Going it Alone is a Thousand Dollar Plus Gamble

Working with home buyers is fun and rewarding. It can be the best part of my job as a REALTOR®  Whether they are First Time Buyers. Move up Buyers. Relocation Buyers--You name it—I love them!
That is why when a young, pre-approved couple called for a showing on a home I have listed awhile back, I was excited. I pulled together my Home Buyer’s Packet with information and tips for people in the process of buying a home and headed out.

I've been doing this for some time now and realize that most people do not fall in love with the first home they are shown. But, home buyers today are better informed. They scour the internet for weeks, even months before calling or emailing a REALTOR®. So after a few pre-qualifying questions, I knew this young couple was ready to buy their first home.

I arrived to the home first and turned on all the lights to brighten up the place. A few minutes later several cars pulled up. The young couple, both sets of parents and a few assorted siblings got out to inspect the property. After looking everything over, I asked the young people the big question:"While you are out looking at homes, are you looking for a REALTOR® at the same time?"
Usually the answer is vague so I am ready with my speech about choosing a real estate agent. But before I can start my spiel one of the dad’s spoke up. “They don’t need an agent. They will get a better deal without one.”
OK. I just met the young couple and their parents so I knew it was in my best interest to tread lightly here. I wanted a further explanation of this guy's reasoning, so I asked. It was his belief that with both sides of the commission on the table a better deal could be negotiated.

Interesting theory...I've heard it before, but that's almost never what really happens. Yes, there can be variable commission rates with dual agency so the offer could be a bit more attractive to a seller so maybe some of that could get passed to the buyer. But that amount is negligible in the grand scheme of things when buying a first home.

The total commission paid by the seller on a $200,000 home will run anywhere from $8,000 to $14,000. Now unless the agent is with a very small independent firm and also the listing broker, a percentage of the commission will go to the brokerage; usually 25-50%. Now we are down to a total commission for the agent of $4,000 to $7,000. How much of that will the buyer see in a lower purchase price? Maybe $1,000 to $2,000. Is it worth a thousand bucks to gamble that a great agent is going to be the listing agent on YOUR dream home?
In the alternative, if a home buyer signs a buyer’s representation agreement with a REALTOR®, the savings can be in the tens of thousands. When you work with a REALTOR® to show you properties, that agent will help you through the negotiations, prepare a market analysis for the neighborhood, and assess each property with you. When you walk into a home unrepresented, the listing agent is working for the seller unless you sign a contract and agree to dual agency. The agent owes the fiduciary duties only to the seller, including disclosure and confidentiality, so everything you say about your financing and interest in the home is disclosed to the seller as required by the listing contract.

Minnesota state law requires that I disclose that I am working for the seller when I first meet with buyers. When I explained the Minnesota agency disclosure document to this particular young couple, it was the first time they had seen or heard of it after viewing several homes with a variety of agents. It was obvious to them that not all agents are following this law.

This is where I will leave the story of these first time buyers but I want anyone considering buying a home to remember this, buyer’s representation with a REALTOR will save you money. Here are a few examples of how this savings can work:

New Construction—When buyers visits a model home, the sales agent in the house will quote the list price and discounted savings that the builder is offering. That's it...End of Story. But, if buyers sign with their own agent, often a better price can be negotiated with the builder. I had clients who saved an additional $15,000 last year on their dream home from the price quoted by a sales agent. Had my buyers walked into the model without me as their REALTOR®, they would have paid more for their home.

Existing Homes—As I walk through each potential home with buyers, I point out concerns to address in the purchase agreement. Will the upgraded fixtures stay with the home? Is that discoloration a moisture problem? The carpet, roof and/or furnace needs replacing, can it be done prior to closing?

As a buyer’s agent, I discuss these issues with my buyers on each home and assist in structuring an offer addressing the defects and repairs that might be needed. I also assist my buyers in determining a fair initial offer on the home based on comparable homes that have been recently sold in the area. If the home is overpriced, we might be able to negotiate a lower sales price. If the roof needs replacing and we are able to negotiate a new roof, that can be $4000-6000 in savings alone.

Will the listing agent point out all concerns or that the home is overpriced? The short answer is no, as they are working for the seller. Unless it is a material fact about the property, there is no duty to disclose to the unrepresented buyer.
Septic Systems and Wells—These are important and very expensive issues when considering purchasing an acreage property. A REALTOR® who work mostly in the Minneapolis/St Paul metro might not know how to address these home features. If after agreeing on a price for the home, the septic or well does not pass an inspection, who pays the thousands of dollars for the repair or replacement?

If you are looking at an acreage property, having a REALTOR® that understands how the testing process works is essential. The cost of replacing a failing septic system can be cost $10,000-20,000, not including replacing landscaping for the new drain field. Wells can have a similar price tag if complete replacement is required.

Service Professionals—Whether you need a loan officer, title company or inspector, a REALTOR® will usually have a list of service professionals at their fingertips to get the job done efficiently and at the lowest possible cost to you. Most buyers do not have first hand knowledge to make a great selection for these professionals. When making the single largest purchase in your lifetime do you really want to take your chances finding someone on Google? I work in this industry everyday and know when it is worth it to pay a few dollars more and when the savings is not worth the cost.

The bottom line when buying a home is, you need a knowledgeable adviser in your corner. Partner with a REALTOR® you trust before you find that dream home. Not only can it save you thousands, it can save you headaches as well.

 

Copyright 2012 www.terieckholm.com

First Time Homebuyer’s Real Estate Word for Today is Dual Agent

In a past episode of Cash Cab, an Emmy award winning television game show, a taxi full of contestants with stumped by the acronym, FSBO. This is a term often used in the real estate world to describe a person selling their home by owner (For Sale By Owner). As a REALTOR® I was a bit surprised but then I started to remember of all the times a glazed look came over a buyer’s eyes when I mentioned escrow or earnest money. These terms are also easily be confused with other real estate and mortgage terms like down payment or cash to close. Buyer confusion is totally understandable because homebuyers are not buying a house everyday.

This is only one of many terms that could possibly confuse a First Time Homebuyer so I thought a glossary of real estate terms might be helpful. For the past several weeks I am presented terms often used by REALTORS® in a series of posts for the first time homebuyer with explanations. This way you can skip buying that big “how to buy a house” book or attending that First Time Homebuyer Class and have a quick resource at your fingertips. I am continuing the series with Today’s Real Estate Term:

Dual Agent When the same broker represents both the buyer and the seller in a transaction it is Dual Agency. The term dual agent sounds a bit sinister, after all in a good spy movie a dual agent is sharing secrets and usually to the detriment of both countries and organizations involved. However in real estate there is no espionage involved. All agents must explain agency to clients before substantial real estate discussions take place.

All real estate agents work for a broker which an organization that holds their license. In a smaller company, the broker may also sell real estate and work as an agent. In fact, her/she may be the only agent in the brokerage. The important thing to understand is that every agent working for a specific broker in essence represents every buyer and seller when a contract for representation is signed. This means no agent in the brokerage can do anything to break the fiduciary duties of loyalty or confidentiality (or any other fiduciary duty).

So when an agent at a specific brokerage writes up a contract for his/her buyer for a colleague’s listing the office, that agent is no longer a buyer’s agent. It becomes a dual agency. A buyer needs to understand that he should sign a contract for representation BEFORE seeing any homes or writing up any offer. At the point of the contract, the buyer can agree to dual agency or request exclusive buyer agency. If the buyer agrees to potential dual agencies, they may choose to visit homes listed by their agent's broker. Whenever they do, their buyer's agent automatically becomes a dual agent and cannot discuss offer any strategy that would compromise the seller (and vice versa).

Copyright 2011 www.terieckholm.com

First Time Homebuyer’s Real Estate Word for Today is Fiduciary

A couple of weeks ago, a friend mentioned a new company had opened in the Minneapolis/St. Paul area. He later realized it was just Fair Isaac now going by the new name, FICO. I was taken aback by the confusion because most people living in the Twin Cities north metro are aware the business analytics company, Fair Isaac Corporation, has been located in Shoreview for decades. What surprised me is that few outside the real estate and mortgage industry may have made the connection that FICO is an acronym for the Fair Isaac Corporation.

Once again, I was a bit surprised that such a simple term I use everyday as a REALTOR® would be unknown to others. But then it got me thinking of all the times a glazed look came over a buyer’s eyes when I talked about escrow or earnest money. These can easily be confused with other real estate and mortgage terms like down payment or cash to close. It is totally understandable because most homebuyers do not buy houses everyday.There are so many terms that could possibly confuse a First Time Homebuyer that I thought an online glossary of real estate terms might be helpful. So over the next several weeks I am going to have a series of posts for the first time homebuyer with explanations of the most often used (and sometimes confusing) real estate terms. This way you can skip buying that big “how to buy a house” book or attending that First Time Homebuyer Class and have a quick resource at your fingertips. Today’s Real Estate Term is:

Fiduciary—A relationship of trust created when a buyer or seller signs a contract with a REALTOR®. After a contract is signed, a real estate agent has several fiduciary duties that protect their client not just through the transaction but beyond it as well. This means as a first time buyer, once you sign a contract with an agent, that agent cannot tell others anything that is private about you or your situation to anyone. In Minnesota, these duties require your agent to be loyal, confidential, and obedient with your instructions. They are accountable to you and must disclose any information they learn that would benefit you in the purchase of a home. Throughout the transaction and afterward, they must use reasonable care to protect you and your interests.

It is important for a first time buyer to understand this term because every seller that is listed with a real estate broker has a contract in place. This means when a buyer calls the listing agent for information or stop by at an open house, the friendly REALTOR® asking you about your ability to buy a home is under contract with and WORKING for the SELLER. This agent has a fiduciary duty to disclose everything you have said to the seller of the home. But it is not a two way street. The friendly agent cannot tell you anything about the seller that the seller doesn’t want you to know. Because of their contract, the agent cannot say why the seller is moving or if a price reduction is in the works.

As a home buyer, it is essential to interview potential agents to assist with the home search as soon as possible in the process. When good match is found, sign a contract with a REALTOR® so that your interests and information are protected. Then REALTOR® can make calls to other agents on homes, set up private showings and assist you through the homebuying process. The agent will work for YOU! The contract does not have to be a long term commitment. I often sign up new clients for a couple of weeks and extend the contract once we have formed a stronger relationship. Rest assured that even if you decide to part ways with your agent, the fiduciary duty to keep your information private continues forever.

Copyright 2010 Teri Eckholm