing to spend on a particular house to anyone except your spouse or partner.
July 2, 2004.