How to Avoid Overpaying for Home During ‘Bargain’ Holiday Season
QUESTION: I recall you said some time ago that the best time to buy a home is between Thanksgiving and New Year’s, so my husband and I intend to get a good deal on a home now, hopefully from an anxious home seller. We have been religiously going to weekend open houses almost every week for the past month.
However, two things worry us: The realty agents almost dare us to make an offer; they try to get us to them give our financial details and seem to be obstacles rather than helping us, and we’ve seen similar homes in the same neighborhoods that are priced as much as $15,000 apart. How can we avoid paying too much and get agents working for rather than against us?
ANSWER: You are wise to buy a home during this season when only the most motivated home sellers have their houses actively on the market for sale. If you wait until spring to buy a home, then you will be competing with the droves of home buyers who come out of winter hibernation.
But don’t let the realty agents intimidate you. Many agents can be extremely helpful. You just encountered a few agents who didn’t seem anxious. Remember, most real estate agents represent sellers, so you are on your own when buying a home. That statement will cause me to get nasty letters from a few adamant agents who claim to represent buyers, but I think that concept is usually not very effective.
When I inspect a property for possible purchase and the agent asks me about my down payment and finances, I politely reply, “I have enough to handle the purchase.” But I never disclose my financial status to a real estate agent. Only a lender making me a mortgage loan is entitled to that confidential information. Some agents insist on getting their prospective buyers to reveal their finances because it saves their time, but I disagree and do not think that is very smart.
As for avoiding paying too much for a home, before you make a purchase offer, insist that the realty agent prepare a written “comparative market analysis” form for you. This is the same form the seller received when listing the home for sale. It reveals recent sales (not asking) prices of similar nearby homes and the asking prices of comparable neighborhood homes. Based on this vital information, you can make an intelligent purchase offer without paying too much for your home.
Adding Apartment Makes Little Sense
A: The lot where our single-family home is located is zoned for up to two dwelling units. Several neighbors have added second units to their properties. My wife and I have obtained architectural plans for a rental unit. Two builders have bid on the modest plans. If we borrow the funds to build the extra apartment, I figure we will be lucky to break even on the rental income and added mortgage payment. Do you think we should add the extra rental?
A: No. I am constantly amazed at the homeowners who think it will add more value than it costs to build two or more apartments on their property. What good does it do to spend perhaps $30,000 adding an apartment to your property if the increased market value will only be around $30,000?
As many owners have discovered, a single-family house usually has more marketability than does a two-, three- or four-unit rental property. Real estate agents often try to sell me houses that have multiple zoning by saying, “You can add another unit to the property.” That may be true, but it doesn’t make sense to spend $1 building a second unit just to add $1 in market value. Of course, if you can spend $20,000 to add $40,000 of value, then it would be profitable improvement.
Home Not Selling? Maybe It’s Overpriced
Q: Our house has been listed for sale almost 90 days. The listing is about to expire. We have had no purchase offers, but the realty agent seems to be doing a good job. I think we should renew our listing for 30 days with the same agent, but my wife thinks we should switch to a better company as we must get our home sold by February. What should we do?
A: The primary reason your house has not had any purchase offers is it is probably overpriced. Unless the agent has such a bad reputation that other agents refuse to cooperate, the fault is probably with the price rather than the agent.
Ask the agent to prepare an updated “comparative market analysis.” This form shows recent sales prices of similar neighborhood homes and asking prices of listed comparable homes (your competition). Only after you have this information can you decide if you home is overpriced.
Since you have until February to sell your home, I suspect you overpriced it, thinking you can reduce the price in the future. But home buyers and real estate agents are not dummies. If your home is overpriced they won’t waste their time inspecting it. If you sincerely want to sell your home now, my suggestion is to renew your listing with your present agent but adjust the asking price to a realistic level.
Unhired Agent Wants Sales Commission
Q: Several months ago, I casually told a real estate agent that I might be interested in selling a downtown commercial building I own. About a week later, I received a phone call from a man who said the agent had told him about my property. I showed it to him and he made me a purchase offer which, after some haggling, I accepted. The sale has closed. Now the real estate agent claims I owe him a $46,000 real estate sales commission. But this agent had nothing to do with the sale other than mentioning my building to the buyer. Do you think I owe the agent a commission?
A: No. The statute of frauds requires real estate listings and sales commission agreements to be written to be legally enforceable. Since you had no listing agreement, when an open listing is involved the realty agent must prove he was the “procuring cause” by a chain of events that led to the sale.
If the agent sues you for the sales commission, I doubt he could win. However, morally I think you might feel better if you paid the agent at least a partial sales commission.
How to Cancel a Listing With Agent
Q: We made a bad mistake. A sharp-talking real estate agent conned us into signing a six-month listing for the sale of our home. She put our listing into the multiple listing service, held a tour for local realty agents, advertised one weekend open house and has hardly shown the house since then. No purchase offers so far in the two months our home as been listed.
I met a much better real estate broker who owns the largest brokerage in our town, and he said our agent has a very bad reputation among local agents and they hate to show her listings, so she gets little cooperation from other agents. We are very disappointed in our agent. She never calls us to let us know how things are going. We would like to switch to a better agent. How can we do so?
A: Your letter is a too typical situation where a home seller signs up for a long listing and then hardly hears from the agent again. Now you know why I recommend 30-, 60- or 90-day listings.
The first step to cancel your listing is to have a talk with your realty agent and her broker. If you can’t work out a satisfactory arrangement for 100% enthusiastic cooperation to get your home sold, request to have the listing canceled for lack of diligence by the agent.
Should the agent refuse to cancel, ask to have the listing transferred to the realty agent you prefer. By transferring the listing, the original agent will get a referral commission when your house sells. If your agent refuses to transfer the listing to a better agent, consult a real estate attorney before canceling the listing. However, such cancellation might incur a lawsuit for a sales commission, so be careful.
Survey Says Garage Is on Neighbor’s Lot
Q: We bought our home about 25 years ago. Last year, the house next door was sold. The nice young couple who bought it had a survey made. It says my garage is located about one foot on their side of the property line. This garage was built almost 35 years ago when our house was constructed. The new neighbor is a lawyer and he says I will have to move my garage off “his” property because he doesn’t want me to acquire title by adverse possession. What should I do?
A: Consult a real estate attorney. It sounds like your new neighbor doesn’t understand real estate law.
To acquire title to another’s property by adverse possession you would have to occupy the neighbor’s entire property openly, notoriously, hostilely and exclusively while paying the real estate taxes for the required number of years.
If your garage has encroached on your neighbor’s property for 35 years, presuming his survey is correct, you appear to be entitled to acquire a prescriptive easement. To perfect your rights, you would need to bring a quiet title lawsuit to acquire a prescriptive easement to that one-foot strip of your neighbor’s property.
Houses Are the Best Investment Today
Q: My father made several million dollars profit by purchasing apartment buildings and holding them for many years. He started out in the mid-1960s. But I am not sure apartment buildings are the way to make profits in real estate today. What do you recommend?
A: As a former apartment building investor, I understand how your father earned his profits in the 1960s and 1970s. However, owning and managing apartments today is not as easy and profitable as it once was. I shifted in the mid-1970s to investing in single-family rental houses and have been very pleased.
My suggestion is to invest in sound, run-down, well-located single-family houses that can be upgraded by making profitable improvements, such as painting, cleaning, landscaping and modest repairs. Avoid houses that need major but unprofitable repairs, such as a new roof, foundation work, plumbing, wiring and structural upgrading. After you upgrade the house, aiming for a $2 increased-value profit for each $1 spent, you can decide to either hold the house for long-term investment (called a “keeper”) or sell the house for immediate profit (called a “flipper”).
Letters and comments to Robert J. Bruss, a San Francisco-area lawyer, author and real estate broker, may be sent him at P.O. Box 280038, San Francisco 94128.
