Going Through Real Estate Agent Can Save Buyer Grief and Money
QUESTION: My wife and I are considering buying our first home. We notice many classified ads listing homes “for sale by owner.” As buyers, do you think we would be better off buying a home direct from the owner so we can save the real estate agent’s sales commission?
ANSWER: No. The market value of a home is the same whether it is sold with or without the benefit of a professional real estate agent. The recent sales prices of comparable nearby homes determines a specific home’s market value. Not realty agents. Not sellers.
An owner who is foolish enough to sell his home alone is not likely to pass along any sales commission saving to the buyer.
Since the seller, not the buyer, pays the sales commission, as a buyer it costs you no more to purchase a home through a real estate agent and to benefit from all their services. A sharp real estate agent can save you time, money and trouble by matching your home requirements with suitable houses.
A do-it-yourself home seller has only one home to sell. But real estate agents can show you hundreds of homes through the local multiple listing service. The agent can also help you arrange financing, negotiate the price and terms, and answer all your questions about buying a home. Don’t expect a “for sale by owner” home seller to give you those services.
However, when working with a real estate agent, you should discuss whether the agent represents the seller or you, the buyer. Of course, the listing agent works for the seller.
But a cooperating agent who shows you the house can either work as a buyer’s agent or as a sub-agent of the listing agent. Once you understand who the agent works for, you should have a pleasant experience buying your first home with the help of a real estate agent.
Condos Not a Good Investment as Rentals
Q: In my town, the prices of condos have gone up about 10% in the last year. Several realtors have told me this is because home prices are so high that first-time buyers have no alternative but to buy a condo. As an investor, I am considering buying several condos for rental. What do you think of condos for investment?
A: Not much. Condos are really just glorified apartments. Their rents must compete with apartments but their costs are usually higher, due to the condo assessment fee. This monthly charge pays for maintenance of the common areas and recreational facilities.
Since the monthly fee usually goes up faster than rents can be raised, you stand an excellent chance of having a substantial negative cash flow each month.
Another problem with condos is that they periodically become overbuilt. If your local market for condos is strong, it won’t take more than a few months for local builders to construct more condos, thus oversupplying the market.
Although condos can be great personal residences (my mother is very happy with hers), I do not recommend them as investments because of their many problems. You will probably be better off investing in single-family rental houses.
Avoid a Realtor Who Rejects Multiple Listing
Q: We are getting ready to sell our home and have already interviewed two agents. But the agent we liked best so far says we should not put our home into the multiple listing service. She says it cheapens the listing.
Since her company has five local offices, she claims her firm alone can sell the home with the help of their extensive advertising program. She comes very highly recommended by a friend. What do you think?
A: Not much. That agent did not tell you the real reason why she doesn’t want to put your listing into the local multiple listing service--so local realty agents from other brokerage firms can show it to their buyers.
The truth is, the listing agent and her company receive a higher net sales commission if they sell your home within their firm and do not have to split the fee with another brokerage company.
I would disregard any agent who disparages the multiple listing service, which is the most powerful sales device realty agents have. Since more than 50% of the showings of homes listed in the local MLS are by agents from firms other than the listing brokerage, you could be cutting yourself off from a significant number of qualified buyers if you don’t put your home in the MLS.
How to Handle Sale of Inherited Property
Q: I recently inherited about 10 acres in Florida. I plan to visit it next month. I know I want to sell, but I have no idea of its value. How can I best handle this long-distance sale?
A: When you visit the property, inquire which real estate agents sell the most property in the vicinity. You can find out this information from neighbors and nearby business people, especially bankers.
Unfortunately, most boards of realtors will not tell you which realty agents are most successful selling the type of property you have, but you might get lucky. Contact the board of realtors too.
Interview at least three local realty agents who are successful selling land like yours. Ask their opinions of your property’s market value and anything else you want to know. Before listing the property with one agent, phone recent sellers they represented to ask, “Were you in any way unhappy with the agent’s service and would you list another property with the same agent?”
Although land sales usually take longer than home sales, avoid a long listing. Ninety days should be sufficient. Be sure the agent understands you will renew the listing if the listing expires but the agent is doing a good job for you.
Advanced Age Won’t Hinder Sales Agent
Q: My wife and I recently moved to a retirement community. The real estate broker who sold us our home said her office is booming and they need more agents.
She encouraged me to study to get a real estate sales license and join her brokerage. But I am 68. Don’t you think that is too old? I formerly was sales manager of an industrial supply company so I know a little about sales.
A: Advanced age is an advantage, not an obstacle, in real estate sales. I know many successful real estate sales people in their 70s and even their 80s. The most successful realty salesperson in my community in 1988, out of 1,500 members, was 70.
However, don’t go into real estate sales unless you plan to work hard and be successful. If you just want a place to go to get out of the house, forget real estate sales because there are already too many part-time realty sales people.
But if you are motivated and want to be successful, enroll in the the real estate license training courses and take the license exam. If you don’t, you will always wish you’d done so.
Select Agent Who Sells in Your Area
Q: Please help us find a good real estate agent to sell our home. We listed it with a real turkey of an agent last July. As we were out of town most of the summer, we didn’t realize what a horrible job she was doing.
Although she is a realtor, and we thought they had a code of ethics, we found out later she never put our listing into the Multiple Listing Exchange as she promised to do. As a result, we learned that hardly any local agents knew our home was for sale. She was trying to sell our house herself so she would get both ends of the sales commission.
When her listing expired in September, we switched to the agent who sold our neighbor’s home two years ago. But he turned out to be a loser, too. He is now semi-retired, has an answering machine, and nobody ever gets to talk with him except through his stupid answering machine. His listing finally expired with no offers, so we are ready to start fresh. How can we find the best agent to sell our home?
A: Most real estate agents do excellent jobs for their clients. I am sorry to learn you picked two losers.
To choose the best real estate agent, limit your choice to agents who actively sell homes in your neighborhood. Notice which “For Sale” signs have been replaced with “Sold” signs.
Phone the agency to interview the successful agents who sell homes near yours. Disregard any agents who want your listing but who have not sold homes in your vicinity.
Also read the newspaper ads to learn which agents advertise homes for sale in your neighborhood. Check with those homeowners to learn if they are satisfied with their agent’s service.
Your goal should be to interview at least three agents who are successful in your area. Ask their opinions of your home’s market value.
Each should prepare a written market analysis showing recent sales prices of nearby comparable homes, current neighborhood listings, and homes that did not sell (usually because they were overpriced). Ask each agent lots of questions about their firm’s services, fees, and anything else you want to know.
Be sure each agent gives you names and phone numbers of their three most recent sellers. Phone these references to ask, “Were you in any way unhappy with your agent and would you list a home for sale again with the same agent?” You will soon know which agent should receive your listing.
Condo Owners Should Buy Insurance Policy
Q: I recently bought a two-bedroom condo. When I made the purchase, the realty agent told me I did not need fire insurance because the building carries it. But after talking with my new neighbors, I learned they carry condo owner’s insurance on their furniture. Do you think I need this insurance?
A: Yes. All condo owners should have a condo owner’s insurance policy. It pays for damage to the contents of your condo by fire and water. But it covers many other risks too.
For example, my mother lives in a condo and recently her cleaning lady broke the shower glass door. It cost $350 to replace. My mother only had to pay the $100 deductible and State Farm paid $250, which is more than her annual premium on her policy. Yes, you definitely need a condo owner’s insurance policy.
Choose Lender Who Is More Reasonable
Q: We have a home under contract to purchase and are now shopping for a mortgage. We found one lender who offers a 9.65% fixed-interest rate, but that lender is demanding unreasonable documentation, such as verifying my husband’s part-time job income.
But the realty agent recommends another lender who has a 9.75% fixed-interest rate. This second lender has already approved our loan, but the first lender is still fussing around. With a 25% down payment, which loan do you think we should take?
A: Since you didn’t give the amount of the mortgage, I cannot calculate the difference between the two loans in your mortgage payments. However, the payment difference will be very small.
More important is the ease with which you obtain the loan. If you have good credit and adequate income, there is no need for the slightly less expensive lender to verify your husband’s income.
That lender with the 9.65% interest rate is being unreasonably difficult and doesn’t deserve the privilege of doing business with you.
Title Companies Rarely See Legitimate Claims
Q: As a real estate broker for over 20 years, I have never heard of any of my clients having a title insurance claim. Last week, a new client asked me if he needed title insurance when buying from a seller who is carrying back the mortgage. This buyer is only making a 10% down payment. What should I have said to my buyer?
A: You should have explained the benefits of title insurance to your buyer. An owner’s title policy protects against unexpected title risks such as forged signatures--the biggest cause of title losses--and claims of ex-spouses, missing heirs who reappear, improperly recorded documents and a zillion other title risks.
The reason you rarely hear about a title insurance company paying a claim is that they spend most of the premium dollars researching a property’s title status to be certain there are no title problems.
However, even the world’s greatest title searcher usually cannot spot a forged signature, nor can a title company always detect fraudulent conveyances.
As you know, virtually every mortgage lender requires title insurance. Everyone will sleep much better knowing there is title insurance on the sale.
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.
