5 Home Buying Misconceptions
published by Eau Claire Journal (July 30th, 2015)
MISCONCEPTION #1 : “The purpose of a Buyer Agency agreement (Wikipedia definition here) , is to benefit the real estate agent, by locking the buyer into a contract with them. ”
REALITY: I never expect customers to know this one because surprisingly, even most agents still get this wrong, which is why I put it at number one. Agents do like having a Buyer Agency agreement in place with their buyers because it helps ensure they earn the commission offered by sellers of the property the buyers choose. But the Buyer Agency agreement was not designed to help real estate agents, it was designed to protect buyers (click here for related article) Buyer Agency agreement was developed by the government to protect Buyers, legally both real estate agents in any transaction represented the seller. It wasn’t fair that both agents were required to negotiate on the SELLER’s behalf, as it left buyers with little representation, an obvious disadvantage. The state of WI (and others) wanted to create a way for buyers to have representation in the transaction, which led to the creation of the Buyer Agency agreement. Representing the seller is still the default setting that agents are required to operate under, UNLESS you have a Buyer Agency agreement with your agent! So in order to make sure your agent negotiates on YOUR behalf, make sure you lock them into a Buyer Agency agreement. Sellers even pay your agent’s commission in most cases! It’s a win-win.
MISCONCEPTION #2: “Getting bank pre-approval (How to Choose a great lender – article here) 6 months prior to house hunting is unnecessary, because we’ve seen our credit report and know roughly how much the bank will approve us for.”
REALITY: Contacting a REALTOR-recommended Mortgage Loan Officer (related article here) long before you start house hunting can save you big. Much more often than people realize, the bank will find things you can’t see on your credit report, or things you thought were taken care of. Even mistakes that are not your fault can take weeks to fix. Call a Loan Officer recommended by your REALTOR the moment you start to think about buying so they can start to help you strategize for to obtain the best rate (click here to find out why it is so important to use a Loan Officer recommended by a REALTOR). A good Mortgage Loan Officer might save you thousands of dollars in interest by helping you beef up your score in the time leading up to starting to look for a house. Even a few points can make a huge difference. They can also find credit dings early enough to fix in time to qualify you for a better program or rate by the time you make an Offer, which can lower your monthly payment.
MISCONCEPTION #3: “Nobody pays full list price for a house.”
REALITY: This is a big one, and although it seems counter-intuitive, it can be a costly mistake to the buyer. Here’s how: Homes are prices above or below market price for a variety of reasons. Situations arise in which people need to sell their home quickly at times. The only way they can be sure to sell quickly is to price their home under market value to try and draw multiple offers. Buyers can make an offer that beats every other offer, but is still less than market value. On the other hand, if a seller owes more than their house is worth, and subsequently list the home $20,000 above market value, the “Nobody pays full list price” buyer may offer $10,000 under list price thinking their getting a deal. The reality is that the buyer is still paying $10,000 more than the house is worth. Ignore the listing price, focus on the market value. This is an example of one of the many benefits of having a good Buyer Agent.
MISCONCEPTION #4: “To view a property, you must call an agent from the company that listed the property.”
REALITY: Any agent can show you any property listed in the MLS by any other company, as long as that agent is also a REALTOR (click here for difference between REALTOR vs Real Estate Agent). In fact, this is the point of the MLS. The agent who has listed the property represents the seller. They are required to negotiate for the seller and will try to obtain the highest price they can for the property. Again, this is why you should lock a REALTOR into Buyer Agency agreement with you. It will require them to put your interests ahead of the sellers and negotiate on your behalf. REALTORS acting as a Buyers Agent can even show you For Sale by Owner (FSBO) properties.
MISCONCEPTION #5: “A good REALTOR should also be an expert in construction, electrical, plumbing, crime rates, zoning laws and other related fields.” (related article Why Competent Realtors Should NOT Have All the Answers)
REALITY: A good REALTOR is an expert on the current local market, market trends, paperwork related to the process, negotiating on your behalf and marketing. A good REALTOR will put you in touch with the right people or resources to answer any vital questions relating to professions they are not licensed or trained for. The agents who most often get themselves and their clients into trouble are the ones who are confident they know about related fields, are unlicensed for them, and still offer their opinion. As tempting as it is for real estate agents to give their best guess on these types of questions, it can do the buyer more harm than good. My definition of crime may be different than someone who grew up in New Orleans. Lot lines on government maps can be wrong (and have no liability), judging an electrical system by visual inspection can be deceiving, and zoning laws change constantly and are different in all the townships in a local area. Again, a good agent will provide the best resources to answer any type of question, but they should not attempt to shoot from the hip.