Real Estate News

Why today's homebuyer needs a real estate agent more than ever

Last summer I got an email from a local real estate attorney who wanted to buy a house. He’d just gotten engaged and wanted to save some money by representing himself.

This attorney wanted to do all the work an agent would do to find and buy his first home, and get paid a commission for his work. I explained to him that the commission is payable to the listing agent who agrees to pay a portion of it to the Realtor representing a buyer.

Usually, if there’s no buyer’s agent, the seller’s agent gets the entire commission. Some agents will accept a reduced commission for representing both parties. The seller saves some money that way. Sometimes the savings get passed along to the buyer. 

I get several emails each year from homebuyers, usually first-timers, who want to know how they can get a real estate license so they can save money on the purchase of a home. They find me through my Real Estate Blog, and apparently decide that I am too scary to work with, but not so scary that they can’t ask me a question or two.

I always let them know that they do not need a license to buy a home, and that they do not need a real estate agent. After I explain to them how to get a license — and that they have to work through a broker, who generally gets a percentage of each commission — they start to let go of their dream of being paid to find their own home.

The buyers who want to do this are usually planning on buying a home that costs $300,000 or more — higher than average for a first-time homebuyer in this market — and planning on saving at least $9,000 by doing the work themselves. 

I decided that helping the attorney would be an excellent learning experience for me. So I agreed to help him buy a house without a real estate agent if he would share his experiences with me so that I could learn how to better help my buyers and sellers.

He started his search for a home the next weekend. I advised him on how to ask for a price reduction, or have the seller pay closing costs, equal to roughly what the listing broker was expecting to pay out to a cooperating broker bringing a buyer to a sale.

I told him not to use the contracts that lawyers use, but to use the contracts that real estate agents use. I advised him to write the price reduction into the contract, and explained to him that agents do not have to cut their commissions.

If I were representing a seller who got such an offer from an unrepresented buyer, I told him, I would certainly consider cutting my commission — and I suspect I would get a little pressure from my sellers to do so.

The following Monday, he emailed the wording of the first offer he planned to submit.

I made several suggestions on how to make the offer better and more competitive, so that he would have a chance in a multiple-offer situation. We shortened the inspection period and removed some additional contingencies he had put into the offer that were unnecessary.

He wrote offers on five houses where he was competing in multiple-offer situations. None was accepted. Most buyers would have given up even if they had been working with an agent. But this guy was on a mission.

There were no other offers on the home he finally bought. He spent many, many hours looking at houses, doing research and juggling appointments with listing agents.

When he was done, he told me that if he did not love real estate and have a passion for it, he never would have had the patience or taken the time to work without an agent. He could have made more money than he saved, he said, if all the hours he’d spent searching for and negotiating a home purchase had instead been spent working his job as a lawyer, generating billable hours for clients.

One of the biggest challenges he had was scheduling appointments to see the houses, and seeing the home before someone made an offer. He found some of the real estate agents to be helpful. Others clearly did not know what they were doing, and that made it harder for him to buy the house.

The house he ended up with was overpriced and, as a result, did not get any other offers. He was able to buy the house for slightly less than market value.

When I complimented him on his negotiating skills, he told me why the seller accepted his offer. It came down to the buyer being in the right place at the right time. But he also did his homework, and knew the approximate value of the house.

He saw that it was overpriced, and was not afraid to make an offer that was significantly less than asking. It is often very difficult to convince buyers to make a fair offer that is significantly below the asking price.

This lawyer got no advice from me on how much to offer, which houses to make offers on, or which ones to look at. But I did tell him which websites have the most accurate information, and the greatest number of homes that are really homes for sale.

I gave him a little guidance on strategy, business practices and how to use Minnesota real estate contracts. He tended to write offers without considering the seller at all. I encouraged him to get as much help from his lender as he could.

I think it was easier for buyers to represent themselves when it was a buyer’s market. Multiple-offer situations are very common today, and he lost every time he competed in such a situation. Today’s buyer often has to compete with experienced agents, and may be at a disadvantage.

Just this week I got an email from a buyer who wants to save money by working alone instead of with a real estate agent. He started this endeavor by asking me, a real estate agent, questions. So I know we still have some credibility.

First-time buyers, in particular, seem to feel as though we get paid way more than we should, and some are not so sure we are worth it. I advised him that if he does not want to work with agents he should also consider approaching homeowners who are not working with agents.

Earlier this week I went to a closing for a buyer who had purchased his ninth home and would not even consider doing it without an agent.

He asked for my advice every step of the way, and made it clear upfront that he was looking for an agent who has more experience than he does.

That is what my clients are paying for. And that’s all the attorney who wanted to do the agent’s work himself needed from me, too.

New-Home Construction Hits Fastest Pace in 5 Years
Homebuilders are ramping up new-home construction at the fastest pace in more than five years, the Commerce Department reported Wednesday.

Construction of single-family homes and apartments in November rose to a seasonally adjusted annual rate of 1.09 million, a 23 percent increase over October’s pace. It marks the fastest pace since February 2008.

Broken out, housing starts on single-family homes surged nearly 21 percent in November, the fastest rate since December 2007. Apartment construction jumped 26 percent.

"Single-family and multifamily starts are at five-year highs, providing additional evidence that the recovery is here to stay," says David Crowe, chief economist for the National Association of Home Builders. "We hit a soft spot this fall when interest rates jumped and the government closed down, but mortgage rates still remain very affordable and pent-up demand is helping to boost the housing market. We expect a continued steady, gradual growth in starts and home sales in 2014."

Meanwhile, overall permits — a gauge for future building activity — dropped 3 percent in November, mostly attributed to the volatility in apartment construction, the Commerce Department reports. Permits for single-family homes rose 2.1 percent.

Regionally, home construction increased the most in the Midwest and South, rising 41.7 percent and 38.5 percent, respectively, in November. Home construction also ticked up by 8.8 percent in the West, but declined by 29.4 percent in the Northeast.

Housing inventories remain tight, with inventories of homes under construction hovering at a four-and-a-half-year low.

4 Home Buying Ducks to Get in a Row for 2014

1. Get a vision. The real estate market is a complex system of constantly evolving dynamics, information and realities. Going in with a clear vision for the outcome you want to create is essential to helping you stay moving in the right direction, especially given that you’ll need to be flexible and make some compromises throughout the process. I encourage you to take a time-out from the busyness of your day-to-day life and devote an hour or an evening to putting, in writing, all the elements of your vision for the life you’ll have - and your family will have - once you move into your next home.
At this stage, don’t be too narrowly focused on what the house itself will look like. Instead, deal with everything you can think of in terms of how you want to experience your daily life, including things like where you work, how you get there, and how much you work - and how you would like this to change over time, and what you want to do with your spare time and money. Getting a vision for this will help you drill down into the more granular details of the specifications for a home that will successfully, sustainably serve as the backdrop for the life you’re trying to create, while allowing you to flex and flow with the realities of the real estate market.

2. Put your team in place. I believe that the agent and mortgage broker you select are two of the most important decisions you’ll make in the course of buying a home. The right agent can create a transcendent experience in which you not only buy a home, but are exposed to possibilities for your life you would otherwise never have even considered. A great agent can coach you, advise you, mediate disputes for you and execute on your action plan with you. A great mortgage broker, similarly, can surface options and issues you would otherwise not have appreciated.
And the opposite is true: being represented by professionals who don’t get you or don’t have the expertise you need can really sour your experience of buying a home.
So, work now - way in advance - to get your team in place. Ask your friends and family members if they have an agent or broker they just loved, and when someone says “yes!” ask for an intro. Check out your list of agent suggestions online: check their Trulia reviews and profiles, review any answers or blog posts they’ve put up on Trulia or elsewhere, follow them on Facebook to get a sense for their approach and personality flavor, and reach out to them via whatever communication medium you prefer (e.g., phone or email). Then book a few meetings and, while you have the luxury of time, get to know them each a bit better, essentially interviewing them for the position of your personal real estate or mortgage advisor. While you’re talking, look for a fit in terms of: the types of buyers they have served in the past, the types of recent successes they have had in representing buyers like you, the areas and property categories in which they have experience, and whether their approach to giving advice and education works well for you. It’s not overkill to check references, either, so ask your interviewees for a few recent references of buyers they have worked with.

3. Credit check yourself before you wreck yourself. I know, I know, you’ve heard it a million times - go to (the government-mandated free credit report site) and pull your credit at least a year before you buy. This gives you a chance to review all 3 reports, flag any inaccuracies, dispute them and get them corrected way before your home loan weighs in the balance. It also gives you the opportunity to have your mortgage broker flag any issues that might make it difficult for you to get a loan, so you can work on them with ample time to correct the situation. That might mean paying down some bills, resolving any outstanding collections, making sure you don’t create any new bills and even, in some cases, establishing credit lines.
The challenge here is that we’ve all heard it so much, it’s quite easy to simply ignore this advice. Let me urge you not to do this. I’m not even in the market for a home, but I just ordered my own credit reports just to review them and follow my own advice. I was stunned - stunned! - to see about 7 – SEVEN – glaring inaccuracies. Multiple accounts that had long been paid off were still being reported as open and having balances due, and there was even one account I had never even heard of before! A woman in my office just did the same and realized that someone has been committing identity fraud in her name, opening accounts of which she was totally unaware.
These sorts of findings are concerning no matter when you find them. But if you don’t find out about them until you’re already in love with a home, the 30 days it can take to resolve them can seem like an eternity - and can even be the deal-killer on allowing you to actually close on your dream home. The reality is that sometimes it can take much longer than that to resolve inaccuracies - and it will almost certainly take much longer than that to pay bills down and to execute on other line items on your mortgage pro’s action plan for you.
So, don’t wait until the last minute. Actually, do the reverse: pull your reports asap and spend your downtime over the holidays working through them, disputing anything you need to and calendaring a call with your mortgage pro to get a briefing on what you need to do to present yourself in the best light to lenders.

Side note: For small issues, some lenders can facilitate what is called a rapid rescore, which allows you to dispute and correct inaccuracies within a shorter time frame, for a fee - but you should not count on it eliminating every inaccurate report in a couple of days. Sometimes it takes a couple of rounds of disputes.

4. Cash to Close. Coming up with all the cash you need to close a home purchase simply takes time. And sometimes, it’s hard to know whether you’re truly ready to start your house hunt in earnest without knowing with some precision how much you’ll really need. You might be trying to save up 10% of your target purchase price, which is great, but that strategy overlooks the fact that you might also need to be stockpiling funds for additional fees and costs of closing the deal, like: inspections, appraisals, title insurance, escrow fees, mortgage closing costs and property transfer taxes, to name a few. When you pick your mortgage broker, work with them to get a better understanding of what your savings target should be for cash to close, given what sort of property you’re aiming to purchase and what you can afford to spend on it, from a purchase price perspective.

Things to Watch in Housing in 2014

For housing, it was a tale of two halves in 2013. During the first half, unusually low supplies of homes and low rates spurred bidding wars, pushing prices up sharply. During the second half, the frenzy cooled amid a sudden spike in interest rates. While more markets are now reporting increases in inventory, the number of homes for sale remains quite low.
The bull case for 2014 goes something like this: those low inventories will support rising prices.
Below-average levels of household formation, the argument goes, must ultimately pick up, boosting construction. Mortgage rates, while higher, are still historically low. Credit standards will stop getting tighter, and might loosen as home prices rise. Finally, mortgage delinquencies are dropping. While some states still have elevated foreclosure inventories, the worst of the distressed-housing problem is in the rear-view mirror.
The bear case, meanwhile, says that the recovery is a mirage built on the back of the Federal Reserve’s stimulus that has done little more than inflate asset values, including home prices.
Record low interest rates, the argument goes, unleashed demand from both borrowers and all-cash investors seeking returns on something—anything—with a decent return. These investors built large rental-home companies that remain untested at scale. How can first-time buyers take the baton from investors at a time when prices are up almost 20% in two years and when interest rates are rising?
Other problems loom: Mortgage rates could jump, choking off housing demand and curbing new construction that remains mired at 50-year lows. Investors could unload their homes if the rental-home thing doesn’t pan out. And don’t look for much help from mortgage lenders that face a cocktail of new regulations, which could keep credit standards stiff.
So which view will carry the year? Here are five wild cards to watch this year:

1 Will Inventory Rise?

Prices have risen largely because of shortages of homes for sale. While there is growing evidence that inventories hit bottom last year and that some markets are moving back in favor of buyers, the number of homes for sale remains relatively tight still. Foreclosure-related listings have plunged, and traditional buyers haven’t flocked to list homes—at least not yet. New construction, meanwhile, won’t be back to normal historical levels for years. The consensus view is that price growth continues at a somewhat slower pace, but that consensus view could be wrong—for the third year in a row—if there aren’t more homes for sale.

2 Where Is the Home-Construction Recovery?

While home prices have recovered strongly, new construction activity hasn’t. Part of this may have to do with the fact that home prices are still too low to justify construction, particularly given land, labor, and materials costs. For smaller builders, credit may also be harder to come by. Some economists say new-home demand could remain muted because many move-up buyers don’t have enough equity to “trade up” to that new home. Key issues to watch here: What happens to household formation, and do builders begin to throttle back price gains in favor of selling more homes in 2014?

3 What Happens to Mortgage Credit?

Lenders could begin to ease certain “overlays”—or additional credit and documentation checks—that have been imposed over the past few years. Mortgage insurance companies are getting more comfortable insuring loans with down payments of just 5%. So don’t be surprised if, at the margins, it gets a little easier to get a mortgage—especially if you have lots of money in the bank.
Even if it gets easier to get a loan—by no means a given—borrowing costs and fees could rise. Banks also face new mortgage regulations that could keep most of them cautious. Borrowers with more volatile or harder-to-document incomes, including the self-employed or those who make a lot of money on commissions, bonuses, or tips, could continue to face tough sledding.

4 What Will Investors do With Their Homes?

A handful of institutional investors have purchased tens of thousands of homes for sale that are being rented out. These homes tend to be concentrated in a few of the regions that have been hardest-hit by foreclosures over the past five years. Investor purchases played key roles in stabilizing prices, especially because investors were wolfing up homes at a time when supplies were already dwindling. A key question now is what happens after the initial rush to invest subsides. More lenders and investors are extending debt financing to some of these property owners, which should help boost returns. Can owners perfect the expense management associated with maintaining and leasing tens of thousands of individual homes?

5 When Does Housing Hit a Tipping Point on Affordability?

Rising home prices are a double-edged sword, especially in pricier coastal markets such as San Francisco and Los Angeles. On the one hand, rising prices are giving many homeowners equity in their homes again—an extremely positive development to the extent it means these borrowers are less at risk of foreclosure.
But price inflation is making housing less affordable. This will be a bigger problem if cash buyers retreat from the market in 2014 and/or if interest rates rise in a meaningful way. Consider: In Los Angeles, prices have jumped by nearly 30% in the past two years, to a median of $448,900 in the third quarter. Assuming a 20% down payment, the monthly payment of principal and interest on the median priced home has jumped from $1,255 in the third quarter of 2011 to $1,823 in 2013—a 45% increase.

More Homebuyers Willing to Compromise

Faced with tight inventories of homes for sale, more buyers are realizing they may have to bend a little in order to get the home they want.

According to a new survey by the real estate brokerage Redfin, 35 percent of real estate agents said that buyers are now “willing to pay more” to find a home compared to this summer. About 30 percent of agents also reported that buyers are more “flexible on features,” held “lower expectations” for how far their money would stretch, and were “looking to new construction” due to inventory constraints. Real estate agents also reported that homebuyers were more “prepared to waive contingencies” in order to win a bid.

Eighty-seven percent of the Redfin real estate agents surveyed cited “limited inventory” as the biggest challenge that homebuyers face nationwide.

While homebuyers may be getting more realistic about market conditions, the survey found that sellers are not. Sixty-three percent of agents said that sellers have “unrealistic expectations” about the value of their home. What’s more, 31 percent of agents say that sellers also are frustrated with the number of homes available that they would be interested in buying.

It's The Price That Sells a Home

You've heard the old saying - "Location, location, location." The real truth is "Location, condition, and price." And price trumps every other factor. Location affects the value of a home, but it's price that sells a home. Oceanfront, mountainside, or penthouse, the most desirable location in the world won't sell at the wrong price.

Every property has a potential buyer, but like rock, paper, scissors, it's sometimes hard to know which factor is going to win the showdown. A good location will sell at a fair price. A bad location will sell at a fair price, too. It just won't be as a high as it would be for a good location.
A home in good condition will sell for a fair price. A home in poor condition will also sell at a fair price. Again, it won't be as high as a comparable home in better condition.

But neither location or condition will sell any house. Only one thing does that - price.
So if you're a seller waiting for that "special buyer" who will appreciate your faded pink and black bathroom tile, your vintage orange shag carpet and is willing to help you put your kids through college because of your real estate prowess, you're going to have a long wait.

So if your home is represented by an agent, and it's been on the market for a long time, chances are it's your own fault.

Maybe you didn't listen to your agent when he said you're pricing your home above the market. Maybe you got mad at the first few folks who looked at your home and didn't make offers.
When the showings stopped completely, maybe you accused your agent of not doing a good enough job.

You put the blame on everyone except where it belongs - on you. It's not about you, what you want, or how much you need for your retirement.

It's about the price.

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