Why You Should Not Buy a House Through the Listing Agent

Through my own experience and by hearsay it seems that the urban legend about getting a better deal by buying a house through the listing agent is running rampant. This amazes me since a home buyer is always better off having a Buyer Agent working for them. Thus, here is the real deal on the 5 most common myths......

MYTH 1: I'll get a better price.
Some people think the agent will share negotiating information with them, such as how low the sellers are willing to go. Not so - make no mistake about this.... the listing agent is hired by the seller to get the best price possible for them, even if they know what the seller will do they can't disclose it to anybody without authorization by the seller. They are ethically and legally bound to sell that house for the most money possible. Along that same line, there also exists the misconception that since the seller is saving half of the commission, they can lower the sale price by that amount. This is not the case - the commission is set in the original listing contract which is a contract between the listing agent's Broker and the Seller, so the unless the Broker also becomes part of the negotiations, or they have agreed up front to what's called a Variable Rate or Dual Rate commission (the seller pays a different rate if the listing agent sells the house themself)  the seller is paying the full amount no matter whether the buyer has their own Buyer's Agent (representation) or not.

MYTH 2: I will get a kickback of at least 1% from the listing agent

Almost all Real Estate brokerages discourage or don't allow kickbacks. No Realtor I know would do this. Although there seems to be the urban legend style "I know someone whose [friend, neighbor, cousin, coworker...] did this" it is actually very rare. You also need to know that your mortgage provider may have a serious problem with a kickback, and that well into the buying process you could lose your mortgage approval. Also, reputable Brokers who agree to a kickback will send the IRS a 1099 form documenting the payment so you may face tax consequences.

MYTH 3: I don't need a Buyer Agent - the listing agent is my agent and will help me
Oh boy, this one always gets me.... Even if you agree to "Disclosed Dual Agency" which means the listing agent's Broker works for both you and the seller, but the listing agent still works for the Seller, their primary responsibility is ALWAYS, ALWAYS, ALWAYS to help and protect the Seller. No matter how nice the listing agent may be, when a choice has to be made that is a conflict between your interests and the Seller's, the agent will always do what is in the Seller's interest. This means they do not need to tell you that a outdoor wood boiler powerplan has been approved to be built on that lot behind you, or that 30 years ago this land was a gun club and no one really knows how much lead is or isn't still in the ground. The agent you’re buying through also has a vested interest in your buying THEIR listing (house) and will not encourage you to look at similar ones of better value even if they know of them. It is important to remember that if you buy through the listing agent, no one in this whole process is looking out for your interests except you.

MYTH 4: The listing agent will get the seller to take a lower price because they are highly motivated to put the deal together.

This can really backfire for reasons related to Myth 3. First of all, the listing agent cannot legally assist you in deciding your buying strategy, which includes preparing a comparative market analysis to determine the correct buying price for the home and determining the terms that you will make a part of your offer. Only a Buyer's Agent can do this. The listing agent's sole responsibility is to take the offer you have decided to make with the terms you have decided to include and deliver it to the Seller. They can analyze your offer and prepare a fresh market analysis for their Seller to determine if it's in the Seller's best interests, but ultimately any decision on your offer is solely that of the Seller.

MYTH 5: A Buyer's Agent is going to cost me a lot of money. 
A Buyer Agent is paid out of the commission the seller has agreed to pay to the listing agent's Broker, they have decided on what the "split" will be and both Seller and Broker have signed it in writing. So here's the thing, it costs you nothing to have a Buyer's Agent and your Buyer Agent is the only person in the whole home buying process that is totally and completely looking out for your interests. So why wouldn't you want one? They will protect you from knowable pitfalls and get you the home you want for the lowest price they are able.

I function as both a Listing Broker/Agent and an Accredited Buyer Agent. My preference is definitely to be one or the other in all my transactions. I find ultimately that all the parties involved are much happier and better off with a clearly defined set of roles and loyalties and no question at any time who it is I'm working for.

Let me work for you!

Read More

FIRST TIME HOME BUYING

You're about to take the plunge and buy a house - congratulations! When working with a first time buyer these are the things I tell them they should do.

1. GET YOUR FINANCING IN PLACE

If, like all of us, you want to get the best house you can for the least amount of money, you need to make sure you are negotiating from a position of strength. Price is only one element in the negotiations to have your offer accepted, and is not always the most important one. Other aspects, such as the financial strength of the buyer and their down-payment or the closing date are also critical to a seller.

The only way to make a strong offer in today's market is to get "pre-approved". This means that all your financial information has been checked and verified by a qualified loan professional and their lender finds that if nothing changes they will lend you the money you need to purchase a home of a certain selling price. The mortgage broker will also give you an ideal price range, your maximum debt load, and whether there are any credit issues you should correct before you make an offer. This process takes a few days so it's best to begin well before you start looking for a home. Note: do not confuse this with getting "pre-qualified" which is a brief and superficial process and does not mean you will actually be approved for a mortgage of that amount.

2. GET A BUYER’S AGENT - YOU NEED REPRESENTATION

Did you know that many homes are sold without a sign ever going up or an ad ever being put in the paper? These great deals go to those people who are committed to working with their own buyer’s agent.

Listing agents place ads to get you to call them - they want to handle both the seller and buyer end of a deal. When reading an ad know that what is not mentioned in the ad is usually more important than what is. For example, many homes have some drawback that any good seller's agent will never mention in an ad, such as traffic noise, power lines, or outdated plumbing and electrics. Remember that the person marketing the home is representing the seller. When you look at a house with the seller’s agent they will not critique the property or point out any drawbacks you should know about - it’s up to you to find them out on your own. Or you can get your own agent - known as a buyer’s agent.

Your buyer agent looks out for you and your best interests and owes their total loyalty to you during negotiations on price, inspections and contingencies. The fee for the buyer's agent is paid out of the commission the seller pays when their home sells. The listing agent can work with you as a buyer for the property but they must disclose that in the event of a conflict of interest they work for and their loyalties are to the seller and in all cases they will look out for the seller's interests above yours. In other words, make sure you understand what your agent can and cannot do for you and who they work for.

3. CHECK OUT THE PAPERWORK BEFORE YOU MAKE AN OFFER

You would think that an offer would be pretty simple, tell them what you will pay, what you expect to be included in the sale, and what date you'll buy the house. In today's litigious society there are many opportunities to get into legal trouble out of innocent naivete. The contracts are very complex with language that can favor the seller or the buyer depending on how it's written, so it's best to review a set of blank contracts well before you write an offer. Your agent (or your attorney) can explain anything you have questions about and will give you a step-by-step idea of how the process will go. When you are familiar with the contracts and the process you will be ready when the right house comes along.

4. DON'T BE PUSHED INTO A HOUSE BUT DON’T BE AFRAID TO STEP UP FOR THE RIGHT ONE

Your agent should show you everything available that meets your requirements. Don't make a decision on any house until you feel that you've seen enough to pick the best one. Especially if a town is new to you, it is a good idea to get a feel for the town and its neighborhoods. A good agent has the patience and experience to work with you until you find the right house.

Having said that, however, there are two circumstances where you may need to make a fairly quick or bold decision. There are times when a home comes on the market and is what you have been looking for ... a value-priced house in a good location in great shape. Odds are that there are several buyers who are also looking for that same house and if I say this one won't last when I call, you should be willing to look at it immediately and make a decision quickly.

The other situation is that it's your first or second weekend looking at houses when you find "the one". It's great - just what you were looking for. But....you've only seen five other houses and what if you find one weeks from now that you like more? Sad to say, I have had clients in this situation and who a month later were saying, "Gosh I wish we had jumped at that house.... it was just what we wanted." Sometimes the right one is one of the first few you see. Trust your instincts.

4. REVIEW THE SELLER'S DISCLOSURES BEFORE YOU MAKE ANY OFFER ON A PROPERTY

No house is ever going to be perfect. So, the price you offer should reflect your best opinion of what the property is worth to you based on its current condition. Though not required by law, most agents recommend that their sellers complete a comprehensive seller's disclosure sheet that gives them a chance to tell you about the house's systems and any events that have taken place with them while they have lived there. You should read this carefully and when in doubt have your agent probe for further clarification of the information provided so that you are not surprised after your offer is accepted.

When looking at a house you're serious about, keep your eyes open for small and visible items that may need repair or replacing.  Do not assume the homeowner will do these, and adjust your offer price accordingly.  Serious structural, deferred maintenance and/or safety items that come up during the home inspection that you could not have known about or seen i.e. plumbing, electrical or chimney issues can be negotiated during the inspection contingency period. Find out whether the seller will remedy these or if you have to adjust your offer to reflect the cost to you for repairs.


5. ASK FOR A HOME WARRANTY IN YOUR OFFER

There's no law saying that the seller has to include a home warranty with the sale of their home (they cost around $600) but if you don't ask for one you most likely won't get one. As a first time home buyer you are not familiar with the cost and maintenance of the various systems of a house, so having a home warranty (they're usually for a year from your purchase date) can take a lot of the worry out of "what do I do when the hot water heater doesn't work" issues.

6. HAVE A PROFESSIONAL HOME INSPECTION

You should budget for getting the property inspected by a licensed professional home inspector, pest inspector, well inspector and/or any other kind of inspector that the house you're looking for typically requires. Have your buyer's agent recommend a few they trust and interview them on the phone before you pick one. A seller's agent cannot legally recommend a home inspector to a buyer. The inspectors will let you know the true condition of what you are buying and what kind of repairs/upgrades to the systems or structure will be required in the near future. Start with the home inspector and pest inspector and if they recommend that you have specialty expert inspect a troublesome item do what they say. The money you spend on the inspections could save you lots of money on repairs in the future. And don't be afraid to ask your inspector to explain how to work or maintain appliances or systems, they're working for you and are very willing to answer any and all questions..

7. GET A FRESH COMPARATIVE MARKET ANALYSIS ON THE SPECIFIC PROPERTY

Ask your buyer's agent to prepare a market analysis (CMA) of the property before you make the offer. A seller's agent cannot legally do one for you. This market analysis will tell you what similar properties are selling for. A CMA can't be done with a bunch of data from the internet, unless you or your agent has been inside the comparable properties used in the analysis you are likely to come up with false results. The CMA should also include only properties sold within the last 3 months, anything older than that is from a different market and should be considered as such. Your agent will help you interpret the analysis, but you should always review it in detail to be sure that your offer is based on sound thinking and that you are very confident that you are paying at or below market value for the property. The last thing you want is to find out that you overpaid for a property without knowing it. (You may choose to knowingly overpay if you if it's a bidding war and you have to have this house, but at least it will be an informed decision.)
CONCLUSION

Buying your first home is an exciting (if nervewracking) process. It is important to have someone work with you who is looking out for your interests, is patient and who knows the local market well.  I have helped many first time buyers find a house they love and will make it the least confusing, and as positive as possible for you every step of the way.  

 If I can be of help to you, don't hesitate to call me, Mike Hunter at 978-580-1069 to talk about making you a homeowner!

Read More

Short Sales for Buyers

HOW TO BE SUCCESSFUL IN PURCHASING A HOME THAT IS A SHORT SALE

Mr. Seller goes to his mortgage company(s) and says, “I want to sell, but I don’t have any equity and the house is worth less than the amount I owe you. I need to sell anyway because based on my current circumstances, continuing to keep the home is a serious hardship and I can't hold on, so what do I need to do to get out?”

What the Seller has just done is to ask his lienholders to take a loss when his property is sold, this is called a SHORT SALE. Mortgage companies/lienholders don’t like to take losses (an understatement) and they are going to be resistant to this request from Mr. Seller. However, the current "perfect storm" of poor market conditions has forced them into a position where they may agree to Mr. Seller's short sale as long as it is going to be more favorable to them than going to foreclosure - in time, trouble or money lost.

But, (and there is a big, whopping BUT ...) the mortgage companies reserve the right to approve EVERY term, condition and cost of the sale. So not only are we in a Buyer's Market with lots of inventory to choose from, we have a seller who is virtually powerless in the transaction.

ARE THESE NOT THE PERFECT CONDITIONS FOR BEING A BUYER?!!!

There is another short-seller we should discuss, the reluctant seller. While Mr. Seller above is so very motivated, let’s take the case of the family that is forced to sell thanks to their loan being one of those adjustable rate or combination loans that has adjusted and is now beyond the point of their ability to pay. They have to sell, they are going through the short sale process, but they really aren’t motivated. Why? Because they have to move. And where are they going to move? Depending on their situation their credit may be less than stellar because of late payments and the short sale itself may show as a delinquency on their credit report. Who will rent to them?

Let’s say you get into a home to view it and you love it and want to put in an offer. You can do very well by buying a short sale house, but there are some things you need to know about this process. This is the point at which you need to put aside everything you have learned about the sequence of how a home is sold. Here's how you should go about it:

1. GET TO KNOW ALL YOU CAN ABOUT THE HOME.

You are advised by your buyer's agent that this home, typical of most short sales, is being sold "As Is" (see my blog post, "What does 'As Is' Mean?", for more detailed information on this legal term). The seller might provide you with a seller's disclosure of property condition if you're lucky, but that's about all you'll get. They may or may not have pulled permits for upgrades or work done on the house - you'll need to investigate. They definitely will not negotiate issues you uncover during a home/pest/lead paint/radon/mold/septic inspection. Do you spend money to have inspections done or wait for the bank's response? My advice, wait, but be prepared to move forward very quickly once you hear back from the bank.

Also if the property is a condominium or governed by a home owner’s association, your bank/mortgage company will most likely require a full set of condominium documents, meeting minutes, recorded deeds, occupancy rates, tenancy ratios, and more (what's called a Full Review). The condominium association can and will charge you money for this. Your mortgage is contingent upon receipt of this, but it's going to cost you around $400 for copying charges. What do you do? My advice is to ask your mortgage broker, but don't do anything to jeopardize your pre-approval/commitment.

You have decided to submit your offer and now the wait is on…

2. PATIENCE IS A VIRTUE, GET READY TO HURRY UP AND WAIT.
A short sale is the sale of a parcel of real estate that is short of the equity needed to sell it and pay off all liens। It is not short “time-wise”. You should plan on at least 120 days from your offer, but the amount of time can vary widely depending on the lenders, and if anyone says you will hear back in "x" number of days, you can't believe them.

What happens during the wait? Well, besides Mr. Seller getting anxious waiting for his departure, the short sale file/package/request gets in line in the lender’s short sale department (also called the Loss Mitigation Department). This line is long, sometimes very long.

So, what happens during the wait is just that….the wait. Oh, the agent for the seller will be in contact as needed to re-fax lost documents, explain their research, answer questions about the local market, re-fax lost documents, etc. But you, the buyer…you just wait. It’s like the military … hurry up and wait. Or better yet it's like the hospital ... wake up and take this sleeping pill.

Many sellers’ agents do not give your buyer agent status updates on what’s happening while you wait…you just wait. When I represent the seller, I email the buyer agent every week to say what I know, even if it's nothing, just to make sure that you, the buyer, are still there and somewhat paying attention. But as your buyer agent, there's nothing I can do ... if there were, rest assured, I'd be doing it.

Oh, as the buyer’s agent I know what’s going on….the paperwork is collected, the file is assigned to a “negotiator” who “negotiates” the short sale with the seller’s agent/attorney, and once the negotiator has the file’s required documents (exactly what that is varies by the lender) complete, it has to be signed off by their “team leader” or upper management, or a committee of managers. I check with the seller's agent regularly to ask what is happening but again, often there is nothing happening, just waiting….
3. KNOW YOU MAY GET "BUMPED".
Here is the big elephant in the room: you have no guaranteed place “in line.” If this short sale’s turn in the line comes up on the 80th day after submission, and someone else submits an offer slightly better than yours on day 79, you will be bumped! It is not impossible that a seller’s agent will work with offers one at a time until an acceptance is granted and you won’t get bumped, but this is a rare occasion, hasn't ever happened to me yet. It's not fair, it's not right, but it is reality. This is because the lienholders are losing money and need the most they can get, and it is the seller’s agent’s fiduciary responsibility to get the highest and best price for their sellers.

4. AFTER A LONG WAIT YOU MAY BE DISAPPOINTED.

If you are willing to be patient, knowing that you could get bumped, and you're convinced you want to purchase a home that is a short sale, I might advise you to submit multiple offers on multiple short sales. You may get the one you kind of like, and not the one you love, which might be a disappointment. You might not get any one at all, which can be very disappointing. The question then is, how well do you handle disappointment? Can you accept the lost short sale?

5. YOU JUST MIGHT GET A GREAT HOME AT AN EXCELLENT PRICE THAT MAY MAKE YOU SOME GOOD MONEY SOME DAY WHEN YOU SELL.

So why would anyone consider buying a home that is subject to a short sale?

Quite simply - price! If a seller is not going to make any money on the sale of their home anyway, you can imagine they are much more flexible on terms and price of the sale of their home. If you are the only person making an offer on the home, the bank will need to take the offer seriously, even if you offer significantly less than the asking price for the house. In many Massachusetts neighborhoods, short sales represent some of the best deals around.

There is no reason to be afraid of a home that will be subject to a short sale. In fact they may be some of the best values out there. Just be prepared for a longer timeline, a little more hassle and be sure to use an attorney, mortgage company and if I may be so bold, real estate agent with some experience in short sales. You may just find that incredible hidden gem at a bargain basement price.

Read More