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Welcome Center.1.) CHOOSE THE RIGHT TYPE OF REAL ESTATE AGENT.
For many home buyers, the home buying experience starts with answering
an ad on a home that was featured in the newspaper or in one of the homes-for-sale
magazines that reside on a shelf in the supermarket. Or perhaps the home
buyer sees a "For Sale" sign and calls the agency that listed
the house to get some information. Unfortunately, answering ads or calling
on signs may not be the best way to get involved with a real estate agent.
First, the real estate agent has one purpose in mind, and that is to sell
a home to the prospective home buyer. In fact, in most cases, the agent
doesn't make any money unless he or she sells the home buyer a home.
If you are the home buyer, you cannot forget that the real estate agent
is a salesperson, and no matter how nice that person may seem, the agent's
job is still to get you to buy a home.
You do have an alternative, however. You can hire an agent to work for you.
This type of agent, usually referred to as a "buyer's agent,"
has a different job than a typical real estate agent. The buyer's agent's
job is to help you buy. That means he or she must find the right
house, at the right price and with terms that best suit your needs. The
buyer's agent must also tell you any information that may help you to make
a better decision. The buyer's agent should tell you, for example, if he
or she knows that the owners have a compelling reason to sell their home
(a job transfer, a divorce, etc.) or if there is some reason why you should
not buy a particular home for the listed price (sewer lines are to be
replaced in the area soon, resale value in the neighborhood has been declining
, etc.) and should provide a market analysis for you so that you may make
a better decision on the offering price.
Even if you hire a buyer's agent, however, you need to be cautious. Alan
and Denise Fields, in their book Your New Home caution against using
" counterfeit buyer's agents." They strongly suggest that
home buyers use exclusive buyer's agents, agents who specialize in
representing buyers and who do not take listings. According to the Fields,
some agents claim to represent the buyer, yet actually do business as they
always have. If you feel you are being pressured to buy a particular home,
or if the buyer's agent is showing you homes above your price range, find
another agent.
You should have a written contract with your buyer's agent, but the contract
should not lock you in to long terms. You should discuss with your buyer's
agent what happens if you find that you have a personality match or you
are simply unhappy with what the agent is doing for you. Ask how you can
terminate the contract if that becomes necessary and make sure you understand
what your obligation will be once the contract is terminated. Some agreements
may ask that you pay a termination fee if you terminate before the contract
is complete while others lock you in to the buyer's agent and his or her
real estate company for a number of months before the contract can be terminated.
NEVER sign a contract without a written explanation of how the contract
may be terminated if you feel it is necessary.
2.) BEWARE OF "ONE STOP SHOPPING."
Today, many real estate companies offer mortgages, title searches, and
other services and sell the concept to the consumer as added convenience.
However, that convenience may come at a cost. As an example, purchasers
who are putting all their trust and money into one parent company may find
that they are paying a higher mortgage rate than if they were to shop for
a mortgage separately. Since the purchaser who uses the real estate agency's
mortgage company is somewhat of a captive audience and is often caught up
in the excitement of buying the home, the mortgage representative does not
have the same incentive to provide the best price and terms to the purchaser
and may simply offer the easiest or most popular mortgage option. In a more
competitive situation, however, an independent mortgage broker or bank may
be willing to shave a few dollars off the commission on the loan or reduce
some of the fees associated with borrowing.
Another problem that buyers sometimes discover when dealing with one-stop
convenience is that they have no help if any of the companies involved are
not performing to their satisfaction. Since the mortgage representative,
title officer, and real estate agent have an alliance and are not competing
to get each other's business, there is a lessened incentive for each of
them to perform at maximum ability. Conversely, if the mortgage representative
knows that his or her future business depends upon keeping not only the
buyers, but the real estate agent and the title company happy as well, there
is a greater incentive for the mortgage representative to perform well.
When each of the professionals in a real estate transaction must continually
compete to keep the business of the other professionals, the purchaser usually
becomes the winner.
3.) AVOID LAST MINUTE RUSH PROBLEMS.
A couple who was buying a home called us one evening explaining that
they desperately needed help to solve some problems related to their home
purchase. Several problems were unearthed during the home inspection and
had not yet been resolved. The closing was just ten days away. In addition,
they discovered that the survey showed that they were not getting as much
property as they had originally believed. They were involved in a "dual
agency" transaction ( their "buyer's agent" and the listing
agent both worked for the same company) and they sensed that they were not
getting help from the real estate company. They wanted to terminate the
contract, but could not without risking loss of their $5,000 hand money
check. Sadly, by this time in the process, they had little recourse but
to proceed with the transaction. The problems this couple faced could have
been avoided, had they not delayed addressing them until the last few days
of the sales contract.
Having home inspections done as soon as possible after negotiating the sales
agreement (or before the contract is negotiated) allows time to resolve
any disputes early in the closing process. Had they hired an exclusive
buyer's agent, the agent may have written language into the contract that
would have given them the opportunity to terminate the contract, should
something go wrong. The agent may also have been more diligent about keeping
the agent informed as problems arose. The couple did not understand that
they were not getting help from the real estate company because the dual
agency agreement prevented the company from doing anything that favored
one of the parties over the other. Even in the absence of an exclusive
buyer agency agreement, however, there were things this couple could
have done to avoid the problem they experienced.
Home buyers should make sure that they see the sales history for homes in
the neighborhood over the past six months to one year. This research helps
the homeowners to understand the values of homes in the neighborhood and
should give them some idea of the ratio between the listed price and selling
price of a home. Usually, they should offer a minimum amount of hand money
when they make their offer, especially if they have been preapproved for
a loan or are paying cash. They should also carefully review the contract
they are asked to sign and make sure they clearly understand all the terms
of the contracts, especially what happens if a problem arises during the
home buying process. And, for the home buyer who does not have an exclusive
buyer's agent on his or her side, it is highly advisable to have an attorney
review any documents before they are signed.
4.) DON'T BUY EMOTIONALLY.
Let's face it. Buying a home is an emotional process. A home is the place
where the family meets and memories are built, a place where we find safety
and refuge and place where we can relax and be ourselves. Our homes are
central to everything we do, and given their importance in our lives, it
is difficult to make an unemotional home-buying decision. Real estate agents
are fully aware of the impact of emotions on their clients and use emotions
to help sell a home and to push up the price during negotiations. Agents
will advise sellers to turn on the lights of a home, to create a pleasant
atmosphere during showing by baking bread or cooking with cinnamon just
before the prospective buyers arrive. They also suggest that the sellers
play soft background music and put out fresh flowers, all tugging at the
heart strings, and eventually the wallets of the buyers.
Although you can never completely avoid emotions when you buy a home, there
are a simple steps that will help to keep you in a realistic frame of mind.
Checklists are wonderful aids to making a good decision. Ask your agent
for a checklist and bring copies with you when you shop. When you get close
to making a decision, look at the home with checklist in hand and check
off things that are important to you. When you are looking at a home, turn
off the light and walk back into the room to see how the room looks in natural
light. NEVER look at a home just once. A second or third look, even if you
are on a tight schedule, may reveal properties about the home that you may
not find acceptable, but that you may have missed the first time through.
When you negotiate for a home, write down on a paper, separate from your
purchase agreement, the top dollar you are willing to pay for the house.
If you feel the urge to go above the top dollar during the heat of the negotiating
process, take time to sleep on your offer. Often, an offer that you may
have found acceptable one day will not be as acceptable the following day.
5.) HIDDEN MORTGAGE COSTS.
Most of us, when we find our dream home, go hunting for a mortgage,
and most of us look for the best rate. Therefore, if a lender tells us that
we can get a 7% fixed mortgage when everybody tells us that the rate is
8.5%, we will jump at the chance to take the lower rate. Judging on rate
alone, however, can be a costly mistake.
The mortgage and lending business is not highly regulated, and it is easy
for unscrupulous lenders to make a loan look like a better value than it
is. One lender told us recently that we should get into the mortgage business
because "People don't understand the business, and when they are buying
a home, they don't care about anything, as long as they can afford the monthly
payment, especially if they have a blemish on their credit. They'll pay
a few extra points up front and you can really make some money from them.
Besides, there are a lots of extras in this business (mortgages) you can
make money on." Unfortunately, some of what he is saying is true. Buyers
are vulnerable to lenders who may not play exactly fair, and it is
easy to disguise costs so that the buyer believes that the costs he or she
is paying are normal.
Your defense against mortgage people who deal this way is to hire an exclusive
buyer's agent who will help you in the mortgage shopping process. Do not
rely on just rate as a criterion for working with a lender. If the agent
with whom you are working offers an in-house lender, be cautious. Tell the
agent that you want to speak with other lenders before you commit to their
lender. You should get a fully completed estimate of costs for your loan
and should question anything that is not on your original loan estimate
if something extra shows up at settlement. It is always good to speak to
more than one lender and to get an estimate from each of them so that you
may compare costs. You should also avoid telling the lender that you want
a specific type of mortgage. It is also wise to talk to some lenders before
you make a purchase and to get pre-approval for a loan early in the home
buying process. That should not deter you from going loan shopping, even
after you make your buying decision.
Joe Hirsch, Real Estate Consultant,455 Cochran Rd, Pittsburgh, PA 15228