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Real Estate Advice: Your friends are great, but here’s why you should see a professional. (Pros vs. Bros)

Very seldom does a realty consult or even a simple conversation about real estate go by without me hearing about something that a potential client does not think they can do, because of the advice of a friend. More often than not, that friends advice is wrong.

This isn’t to say that you don’t have the smartest, best informed and most attractive friends. It is more to say that those friends (unless the currently work in the real estate industry) are not likely to have the most up to date or even accurate information on a subject as complicated as a real estate transaction.

Think about it. A typical home sale involves a buyer, a seller, a licensed real estate agent representing each of them, a lender (also state licensed), a title company (several licensees and an attorney), a home inspector (also state licensed), and an appraiser (yet another licensee). That’s five separate professions that the state requires licensing for. The basis for that licensing is an up to date education in their field and adherence to supplementary laws and regulations. Simply put, there are too many different factors for any one of us in the industry to be an expert in all of them. This is even more true when you are speaking to a friend (intelligent and wise as they may be) who has bought or sold a couple of houses in their lifetime.

So now that we have established that you should talk to a professional before assuming that you can’t buy (or even sell) a home, I am going to share with you some of the more common themes of misinformation about what you can and cannot do when attempting to conduct a real estate transaction.

  • I can’t buy a house because my credit score is under 600.

This one has more to do with people going to large national banks instead of smaller private lenders than it does with talking to friends. That doesn’t change the fact that this statement needs some qualifiers. To start, I know of two lenders in Indianapolis right now that are offering home financing down to a FICO score of 400. Make no mistake, programs like this come with hefty down payments and premium interest rates, but they are available and you can buy a home.

  • I can buy a house for XXX amount of dollars because I make XXX.

While your income is a determining factor in how much a lender will finance your home for, your debt to income ratio (DTI) is just as important. With current mortgage rules your DTI should be under 40% and the lower the better. Whatever level your DTI is at; that, in conjunction with your annual income, your credit score, and level of cash reserve will determine how much house you can be financed for. This is a great example of why even as I tell you that, one of the first things I will do when consulting with you as a Realtor is to advise you to see a loan officer and get preapproved.

  • An agent will push me to buy more house than I can afford, so that they make more money.

Arguably this is true to a point. To a small degree an agent will make more if you spend more. After all we are paid on a percentage based commission. On the other hand, smart agents know that if you end up dissatisfied with your experience, you will tell other people and all but the most foolish agents recognize that your good testimonial is worth quite a bit more than the extra $300 we will make per $10,000 price bump you make. This is especially true when we consider how little that $300 is compared to the negative publicity that goes with an unhappy client.

  • I don’t need to get preapproval until I find the house I want.

Sure you don’t. Well at least as long as you don’t mind watching that house sell while you wait for a preapproval from your lender…or even worse spend months looking only to find out that you will need to do months of credit repair and saving before you can buy. The truth of the matter is that quality and well priced homes don’t stay on the market long. Looking for houses without first getting preapproval is a recipe for failure and heartache. Much like using a buyers agent, it does not cost you anything but time…so why wouldn’t you give yourself every advantage when purchasing a home.

  • I should price my home higher than I want to sell it for to leave room for negotiation.
First off, you don’t have to negotiate any further than you choose. There is nothing wrong with setting a price and sticking to it, especially if you are asking fair market value. On top of that, pricing your home out of market can cause it to sit unsold for months and the longer it sits the more potential home buyers wonder what the hidden risks are in buying your house. A quality realtor will do market analysis and help you price your home to sell based on your needs and the reality of the market. You will know when that happens because your home will sell quickly and within 5% of asking price.
  • The more experience, the better the agent.

This is another situation that can go either way. There is definitely an advantage to using an agent who has been around the block a few times. On the other hand, just like in any other industry time makes agents tired. While a newer agent may not have the experience you want, they will also typically work harder, be easier to get ahold of, and be more focused on doing a great job than just getting it done. In addition to that, if you use a newer agent in an office that operates on the team concept (like Your Realty Link), you get all of their energy and the experience level of the entire team.

  • I can’t buy a new home because I don’t have a 20% down payment.

While it is somewhat true anywhere, there are multiple programs available in Indianapolis that offer home loans with no down payment, in addition to the availability of many HUD programs which allow for loans with down payments from 0 -3.5%. This has not always been true, and it may not be in a year…but at least for right now, money is cheap.

  • I need a buyers agent with a lot of his own listings to sell me.

I can see where that thought would come from, but nothing could be further from the truth. You see, and agent who has a lot of listings has probably modelled their business as a listing agency and when you call them as a buyer they will likely refer you to another agent. On the other hand, an agent with a few, or even zero listings has likely modelled their business to be primarily a buyers agent. It should be noted (because it is a major part of this misconception) that an agent can represent you while buying any property in an area they are licensed to operate. For example, I have exactly one listing as I write this article, but I have over 12,000 homes in my inventory for you to select from (plus I can represent you to build a new home if you don’t like any of them).

  • I will make more money if I sell my home for sale by owner (FSBO).

It is entirely possible to make more by spending less, but that is not how it typically turns out in this case. Market study after market study has found that FSBO homes sell for up to 15% less than homes sold by a realtor. Given that a “typical” (all things are negotiable and there is no set rate for real estate commissions) commission paid by the seller is 6%, for sale by owner home sellers are leaving a 9% profit on the table. I am sure you have heard of exceptions, but they are just that. You will net more money with considerably less effort by selling your home through a realtor.

  • A real estate agent will withhold information to get a deal done.

Certainly we have to admit that the bell curve tells us that there will be a proportional number of scum bags to the number of exemplary agents that exist, but the vast majority of real estate agents will honor their name and their license and tell you everything they can to benefit you. This industry is self policing in two ways, besides being held to state licensing. First, we belong to a local board that has the right to censure or fine us in addition to the potential for civil and criminal penalties imposed by the state. Second, we are a service business. When an agent does not do right by his or her clients, word eventually gets out and they lose business until they are starved out of the profession. We have a legal and ethical obligation to make full and honest disclosures based on agency relationship with our clients.

  • The internet has made real estate agents obsolete.

If all an agent offered was a list of houses and their locations this would be true. However, a quality real estate broker brings quite a bit more to the table. Besides saving you hours of scrolling through listings to find the home you desire, we also aspire to be financial advisors, to connect you with many needed professionals both during and after the home buying experience, to be expert negotiators, navigators of mountains of paperwork and forms, guardians against legal pitfalls, and most importantly buttresses against the stress of making what is likely the largest single investment you will ever make. If your agent isn’t doing all of those things, you should use the internet to find their replacement….not be it.

  • I need an agent that is an expert in this particular part of town.

This is one that even the industry keeps dragging around. Sure there was a time when the only way an agent could possibly counsel you on a property or area was to live in it, work in it and study it non stop. Given the amount of information that is readily available today, all pertinent facts to a neighborhood can be had with a couple hours of research and a drive through the neighborhood on a nice Friday evening. The truth is “area expert” has become a marketing ploy and a way of limiting advertising expenses…neither of which benefit the client, and the client is what matters.

  • Market value and appraisal are the same thing.

While a bank will tell you that the appraisal is the market value and will not finance a home for more than its appraisal, they are not the same. Market value is what someone will pay for whatever you are selling, be it a house or anything else. An appraisal is a value set to limit a lenders exposure to a bad loan. That said, the two are somewhat related as unless you have a cash heavy buyer, the appraisal limits market value. The two are not interchangeable though.

  • The best time to sell a house is in the spring and conversely the best time to buy a house is in the winter.

There is logic to both of these sentiments, but arguments can be made for the opposite views just as well. Sure there are more buyers in the spring so it should make sense that listing then gives you the advantage of more buyers looking at your home, but that timing also comes with more homes on the market to compete with. On the other side, sometimes sellers will capitulate a little more on price in the winter, but your house hunting may provide more limited options. The summation of this is that the best time to buy or sell a house is when you are ready to. We can help you buy or sell a home at any time of year.

  • I can get a better deal from the seller if I don’t use a buyers agent.

This misconception stems from the idea that if I don’t use a buyers agent, the seller has the money they would have paid them available to negotiate. News flash. The total amount of commission paid by the seller is pre-negotiated with the listing agent. The seller pays it whether you use a buyers agent or not. The only thing that changes when you do not use a buyers agent is you do not receive the benefits of having one.

  • Making a low ball offer (less than 10% of asking price) is always a bad thing to do.

If the listing agent has done a good job of presenting market analysis to the seller, and the seller listened….this is a possibility. However, that is not always true. Even against sound advice people overprice homes. Sometimes the listing agent misses the mark when they set the price with the seller. Other times the seller has a circumstance which makes them malleable to lower offers. Whatever the case may be, a quality buyers agent will go over the homes market value with you before you make an offer, and discuss strategies for getting the best possible price on any home. If they are worth their salt, they will also present sound arguments supporting your offer to the listing agent to help bring them to your price.

In summary:

I think this lengthy (but incomplete) list of misconceptions about buying and selling real estate illustrates why talking to a professional about buying or selling a home is going to be more beneficial than asking a buddy. On the other hand, if you have a friend who has a good experience with a particular realtor, a referral to a quality professional is of great value.

 

 

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