Protect Yourself Amid the Mortgage Mess

It's a scary time to be shopping for a new home. Whom can you trust? When it comes to the meltdown in the mortgage industry, there's more blame flying around than there are mosquitoes on a Wisconsin lake.

Almost no one has avoided the bite, and that includes your friendly, neighborhood real estate agents. They've even been accused of "shameless, pecuniary self-interest" in these very pages. Did they stand by idly while unsuspecting buyers took on mortgages they couldn't afford?

Some people think so, and some homeowners are moving forward without their help and have decided to buy or sell a home without an agent.

However, home buying is a complicated business that requires a fair amount of legal expertise, and many people want the reassurance that comes with getting help from someone who manages these transactions every day. If that sounds like you, using a buyer's agent can give you some protection.

What can a buyer's agent do for you?
Real estate agents traditionally represent the seller, not the buyer, and they get a percentage of the sale price. Therefore, it's in their interest (and the seller's) to milk the buyers for every penny they can get. The higher the sale price, the higher the agent's take-home pay.

This system works wonderfully when you're the seller, but it's not always the best arrangement for the buyer. A buyer's broker helps tilt the transaction back toward balance by giving the buyer a professional representing his or her interests.

And the help you get is not just about the money. Seller's agents will do everything within bounds of the law to get you to buy a house. There's nothing wrong with that. In fact, it's their job. But that also means that every home they sell will be a "flawless gem in mint condition." A buyer's agent will help you get a more realistic picture of the home, the neighborhood, and the price you should pay.

Not so fast
Sounds great, right? But before you put a buyer's broker in charge of all your home-buying decisions, keep in mind what this professional cannot do.

A buyer's broker can help you get a fair price, but he or she cannot promise you a bargain. Often, the buyer's broker has just as much a stake in the price of the home you buy. The buyer's agent typically gets paid a percentage of the sale proceeds, just like the seller's agent does. That doesn't automatically create a conflict of interest, but it does mean that your agent really wants you to buy a house.

If you want to avoid this situation, try to negotiate a flat fee that you pay yourself. Online alternatives such as ZipRealty (Nasdaq: ZIPR) offer different commission structures that might be more appealing to you. You can also take the time to do some research yourself. Tap into information by using services such as Zillow.com's home-value tools, IAC/InterActiveCorp 's (Nasdaq: IACI) RealEstate.com, and Move 's (Nasdaq: MOVE) various housing sites, including Realtor.com.

Be responsible
A buyer's agent cannot absolve you of the responsibility of understanding your mortgage and buying an affordable house. Agents will often defer to lenders' decisions about the amount of money you can borrow and the monthly payment you can afford. In the worst case, an agent will take advantage of that information to sell you a home at your maximum price with monthly payments that you can afford now but not later, when the mortgage rate adjusts.

It's up to you to make sure you're comfortable with your mortgage's current and future monthly payments. Just because you can buy a million-dollar home doesn't mean you have to because the bank will lend you the money. You're the expert in your personal finances. After all, you pay the bills, not your agent.

A buyer's broker also cannot promise that if you take a less-than-optimal mortgage to get into a home, you'll be able to refinance later. That's a decision that's up to the lenders. While it may once have been easy, it's not so simple any longer. Major realignments in the mortgage market mean you may not be able to refinance when you want, or on the terms you want.