by Marti Kilby
Finding the right agent is an important step, as this person will be your guide throughout the home-buying process. Not only should they be well-versed in real estate, but they should also care about your needs. That being said, I’d like to share a personal story:
As I mentioned in Chapter 1, I bought my first home when I was 25, and I had no clue about how to select a real estate agent. My husband and I were renting a nice home in Mission Viejo, and one of our neighbors was a real estate agent. He spoke to us about the possibility of buying, which really got us thinking. However, we didn’t end up hiring him (which I’m sure seemed very odd to him). He was just a bit too flashy in his brand new Cadillac and seemed more interested in talking about himself than really understanding our needs. We were barely ex-Hippies, so we ended up with an agent who was a bit more low key—and his Cadillac was older. :) I have no recollection as to how we found him, but I’m just thankful that he turned out to be reasonably competent since we had no idea what we were doing!
Buyer Representation Agreements
Most buyers’ agents will ask you to sign a representation agreement, which might make some buyers nervous. However, this actually protects you by providing contractual assurance that your agent will work diligently on your behalf. Remember, real estate agents are generally not paid until escrow closes, so all of the work they do researching and showing homes earns them no money.
When a real estate agent knows that a buyer is committed to working with them, they are much more likely to expend 100% effort. On the other hand, if the agent knows that the buyer is working with one or more other agents (thus lowering their odds of ever being paid), they’re far less motivated to go all in. It’s also much more convenient (and less confusing) for you, the buyer, to be receiving calls, emails, and information from just one agent. If you are still a bit unsure about committing, sign for just three months. If you are actively house hunting, you should have either found a home to purchase in that time, or at least know one way or the other if this agent is the one for you.
Dual Agency
What if you find the perfect house, but you haven’t yet found a real estate agent to represent you? You’re anxious to write an offer. Should you contact the listing agent to write one for you?
The answer to that is generally “no.” This is probably not a good idea, and in several states it’s actually illegal. On the one hand, in a competitive market, the seller’s agent will know exactly what it will take for you to get your offer accepted, perhaps outbidding other offers. But will you overpay? Does the listing agent really have your best interests at heart? Or is the seller their first priority? And it’s not just the offer and sales price that are at stake. Who will negotiate for you if there are repairs or other items that must be addressed?
A situation where the real estate agent represents both the seller and the buyer is referred to as dual agency; meaning, the real estate agent has an equal fiduciary responsibility to both the buyer and seller. In practice, however, the potential for conflict of interest is high, and as a buyer, it is unlikely that an agent trying to get the highest possible price for their seller will push very hard for the price and terms that represent your best deal.
Every state has laws of agency that govern the obligations of a salesperson to his or her client, be they a buyer or seller. While dual agency is currently legal in California, it is illegal in several states, and more states are hoping to make it illegal because of the potential conflict of interest.
So what do you do? You’ve found your dream home, but you don’t have an agent! One option is to ask the listing agent for a referral to another agent in their brokerage, or even in another brokerage, to represent you. Be clear with the listing agent that while you’re sure they’re a great agent, you are simply not comfortable with a dual-agency situation. While each situation must be evaluated on its own merit, being a buyer in a dual-agency situation is probably not in your best interest.
Savvy Shopper Tips: Do your online research, and then meet your prospective real estate agent in person. Interview more than one if you have any question about whether the first agent is the right one for you. Don’t be afraid to ask questions. Remember, you are interviewing them for a very important job! And finally, no matter how much you love a home, asking the listing agent to represent you may not be in your best interest.
Chapter 7
Let the House-Hunting Fun Begin!
Several years ago, I was working with a lovely young couple looking to buy their first home. They said the main thing they were looking for was a single-family home close to their church, and otherwise they were pretty open. Luckily, at that time, there were quite a few homes available that fit their budget in their neighborhood of choice, so I was certain we would quickly be in escrow. What I soon discovered, however, was that they were completely unable to make a decision, and by the time they were ready to make an offer on a property, someone else had already beaten them to it.
This happened several times. It appeared that their “must-have” list was a moving target. One house was great except the back yard was a bit too small. Another didn’t have a fireplace, and yet another had an extra room they didn’t feel they needed. I don’t think they had really discussed exactly what they were looking for besides the location and number of bedrooms. They were confused and unable to make a decision. They were convinced that something even better would come on the market tomorrow. After a very frustrating eight weeks, I suggested that maybe they needed to take a time-out and collect their thoughts about what they really wanted. They agreed.
We stayed in touch, but six months later, they moved out of state where they thought it would be easier to find their perfect home!
The first step in your home search starts with understanding what you’re looking for, and communicating that to your real estate agent. The more your real estate agent knows about your wants, needs, and qualifications, the quicker they will find you the right property. In the next section, I’ve put together some questions to get you thinking. Share the key points and “must-haves” with your real estate agent, and get ready to house hunt!
The First Step: Buyer Questionnaire
Why do you want to buy a home? Have you previously purchased property, or is this your first experience?
Are you looking for a single-family home, or a condo? Will this be your primary residence, a second home, or a rental property?
How soon do you hope to complete the purchase? Are there any deadlines? Do you have a home to sell before you can buy?
Will you be paying cash or financing the purchase? If obtaining a mortgage, have you been pre-approved? What is your price range based on your pre-approval and available funds? Can you supply your real estate agent with a copy of the pre-approval and proof of funds for the down payment and closing costs?
Is there a particular area or neighborhood that you would like to target? Are you willing to look outside your target area?
Is there a particular style of home you would love to have, or a style you would never consider?
How many bedrooms would be ideal? How many bathrooms? Do you want a formal dining area? Are there any other must-have rooms or features, such as an office, playroom, or man cave? What about a fireplace, A/C, RV parking, a walk-out basement, or a view?
What is the minimum number of square feet you would find acceptable?
What are your needs as far as outdoor space? Are you excited about gardening, or do you prefer to have your yard maintained by someone else?
Do you need a garage? If so, how many spaces would be ideal? Do you need to be close to public transportation?
Do you prefer a single-story home or are two or more stories acceptable? Are there any other accessibility requirements, such as ramps or wider doorways? What about baby safety?
Do you want a home with a pool and/or spa?
Are you open to viewing homes that might need renovation or cosmetic updating? If so, how much work are you willing to underta
ke?
Do you expect to have laundry facilities in your home, or in the case of some condos, are community laundry facilities acceptable? For in-home facilities, do you need a separate room, or is the garage or basement an acceptable location?
Do you need to be in a particular school district? Do you need to be within walking distance to shops and restaurants?
Are you comfortable with a property that has a homeowners’ association? What are the maximum monthly HOA dues you would consider? What about paying Mello-Roos fees (see Glossary)?
By answering these questions, not only will you be looking at the homes best suited for you, but your real estate agent will be able to determine whether or not your expectations are realistic and provide you with guidance if not.
The Second Step: Looking at Houses
The second step is the fun part: Looking at houses! The process can be a bit overwhelming, especially for a first-time buyer, so here are some tips that will help keep you focused and on the path towards homeownership:
Be clear about your budget and stick to it. It’s okay to look at homes that are slightly above what you want to spend, as there is often the opportunity to negotiate a lower price. However, be aware that in today’s competitive market, most properties receive multiple offers, and sellers may not need to discount their prices. Your maximum budget should equal the size of the payment you are comfortable paying each month, not necessarily the max for which you have qualified.
Location, location, location. The location of your home not only helps determine price, it is a huge factor in your daily life. For instance, buying in a more outlying area means that you will likely get more for your money, but are you prepared for the added commute time? And what about the neighborhood itself? It may seem calm and quiet at 11:00 a.m. when everyone is at work, but what about Saturday night? Does it turn into party central? It is always a good idea to visit a neighborhood in the evening and on the weekend before buying. Walk around and talk to people and try to get a real feel for what it would be like to live there.
Age matters. There is nothing wrong with buying an older home. In fact, in many areas, there are numerous benefits, such as larger lots and character details. However, when viewing an older home, pay close attention to big-ticket items. How old is the roof? Do the windows need to be replaced? Is the electric panel updated and capable of handling the load of all of today’s appliances? Are the furnace and water heater on their last legs? Items that will need to be replaced or updated shouldn’t necessarily be a deal breaker, but they should be taken into consideration in terms of the price you offer and the funds you will need to complete the work.
Look at the bones, not the makeup. Buyers may be swayed by the way a home is decorated, which is why homes are often staged. For instance, did you ever notice that in model homes all the interior doors are removed to help make the rooms feel larger? The use of mirrors, lighting, and the strategic arrangement of furniture is often used to give a home the sense of being move-in ready. What you need to look at, though, is the flow and size of the rooms, and how well it fits your lifestyle. For instance, if you love to entertain, a home with no space for a dining table might not be a good option. Or, there might not be a logical place to put your big-screen TV. The opposite situation is also a problem. If a home is a cluttered mess, dirty, or poorly decorated, it may be hard to visualize living there. Focus on the layout, not the color of the walls or the things filling the space. And remember, moving walls and remodeling kitchens are expensive!
Take pictures and notes. As you enter a property, take a picture of the address. If you do that first, you will know that the pictures that follow are of that particular property. Your real estate agent should provide you with a printed flyer for each property you visit. As you view a home, take notes on the back of the flyer about things that stand out for you, both positive and negative features, and take a photo. That way, you have both pictures and notes to review later. This is especially important if viewing several homes in one day. The various attributes of one property versus another can all swim together in your head. To help you keep everything organized, please see the House-Hunting Checklist in the Appendix.
Rein in your emotions. Don’t get me wrong, selecting a home to buy is a very emotional experience, with a large number of people saying they just “knew” the minute they walked in the door. Getting a good vibe from a home is important, but try to specifically identify what it is that has you feeling so ready to commit, and then balance that against your “must-have” list. It may be the kitchen of your dreams, but the family room is too small to be practical. The view is breathtaking, but the location will add an extra hour a day to your commute. An experienced listing agent will make sure the marketing and staging focus on the best features of the property. Just make sure you stay focused on everything that will make this the best livable choice for you.
No home is perfect. Be prepared to compromise on something. Unless you are building a custom-designed home in your dream location, there will likely be something about the home you buy that is not quite perfect. The important thing is to know the difference between what you must have and what you can live without.
For instance, if you must have a separate bedroom for each of your kids, that should not be an area of compromise. However, if you find a home that is almost perfect, but it doesn’t have a fireplace or walk-in closet, those might be things you could do without in order to get everything else on your list.
The Third Step: Writing Your Offer
The third step is to write your offer ASAP! In this competitive market, if you find the home that’s right for you, write your offer immediately, as there will likely be multiple offers. Remember, it is much easier to get out of a deal than to get into one! And as you’ll learn later in this book, you are generally protected against losing your deposit during your inspection period. So go for it!
Savvy Shopper Tips: Be clear about what you need and what you want. If buying with a spouse, family member, or friend, make sure you have a very candid discussion about which features or attributes could become a deal maker or breaker. Be organized in your house hunting. Make the effort to take notes and photos. If there are properties that are a definite “no,” put them aside in a separate folder to help you stay focused. It is advisable to write offers on more than one property at a time. Better to be in the position of choosing between two accepted offers than not even in the game!
Chapter 8
Dream Home or Nightmare? The Pros and Cons of Buying a Short Sale or Foreclosure
Back in 2009, I was working with a couple looking to purchase a home with enough room for an extra garage, as the husband loved to fix up old cars. I located a property that had been foreclosed and was now owned by the bank. It had been sitting on the market for a while, as the home’s design was rather taste-specific and not everyone’s cup of tea. My buyers were okay with the house (he was more interested in the generous lot size and huge parking area and she rather fancied all the archways), so we wrote an offer that was quickly accepted.
The property was not sewer connected, being in a slightly rural area, so as part of their due diligence, my buyers ordered a septic inspection. What a surprise when no septic tank cap could be located! The bank, of course, had no knowledge of the property, so the only way we could discover the location of the septic tank was for the septic technician to trace a signal on a device he flushed down the toilet. When the sensor tracked the beacon, we discovered that the previous owner had poured a driveway over the top of the septic tank—totally in code violation. Not only should a septic tank not be located under a driveway, they’d also covered access, so there wasn’t even any way to pump it!
What a mess! In order to make the house livable and to code, the concrete over the tank would have to be removed, the tank relocated and installed, and new concrete poured to re-route the driveway. The quote was $30,000! We were at an impasse. The bank did not want to pay to have all of this work completed, and
the buyers didn’t have an extra $30,000 to complete the work, even if the bank lowered the price. Plus, the lender for my buyer’s new loan would not lend the money without the septic tank clearance.
We went back and forth with the bank trying to resolve the issue. I knew the bank was in a tough spot because now that they had the report and knew about the septic issue, they were legally bound to disclose the information to any potential buyer, and all they wanted to do was get the deal closed and off their books.
I finally suggested a compromise: The bank would pay to have the concrete removed covering the septic tank and pay to have a new one installed in an approved location, with permits. This would be sufficient to satisfy my buyer’s lender. The bank would also reduce the price of the home by $10,000, and my buyers would take on the responsibility of pouring a new driveway after close of escrow. Whew!
Even though the number of distressed properties on the market has diminished considerably over the past three years, short sales and bank-owned properties are available in most areas, and they still hold appeal for many buyers. Depending on the area and condition of the home, distressed properties typically sell for about 10% under market value, making them especially attractive to investors and buyers looking for a good deal.