Dear Pat,
We've been planning to buy our first house next spring, but we talked to a Realtor who said it would be better not to wait. Is she right? Or does she just need another customer?
---Hesitating
Dear Hesitating,
Yes. And, probably, "yes" to your second question (although we Realtors prefer to think of you as clients, not customers. There's an important distinction involving agency relationships and responsibilities--but that's another subject). Fact is, there are good reasons why you'd likely do better buying this fall instead of waiting until spring.
First, let's take a look at a typical year in the real estate world. The "spring market" reflecting high buyer demand actually begins in the winter months of January, February and March. Price benchmarks are usually set for the year during these early months, with multiple offers often resulting from eager buyers circling around a relatively small inventory of listed homes. Homes come on the market in greater numbers in May, June, and July, and usually during these months we experience the best balance of buyers to sellers. But by August demand begins to slow, while many sellers are still readying their homes for sale. September and October can see a large number of homes coming to market, with relatively smaller numbers of buyers looking. Thus the fall usually provides the best opportunity for smart shopping.
And what do I mean by smart shopping, Hesitating? The law of supply and demand obviously dictates that fall prices are often a bit lower than the previous spring-not to mention next spring, when the traditional multiple offer frenzy begins anew. With fewer buyers as your competition, you can take the time to pick carefully from an inventory of homes that won't disappear overnight. You can make your offer contingent on a complete home inspection, an important (and I believe, necessary) component of purchase that buyers in spring competition sometimes have to forego.
I would rearrange our real estate year if I could--I'd level out the seasons by bringing in more sellers during the winter, and more smart buyers in the fall, to smooth out the price swings and frustration. But as sure as it'll snow this winter, so shall the typical seasonal cycle of supply and demand begin again. Your path is clear, Hesitating. Buying today is your best choice.
Thursday, November 6, 2003
Monday, September 8, 2003
Home Inspection: Negotiation, Round 2
Dear Pat,
When we sold our house the buyers offered a little over the listed price, and asked for 3 days to do an inspection with a home inspection service. After the inspection the buyers said they would only go ahead with the deal if we repaired a long list of items the inspector found, and if we agreed to lower our price by $2000! Is this usual? I’m burned about this. I thought a deal was a deal, but now I feel like we’re having our pockets picked.
---Old School
Dear Old School,
Welcome to the modern real estate world, wherein the buyer gets to negotiate twice for your house. Since most purchase agreements are written with an inspection contingency nowadays, you often must wait until the buyer signs off after the home is inspected for the sale to be final. This can require a seller’s work list or price reduction, or both. You were caught by surprise, Old School, but many Realtors prepare their sellers in advance for the likelihood of this “second negotiation.” Home inspectors are looking for problem conditions ranging from nuisance to hazardous, and for components that may be at the end of their useful life. For instance, if your roof is fine but is nearing 20 years old, the inspector could tell the buyers that they may need a new roof soon (ka-ching!). The same applies to forced air furnaces over 20 years old, or a 10-year-old water heater (ka-ching, ka-ching!). Roof leaks, plumbing leaks, hazardous wiring—all will probably need to be corrected for the buyer, or adjusted in the price.
The more you know about your own house before sale, the better able you’ll be to negotiate this second round. It’s not uncommon for sellers in other parts of the country to get home inspections prior to going on the market. Often the full inspection report is available to any prospective buyer, as an effective means of eliminating any surprise objections at a critical point in negotiations. I’m not aware of this practice in our local market, but it makes sense to move in the direction of full disclosure at the outset. Provided, of course, that all parties are satisfied with the inspector’s objectivity and competence. As a buyer, I’d probably want my own inspection anyway.
But what about your hard feelings, Old School? Unfortunately, I’ve seen many situations change from love fest to bitter stalemate as the gloves come off for the post-inspection negotiation. Much depends on the Realtors’ “people” skills as well as the parties’ willingness to look at the larger picture. Buyers (especially first-time buyers) who may have paid over the asking price are staggered by the maintenance and repair responsibilities they face, both real and imagined. Sellers who know and love their home are often offended as a lengthy list of flaws is suddenly thrown at them. I’ve found that a little “give” on both sides during this second negotiation helps avoid hard feelings and the desire for revenge, thus creating the goodwill needed to bring the transaction to a successful closing.
When we sold our house the buyers offered a little over the listed price, and asked for 3 days to do an inspection with a home inspection service. After the inspection the buyers said they would only go ahead with the deal if we repaired a long list of items the inspector found, and if we agreed to lower our price by $2000! Is this usual? I’m burned about this. I thought a deal was a deal, but now I feel like we’re having our pockets picked.
---Old School
Dear Old School,
Welcome to the modern real estate world, wherein the buyer gets to negotiate twice for your house. Since most purchase agreements are written with an inspection contingency nowadays, you often must wait until the buyer signs off after the home is inspected for the sale to be final. This can require a seller’s work list or price reduction, or both. You were caught by surprise, Old School, but many Realtors prepare their sellers in advance for the likelihood of this “second negotiation.” Home inspectors are looking for problem conditions ranging from nuisance to hazardous, and for components that may be at the end of their useful life. For instance, if your roof is fine but is nearing 20 years old, the inspector could tell the buyers that they may need a new roof soon (ka-ching!). The same applies to forced air furnaces over 20 years old, or a 10-year-old water heater (ka-ching, ka-ching!). Roof leaks, plumbing leaks, hazardous wiring—all will probably need to be corrected for the buyer, or adjusted in the price.
The more you know about your own house before sale, the better able you’ll be to negotiate this second round. It’s not uncommon for sellers in other parts of the country to get home inspections prior to going on the market. Often the full inspection report is available to any prospective buyer, as an effective means of eliminating any surprise objections at a critical point in negotiations. I’m not aware of this practice in our local market, but it makes sense to move in the direction of full disclosure at the outset. Provided, of course, that all parties are satisfied with the inspector’s objectivity and competence. As a buyer, I’d probably want my own inspection anyway.
But what about your hard feelings, Old School? Unfortunately, I’ve seen many situations change from love fest to bitter stalemate as the gloves come off for the post-inspection negotiation. Much depends on the Realtors’ “people” skills as well as the parties’ willingness to look at the larger picture. Buyers (especially first-time buyers) who may have paid over the asking price are staggered by the maintenance and repair responsibilities they face, both real and imagined. Sellers who know and love their home are often offended as a lengthy list of flaws is suddenly thrown at them. I’ve found that a little “give” on both sides during this second negotiation helps avoid hard feelings and the desire for revenge, thus creating the goodwill needed to bring the transaction to a successful closing.
Monday, August 4, 2003
Should You Buy At Your Top?
Dear Pat,
I’ve been house hunting with an agent for a few weeks now, but we’re not finding anything in my price range that appeals to me. My agent says I need to spend more to get what I want in our neighborhood. Although I qualify to buy at a much higher price, I’m reluctant to spend more just because the “right” house isn’t available at the moment. Any comments?
---Don’t want to be house poor
Dear House Poor,
This is a question that comes up all the time, as sticker shock leaves buyers bewildered about real value today, and apprehensive about future value. Of course every situation is different, and you may have compelling reasons to stay with your plan of buying far below your limits; but generally speaking, I would advise buyers today to go for as much house as they can reasonably afford. It just makes good business sense to take advantage of historically low interest rates. If you buy a $200,000 house today, the payment will be no higher than a $150,000 house just 3 years ago. Now we don’t claim to be professional economic forecasters here, but if I were a betting woman I’d bet the farm that (a) interest rates will be higher in 3 years, closer to the levels they have always been; and (b) that house prices will continue to rise, as they have always done.
Let’s pretend that you decide to stay well within your budget and buy a $150,000 house instead of the larger one down the street selling for $200,000. Where will that leave you, House Poor, when you’ve tired of your smaller house in 3 years and try to move up? Well, that larger house will cost you about $600 a month more (based on a modest 6% appreciation and a 7.5% interest rate) than you’d pay for the same house today. Yet the difference between the two choices today is just $200 a month—small in comparison to the costs of moving up later.
Another advantage of stretching for that larger, more expensive home today: you’ll be getting a generally more saleable, more standard house with a greater appreciation potential as the years go by. And, as I tried to illustrate above, it’s likely to suit you longer both financially and personally than a lesser house, which might soon require another move.
I hope this helps, House Poor. Perhaps it all boils down to perspective: as a renter, you knew that the portion of your income devoted to shelter was strictly an expense, and of course it’s good to keep expenses as low as possible. As a homeowner, however, you’ll be wise to think of your house dollar as an investment, keeping an eye toward maximum future return.
I’ve been house hunting with an agent for a few weeks now, but we’re not finding anything in my price range that appeals to me. My agent says I need to spend more to get what I want in our neighborhood. Although I qualify to buy at a much higher price, I’m reluctant to spend more just because the “right” house isn’t available at the moment. Any comments?
---Don’t want to be house poor
Dear House Poor,
This is a question that comes up all the time, as sticker shock leaves buyers bewildered about real value today, and apprehensive about future value. Of course every situation is different, and you may have compelling reasons to stay with your plan of buying far below your limits; but generally speaking, I would advise buyers today to go for as much house as they can reasonably afford. It just makes good business sense to take advantage of historically low interest rates. If you buy a $200,000 house today, the payment will be no higher than a $150,000 house just 3 years ago. Now we don’t claim to be professional economic forecasters here, but if I were a betting woman I’d bet the farm that (a) interest rates will be higher in 3 years, closer to the levels they have always been; and (b) that house prices will continue to rise, as they have always done.
Let’s pretend that you decide to stay well within your budget and buy a $150,000 house instead of the larger one down the street selling for $200,000. Where will that leave you, House Poor, when you’ve tired of your smaller house in 3 years and try to move up? Well, that larger house will cost you about $600 a month more (based on a modest 6% appreciation and a 7.5% interest rate) than you’d pay for the same house today. Yet the difference between the two choices today is just $200 a month—small in comparison to the costs of moving up later.
Another advantage of stretching for that larger, more expensive home today: you’ll be getting a generally more saleable, more standard house with a greater appreciation potential as the years go by. And, as I tried to illustrate above, it’s likely to suit you longer both financially and personally than a lesser house, which might soon require another move.
I hope this helps, House Poor. Perhaps it all boils down to perspective: as a renter, you knew that the portion of your income devoted to shelter was strictly an expense, and of course it’s good to keep expenses as low as possible. As a homeowner, however, you’ll be wise to think of your house dollar as an investment, keeping an eye toward maximum future return.
Tuesday, July 1, 2003
Seller’s Job Jar
Dear Pat,
We’ve heard about a million suggestions from friends about work we should do to our house before going on the market, but we really don’t have the time or money to do everything. What’s most important?
---Cut to the Chase
Dear Cut,
Welcome to my Most-Frequently-Asked-Question club. While my sympathies go out to those readers who have read much of this information in previous columns, it is true that home preparation is probably the most important aspect of the job I do for sellers. So let’s look at it from three sellers’ perspectives:
“I just want to get out.” If this is you, Cut, then I suggest you (1) mow the lawn, (2) move half your possessions to the garage, especially from the basement, and (3) clean the house within an inch of its life. Thorough cleaning is cheaply done, and can be just as effective as paint and repair on an otherwise dirty home. Keep the stuff in the garage, call a savvy Realtor to get a market opinion for a sale on an “as-is” basis—and be prepared to spend some money anyway if certain hazardous or unlivable conditions exist (your wiring glows in the dark, or rain pours in from your roof.).
“I want a good price, but I can’t do everything.” This is the average seller stance, and while as a listing agent I push to get the house in the best possible selling shape, I realize that most people really don’t have the time, money or skills required to obtain the highest price for their home. But, in addition to items 1, 2 and 3 above, this seller should make sure that (4) the mechanicals are in good working order, including roof, furnace (cleaned and tested), water heater, plumbing and electrical systems; windows should all operate properly; (5) all exterior wood surfaces should be free of peeling paint, stucco patched and fences put in good shape. Remember, any “work” that a buyer sees can become an item mentally subtracted when that buyer is trying to decide if the house is worth your asking price. Finally, the most important of all, item (6): pull the carpet to expose the hardwood floors. Have them sanded, if necessary, even if you have to borrow the money for the job (about $2.75 sq. ft.).
“I want top dollar, and I’ll do whatever it takes.” The seller who does have the time, money and vision to invest will always get the best and fastest return, under any market conditions. In addition to items 1 through 6, above, this seller should make sure the walls and ceilings are crack-free, woodwork gaps are filled, and walls are painted in designer colors. Make sure every room, even the basement, and particularly the kitchen, sparkles with an eye-popping appeal. This doesn’t require an expensive remodel so much as a trendy “look” (say, shiny pans hanging from a sturdy ceiling rack, or a fern in the corner). Older gravity furnaces, working OK or not, should be replaced with new energy-efficient heating plants. Drain tile the basement if there’s any moisture. The seller who doesn’t give the buyer anything significant to mentally subtract from the asking price may well see the opposite happen: buyers who start mentally adding to the asking price to compete with other offers on the house.
We’ve heard about a million suggestions from friends about work we should do to our house before going on the market, but we really don’t have the time or money to do everything. What’s most important?
---Cut to the Chase
Dear Cut,
Welcome to my Most-Frequently-Asked-Question club. While my sympathies go out to those readers who have read much of this information in previous columns, it is true that home preparation is probably the most important aspect of the job I do for sellers. So let’s look at it from three sellers’ perspectives:
“I just want to get out.” If this is you, Cut, then I suggest you (1) mow the lawn, (2) move half your possessions to the garage, especially from the basement, and (3) clean the house within an inch of its life. Thorough cleaning is cheaply done, and can be just as effective as paint and repair on an otherwise dirty home. Keep the stuff in the garage, call a savvy Realtor to get a market opinion for a sale on an “as-is” basis—and be prepared to spend some money anyway if certain hazardous or unlivable conditions exist (your wiring glows in the dark, or rain pours in from your roof.).
“I want a good price, but I can’t do everything.” This is the average seller stance, and while as a listing agent I push to get the house in the best possible selling shape, I realize that most people really don’t have the time, money or skills required to obtain the highest price for their home. But, in addition to items 1, 2 and 3 above, this seller should make sure that (4) the mechanicals are in good working order, including roof, furnace (cleaned and tested), water heater, plumbing and electrical systems; windows should all operate properly; (5) all exterior wood surfaces should be free of peeling paint, stucco patched and fences put in good shape. Remember, any “work” that a buyer sees can become an item mentally subtracted when that buyer is trying to decide if the house is worth your asking price. Finally, the most important of all, item (6): pull the carpet to expose the hardwood floors. Have them sanded, if necessary, even if you have to borrow the money for the job (about $2.75 sq. ft.).
“I want top dollar, and I’ll do whatever it takes.” The seller who does have the time, money and vision to invest will always get the best and fastest return, under any market conditions. In addition to items 1 through 6, above, this seller should make sure the walls and ceilings are crack-free, woodwork gaps are filled, and walls are painted in designer colors. Make sure every room, even the basement, and particularly the kitchen, sparkles with an eye-popping appeal. This doesn’t require an expensive remodel so much as a trendy “look” (say, shiny pans hanging from a sturdy ceiling rack, or a fern in the corner). Older gravity furnaces, working OK or not, should be replaced with new energy-efficient heating plants. Drain tile the basement if there’s any moisture. The seller who doesn’t give the buyer anything significant to mentally subtract from the asking price may well see the opposite happen: buyers who start mentally adding to the asking price to compete with other offers on the house.
Thursday, June 5, 2003
Appreciation: Fast Relief for PMI Sufferers
Dear Readers,
Yes, I’m providing another déjà vu experience for you this month. Here’s an updated article that originally appeared a few years ago—I think it bears repeating for the sake of anyone who is needlessly paying private mortgage insurance…
Dear Pat,
When we bought our house three years ago, we only had 5% for the down payment, so an extra charge of $111 was added to our monthly payments for “private mortgage insurance.” The lender said that once we had 20% equity in the house, we would no longer be required to make the additional payment. Fine, but who determines when that happens? Will the bank tell us?
---Losing patience
Dear Losing,
Don’t hold your breath waiting for the bank to call. Lenders feel no obligation to remove the private mortgage insurance until you’ve made enough payments to reduce the debt-to-purchase price to 78%, which would take over ten years with a 30-year, 7% loan! Faster relief is available, but you must act yourself to make it happen.
First, a simple primer on private mortgage insurance (PMI): a conventional loan down payment of less than 20% automatically requires the borrower to pay some percentage of the loan monthly as mortgage insurance, to protect the lender against default. This can range from .84% for a 5% down payment to .32% with 19% down. Typically, a borrower with 10% down would have to pay about $130 for PMI on a $200,000 loan.
Now, the good news: given the fast-rising property values in our area, you could easily have the required margin of equity within 2 or 3 years, even if you put only 5% down. Call a Realtor for a market opinion of your home (a service which is nearly always provided as a courtesy). If it appears that your home has increased in value sufficiently, then call your bank and ask about their requirements for removal of the PMI. Most lenders require an appraisal, at your expense (about $300), completed by someone on their approved appraiser list. That’s your only cost, and you’ll make it up within 3 months of PMI-less payments!
A caution: banks require that the loan be “seasoned” for at least one year (some as long as three years) before PMI can be removed. Check with your lender. Bigger caution: if you’ve been late on payments, you may not be able to get your PMI removed at all.
First, do your best to stop water intrusion from outside: install good gutters and downspouts with adequate extenders, landscape to promote drainage away from the house, and if necessary, drain tile the basement. Next, make sure you're not adding moisture (from plants, humidifier, long showers, etc.) to be trapped inside due to inadequate ventilation.
Yes, I’m providing another déjà vu experience for you this month. Here’s an updated article that originally appeared a few years ago—I think it bears repeating for the sake of anyone who is needlessly paying private mortgage insurance…
Dear Pat,
When we bought our house three years ago, we only had 5% for the down payment, so an extra charge of $111 was added to our monthly payments for “private mortgage insurance.” The lender said that once we had 20% equity in the house, we would no longer be required to make the additional payment. Fine, but who determines when that happens? Will the bank tell us?
---Losing patience
Dear Losing,
Don’t hold your breath waiting for the bank to call. Lenders feel no obligation to remove the private mortgage insurance until you’ve made enough payments to reduce the debt-to-purchase price to 78%, which would take over ten years with a 30-year, 7% loan! Faster relief is available, but you must act yourself to make it happen.
First, a simple primer on private mortgage insurance (PMI): a conventional loan down payment of less than 20% automatically requires the borrower to pay some percentage of the loan monthly as mortgage insurance, to protect the lender against default. This can range from .84% for a 5% down payment to .32% with 19% down. Typically, a borrower with 10% down would have to pay about $130 for PMI on a $200,000 loan.
Now, the good news: given the fast-rising property values in our area, you could easily have the required margin of equity within 2 or 3 years, even if you put only 5% down. Call a Realtor for a market opinion of your home (a service which is nearly always provided as a courtesy). If it appears that your home has increased in value sufficiently, then call your bank and ask about their requirements for removal of the PMI. Most lenders require an appraisal, at your expense (about $300), completed by someone on their approved appraiser list. That’s your only cost, and you’ll make it up within 3 months of PMI-less payments!
A caution: banks require that the loan be “seasoned” for at least one year (some as long as three years) before PMI can be removed. Check with your lender. Bigger caution: if you’ve been late on payments, you may not be able to get your PMI removed at all.
First, do your best to stop water intrusion from outside: install good gutters and downspouts with adequate extenders, landscape to promote drainage away from the house, and if necessary, drain tile the basement. Next, make sure you're not adding moisture (from plants, humidifier, long showers, etc.) to be trapped inside due to inadequate ventilation.
Monday, May 5, 2003
Appraise This! Dangers of Equity Loans
Dear Pat,
We recently had a real estate agent over for a market analysis of our home and she told us our house was worth between $170-180,000. This came as a shock, since we used up a big home equity loan last year based on an appraisal of $190,000. Now it seems we have no equity left in our house to use for a down payment on a new home. This agent was highly recommended, but should we get another opinion?
---Crestfallen
Dear Crestfallen,
By all means get another opinion of the value of your home, but don’t be surprised if you’re disappointed again. It’s a small consolation, I’m sure, but you’re not alone. Recently I’ve run into several homeowners who are in the same predicament. With the banks giving out money the way they used to hand out toasters, too many people are living in zero-equity homes. You’d expect that these days of double-digit appreciation would prevent this from occurring, but the fast appreciating market is actually partially responsible: banks eagerly lend up to 100%, even 125% of value in anticipation of future appreciation.
Does this mean that we’ve reached the end of our “bull market” in rising real estate values? No—not yet, if this Spring’s prices are any indication. But every home sale is a unique case, and too many individual factors create “value” to justify an equity loan based on a blanket appreciation rate expectation. This is where the bank appraisers are utilized to determine actual present-day value to protect the lender’s interests and, indirectly, the borrower’s. If the homeowner elects to borrow beyond the home’s actual value—and the bank is willing—there should be no one to complain when there is no equity available later that year, or even the next year.
Where does that leave you, Crestfallen? You didn’t borrow more than your appraised value last year—so what happened? Unfortunately, you borrowed more than the actual value, thanks to a poor appraisal. Let us examine, for a minute, the plight of the modern-day appraiser: overworked, crushed beneath record numbers of re-fi’s and new sales, flung hither and yon with no single neighborhood to call her own, often reliant (whether she cares to admit it or not) on a purchase agreement to guide her on her search for value. This appraiser can make a mistake, especially when the market has not “spoken” as in a sold situation. Appraisers don’t get to see as many on-market houses as Realtors do, nor do they always have a clear knowledge of extenuating circumstances which may have affected the sale price of a comparable property. That’s why the good ones often call upon us for additional information.
I don’t mean to bash appraisers here—most do their jobs with great skill and care, especially given the workload of recent years—but the wise homeowner will take advantage of the free market opinions offered by Realtors. Use all the tools available, and be realistic when you borrow.
We recently had a real estate agent over for a market analysis of our home and she told us our house was worth between $170-180,000. This came as a shock, since we used up a big home equity loan last year based on an appraisal of $190,000. Now it seems we have no equity left in our house to use for a down payment on a new home. This agent was highly recommended, but should we get another opinion?
---Crestfallen
Dear Crestfallen,
By all means get another opinion of the value of your home, but don’t be surprised if you’re disappointed again. It’s a small consolation, I’m sure, but you’re not alone. Recently I’ve run into several homeowners who are in the same predicament. With the banks giving out money the way they used to hand out toasters, too many people are living in zero-equity homes. You’d expect that these days of double-digit appreciation would prevent this from occurring, but the fast appreciating market is actually partially responsible: banks eagerly lend up to 100%, even 125% of value in anticipation of future appreciation.
Does this mean that we’ve reached the end of our “bull market” in rising real estate values? No—not yet, if this Spring’s prices are any indication. But every home sale is a unique case, and too many individual factors create “value” to justify an equity loan based on a blanket appreciation rate expectation. This is where the bank appraisers are utilized to determine actual present-day value to protect the lender’s interests and, indirectly, the borrower’s. If the homeowner elects to borrow beyond the home’s actual value—and the bank is willing—there should be no one to complain when there is no equity available later that year, or even the next year.
Where does that leave you, Crestfallen? You didn’t borrow more than your appraised value last year—so what happened? Unfortunately, you borrowed more than the actual value, thanks to a poor appraisal. Let us examine, for a minute, the plight of the modern-day appraiser: overworked, crushed beneath record numbers of re-fi’s and new sales, flung hither and yon with no single neighborhood to call her own, often reliant (whether she cares to admit it or not) on a purchase agreement to guide her on her search for value. This appraiser can make a mistake, especially when the market has not “spoken” as in a sold situation. Appraisers don’t get to see as many on-market houses as Realtors do, nor do they always have a clear knowledge of extenuating circumstances which may have affected the sale price of a comparable property. That’s why the good ones often call upon us for additional information.
I don’t mean to bash appraisers here—most do their jobs with great skill and care, especially given the workload of recent years—but the wise homeowner will take advantage of the free market opinions offered by Realtors. Use all the tools available, and be realistic when you borrow.
Tuesday, March 4, 2003
Working with an Agent
Dear Pat,
We’ve been looking all winter for a house in Longfellow, but everything we find seems to be wrong for us, or it’s already sold. Going to open houses and looking at Realtor websites on our own doesn’t seem to be working, yet we’re reluctant to sign a contract with some agent we hardly know. How can we get in the game without getting stuck?
----Outside looking in
Dear Outsider:
It sounds chilly out there! I can understand your reluctance to sign up for a long period of time with someone you’ve just met, but remember: the game is played mainly on the Realtors’ field, so a good Realtor is your best bet to win. The two state-mandated forms can seem pretty intimidating at first glance, but they were developed to protect the consumer and help clear up confusion about how buyers and agents work together. First, the Agency form talks about the different forms of agency, such as buyer’s broker, or seller’s broker, or subagent (representing seller but servicing buyer as customer), or dual agent (representing both buyer and seller), or facilitator (representing neither buyer or seller). The Agency form also explains the fiduciary responsibilities the agent owes you: loyalty, obedience, disclosure, confidentiality, reasonable care and accounting.
The second form is the contract between buyer and agent. It spells out the buyer’s and broker’s obligations to each other, and explains how the agent gets paid. The contract also serves as a symbol of mutual respect, and is the beginning of a very important relationship: from the time you sign papers with an agent you are both pledging your loyalty to each other. But please note that many agents are willing to sign a buyer’s contract that allows either party to cancel with a 24 hours verbal notice (that is River Realty’s policy) if you do have misgivings down the road.
Once the forms are signed it’s as if you have a real estate “elf” working for you all through the day (and often the night) to put you into your dream house, or as close to it as you can afford. Your agent will be checking the MLS computer once or twice each day, and keeping watch for any future listings being readied for market from his/her office, or from other agent contacts in the business. Your Realtor should be able to guide you through the whole process, from loan qualifying (“how much can I afford?”) to making sure the utilities are square on moving day—finding your home, negotiating the purchase, and working closely with the mortgage banker, title closer, home inspector, and the other real estate company. When the job is done, the agent is paid.
So come in from the cold, Outsider. With a professional’s help it often takes only a few days or weeks to find the right home. And a good agent isn’t really hard to find: ask your friends for a referral, pay attention to the for-sale signs in your target area, shop open houses for an agent who suits you. Good luck—I’m sure you’ll make a good choice!
We’ve been looking all winter for a house in Longfellow, but everything we find seems to be wrong for us, or it’s already sold. Going to open houses and looking at Realtor websites on our own doesn’t seem to be working, yet we’re reluctant to sign a contract with some agent we hardly know. How can we get in the game without getting stuck?
----Outside looking in
Dear Outsider:
It sounds chilly out there! I can understand your reluctance to sign up for a long period of time with someone you’ve just met, but remember: the game is played mainly on the Realtors’ field, so a good Realtor is your best bet to win. The two state-mandated forms can seem pretty intimidating at first glance, but they were developed to protect the consumer and help clear up confusion about how buyers and agents work together. First, the Agency form talks about the different forms of agency, such as buyer’s broker, or seller’s broker, or subagent (representing seller but servicing buyer as customer), or dual agent (representing both buyer and seller), or facilitator (representing neither buyer or seller). The Agency form also explains the fiduciary responsibilities the agent owes you: loyalty, obedience, disclosure, confidentiality, reasonable care and accounting.
The second form is the contract between buyer and agent. It spells out the buyer’s and broker’s obligations to each other, and explains how the agent gets paid. The contract also serves as a symbol of mutual respect, and is the beginning of a very important relationship: from the time you sign papers with an agent you are both pledging your loyalty to each other. But please note that many agents are willing to sign a buyer’s contract that allows either party to cancel with a 24 hours verbal notice (that is River Realty’s policy) if you do have misgivings down the road.
Once the forms are signed it’s as if you have a real estate “elf” working for you all through the day (and often the night) to put you into your dream house, or as close to it as you can afford. Your agent will be checking the MLS computer once or twice each day, and keeping watch for any future listings being readied for market from his/her office, or from other agent contacts in the business. Your Realtor should be able to guide you through the whole process, from loan qualifying (“how much can I afford?”) to making sure the utilities are square on moving day—finding your home, negotiating the purchase, and working closely with the mortgage banker, title closer, home inspector, and the other real estate company. When the job is done, the agent is paid.
So come in from the cold, Outsider. With a professional’s help it often takes only a few days or weeks to find the right home. And a good agent isn’t really hard to find: ask your friends for a referral, pay attention to the for-sale signs in your target area, shop open houses for an agent who suits you. Good luck—I’m sure you’ll make a good choice!
Sunday, February 2, 2003
Flip Off the Flippers!
Dear Pat,
I’m worried about my elderly neighbor who is moving to a nursing home. He doesn’t have any family in town and some of his close neighbors have been looking out for him these past years. Here’s the problem—an agent who he called to help sell his house has offered to take it off his hands by paying him a lump sum of cash. The amount is far less than other houses have been selling for on this block. We all want to protect him; what do you advise?
---Concerned neighbor
Dear Concerned:
Unfortunately this scene is becoming all too familiar. Twice this past year I was called in to give second opinions to homeowners who were offered cash for their properties by would-be listing agents. In both cases the houses were worth substantially more than the cash offered. With a relatively small investment in decorating and repairs, the homeowners eventually sold their homes using the normal MLS process; each netted over $60,000 more than the cash offers would have given them!
Your neighbor is likely being offered a cash deal by a “flipper,” an investor who intends to make a fast buck by selling immediately (often on the same day he purchases) at a much higher price. The practice of “flipping” is not illegal in itself—it’s simply exercising the freedom to buy low and sell high—but it’s repugnant to picture some scoundrel congratulating himself on the great deal he made at the expense of an old man’s nest egg. The infamous flipping cases we’ve all read about in the papers involve the illegal practices of fraudulent appraisals and lending, where buyers are ruined by a mortgage far exceeding the real worth of their property—the darkest side of flipping. But let’s take a closer look at the legal version, where the real gouging happens to the seller.
According to William Bronchick, an attorney who cheerfully publishes how-to articles on the subject, a flipper may be a “Scout,” who simply makes his money by finding good opportunities and selling the information to an investor, usually for $1000 or less. Or he may be a “Dealer,” who actually agrees to buy the property and, with his earnest money on the contract, may decide to sell his interest before closing, or go to closing and flip the property himself. Finally, we have the “Retailer,” who buys the property from a Dealer, or buys on information from a Scout, with the intention of preparing the property for sale to a new homeowner at the “retail” price. If that sounds like a lot of mark-ups, it is—and all at the expense of the seller.
So who are these “flippers,” and how do they differ from other investors? For one thing, the investor who is buying property for the long haul doesn’t need to make a killing on the purchase price—he knows the property will appreciate over time, and he buys with the intention of having his tenants help to pay the mortgage. A flipper is looking for profit immediately, thus he must pay the seller less than the property is actually worth, in order to avoid the much harder task of finding a buyer willing to pay more than the house is worth. Flippers can be individuals with contacts to the elderly, they can be high-profile corporate franchises with billboard ads, they can be—and this dismays me the most—licensed Realtors who ignore the spirit of their own Code of Ethics.
My advice to you, Concerned, is to step in immediately, contact a Realtor you trust, or several. Get one or more legitimate market opinions, and show the door to any agent or individual who offers cash to “take the problem off your hands.” Remember, if your neighbor’s house is in poor shape, he can sell “as-is” to the whole market through MLS. He’ll get a better result than any pre-market cash offer from an investor. To preserve more of his savings a savvy agent can help him through the process of decorating and repairs, and he can sell at the market price. It seems that we’re going through a time when the Wall Street shark mentality has moved to Main Street, and we must take care to look out for each other and ourselves. Don’t let the bad guys win this time.
I’m worried about my elderly neighbor who is moving to a nursing home. He doesn’t have any family in town and some of his close neighbors have been looking out for him these past years. Here’s the problem—an agent who he called to help sell his house has offered to take it off his hands by paying him a lump sum of cash. The amount is far less than other houses have been selling for on this block. We all want to protect him; what do you advise?
---Concerned neighbor
Dear Concerned:
Unfortunately this scene is becoming all too familiar. Twice this past year I was called in to give second opinions to homeowners who were offered cash for their properties by would-be listing agents. In both cases the houses were worth substantially more than the cash offered. With a relatively small investment in decorating and repairs, the homeowners eventually sold their homes using the normal MLS process; each netted over $60,000 more than the cash offers would have given them!
Your neighbor is likely being offered a cash deal by a “flipper,” an investor who intends to make a fast buck by selling immediately (often on the same day he purchases) at a much higher price. The practice of “flipping” is not illegal in itself—it’s simply exercising the freedom to buy low and sell high—but it’s repugnant to picture some scoundrel congratulating himself on the great deal he made at the expense of an old man’s nest egg. The infamous flipping cases we’ve all read about in the papers involve the illegal practices of fraudulent appraisals and lending, where buyers are ruined by a mortgage far exceeding the real worth of their property—the darkest side of flipping. But let’s take a closer look at the legal version, where the real gouging happens to the seller.
According to William Bronchick, an attorney who cheerfully publishes how-to articles on the subject, a flipper may be a “Scout,” who simply makes his money by finding good opportunities and selling the information to an investor, usually for $1000 or less. Or he may be a “Dealer,” who actually agrees to buy the property and, with his earnest money on the contract, may decide to sell his interest before closing, or go to closing and flip the property himself. Finally, we have the “Retailer,” who buys the property from a Dealer, or buys on information from a Scout, with the intention of preparing the property for sale to a new homeowner at the “retail” price. If that sounds like a lot of mark-ups, it is—and all at the expense of the seller.
So who are these “flippers,” and how do they differ from other investors? For one thing, the investor who is buying property for the long haul doesn’t need to make a killing on the purchase price—he knows the property will appreciate over time, and he buys with the intention of having his tenants help to pay the mortgage. A flipper is looking for profit immediately, thus he must pay the seller less than the property is actually worth, in order to avoid the much harder task of finding a buyer willing to pay more than the house is worth. Flippers can be individuals with contacts to the elderly, they can be high-profile corporate franchises with billboard ads, they can be—and this dismays me the most—licensed Realtors who ignore the spirit of their own Code of Ethics.
My advice to you, Concerned, is to step in immediately, contact a Realtor you trust, or several. Get one or more legitimate market opinions, and show the door to any agent or individual who offers cash to “take the problem off your hands.” Remember, if your neighbor’s house is in poor shape, he can sell “as-is” to the whole market through MLS. He’ll get a better result than any pre-market cash offer from an investor. To preserve more of his savings a savvy agent can help him through the process of decorating and repairs, and he can sell at the market price. It seems that we’re going through a time when the Wall Street shark mentality has moved to Main Street, and we must take care to look out for each other and ourselves. Don’t let the bad guys win this time.
Tuesday, January 7, 2003
New Year’s Resolution: Empty the Mailbag!
Here are some of the questions I didn’t have a chance to put in the paper this past year (in shortened versions). Please remember, if you have a question I’ll always respond promptly and thoroughly by phone.
Dear Pat: Do buyers ever pay the real estate commission to their agent? --Not eager to pay
Dear Not: Rarely in Minnesota. Although the state-mandated buyer’s agency agreement allows agents to charge buyers for their services, in nearly all cases they derive their income from a portion of the listing commission the seller has agreed to pay.
Dear Pat: I notice that you almost always talk about seller’s concerns, but rarely answer questions from buyers. What gives? ---Buyers need advice too
Dear Buyers: If you pay attention, you’ll notice that buyers’ and sellers’ concerns are very similar: fact is, sellers need to pay attention to what buyers want and need in order to attract the best price for their home. Yes, I am primarily a listing agent—that means my job is to help sellers market their homes—but I work very closely with the six great agents in my company who do specialize in helping buyers. Go to our website at www.riverrealty.net to learn more about them, or give me a call and I can refer you to an agent to fit your individual needs.
Dear Pat: Is January really a good time to sell a house?---Snowed Under
Dear Snowed: Don’t believe the nay-sayers. I have repeated for years, “the Spring market begins in January,” when buyers are looking, but sellers are few. And we all know what happens when demand exceeds supply, right?
Dear Pat: What is the most important thing to have ready when we sell?---Short List
Dear Short: All-time, most important feature: hardwood floors, preferably sanded and gleaming.
Dear Pat: Are neutral colors the best for our walls when we sell?---Want Some Pizzazz
Dear Pizzazz: Go for it. We used to say neutral, but buyers really respond to some of the smart decorator colors available nowadays. And a richer color palette often feels more “right” in our older houses.
Dear Pat: Do interest rates go up in the Spring? We want to…---Beat the Rush
Dear Beat: Yes, No, Maybe
Dear Pat: Do buyers ever pay the real estate commission to their agent? --Not eager to pay
Dear Not: Rarely in Minnesota. Although the state-mandated buyer’s agency agreement allows agents to charge buyers for their services, in nearly all cases they derive their income from a portion of the listing commission the seller has agreed to pay.
Dear Pat: I notice that you almost always talk about seller’s concerns, but rarely answer questions from buyers. What gives? ---Buyers need advice too
Dear Buyers: If you pay attention, you’ll notice that buyers’ and sellers’ concerns are very similar: fact is, sellers need to pay attention to what buyers want and need in order to attract the best price for their home. Yes, I am primarily a listing agent—that means my job is to help sellers market their homes—but I work very closely with the six great agents in my company who do specialize in helping buyers. Go to our website at www.riverrealty.net to learn more about them, or give me a call and I can refer you to an agent to fit your individual needs.
Dear Pat: Is January really a good time to sell a house?---Snowed Under
Dear Snowed: Don’t believe the nay-sayers. I have repeated for years, “the Spring market begins in January,” when buyers are looking, but sellers are few. And we all know what happens when demand exceeds supply, right?
Dear Pat: What is the most important thing to have ready when we sell?---Short List
Dear Short: All-time, most important feature: hardwood floors, preferably sanded and gleaming.
Dear Pat: Are neutral colors the best for our walls when we sell?---Want Some Pizzazz
Dear Pizzazz: Go for it. We used to say neutral, but buyers really respond to some of the smart decorator colors available nowadays. And a richer color palette often feels more “right” in our older houses.
Dear Pat: Do interest rates go up in the Spring? We want to…---Beat the Rush
Dear Beat: Yes, No, Maybe
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