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The 10 Biggest Mistakes Home Buyers
Make
1. Calling the real estate agent on the sign in the front lawn. The sign on the front lawn of a house (or in a magazine or newspaper ad) has been put there to get you to call the listing agent. That is the No. 1 purpose for a sign. Sellers think it is to advertise their home. Wrong. The listing agent wants you to call them and if this house isn’t right for you, they will sell you another one. Buyers must remember that the sign was placed by the person the seller has hired to get them the best price and conditions through the sale of that property. The listing agent is legally obligated (through the contract between the listing agency and the seller), to protect the seller and to get the seller the highest and best price. 2. Calling a real estate company directly to get the “inside track” on new listings. When a Buyer starts searching for a new home, they look to the largest real estate companies for properties to see. Almost all real estate agents are independent contractors. That means that they have to earn their income through commissions that are paid at closing. Agents are in fierce competition with every other agent in their office for leads and sales. If they are the top salesperson in their office, they get larger commission splits and bonuses. Therefore when they get a new listing, they are going to try and sell it themselves before they will tell their co-workers about the property. Buyers do not realize how commissions are paid. First of all, the real estate agency gets up to 70% of the entire commission. The remainder of the commission is divided between the agent who listed the house and, if necessary, the agent who brought the buyer. The only way for a buyer to be certain to have the inside track is to form a relationship with each and every agent in that office! Will a buyer be told about all new listings that come on the market? No. Agents are expected to promote their Company listings, not the competition. They will always show you their listings before they will tell you about another property that is listed by their competition. Why? Because that is what the seller has hired their company to do! 3. Dealing directly with the listing agent to get a "better deal" on a house. Although this sounds possible, the buyer must remember that the listing agent has a contract with the seller. This is a mantra the buyer has to keep repeating over and over. The listing agent always has a contract with the seller. The seller and buyer have conflicts in what they want to accomplish. The seller wants the highest and best price for the property. They want to sell the house and move on to the next one with the least amount of aggravation possible. Legally the listing agent cannot tell the buyer what the seller might accept, because that would not be in the seller’s best interest. The agent might show the buyer recent sales to substantiate the price, but would they also show them other sold properties that demonstrated that the asking price is too high? The buyer wants the best price and they want the house in the best possible condition. If the agent is representing the seller and working with a buyer, and problems are discovered as a result of having a building inspection, for example, what is the listing agent’s role in negotiating the repairs? How can the agent advise the buyer when they are working for the seller? The listing agent has to disclose known defects in a home, but they do not have to disclose any information outside the boundaries of that property. Does the seller care if the land down the street is going to become a shopping center? Maybe not or maybe that is why they are moving! But would the buyer want that information? Would that knowledge give the buyer second thoughts about purchasing this particular house? 4. Working with friends or relatives to purchase a home. Buying a home is the most expensive purchase in a lifetime. Buyers sometimes feel obligated to use relatives who are part-time in the real estate business and could use a little extra income or they want to help out a friend or neighbor who has just gotten their real estate license. It is not difficult to get a real estate license. It is very difficult to get a license and make a living at it. It requires years of practice to learn the pitfalls of buying and selling homes. It requires dedication and time and effort to keep up with State laws and regulations. This is no time for you to be the guinea pig for someone learning the business. You do not want to over pay for a house or purchase the wrong house because of their inexperience. Smart home buyers interview an agent prior to signing a contract to find out what their background is and how committed they are to real estate. Are they full time or part time? A part time agent will never be current enough on new listings to make sure his buyers are notified immediately when new properties come on the market. Ask for references and contact the ones you are given! 5. Not spending money on home inspections and other important tests. Buyers are feeling overwhelmed. House prices are at an all time high. A lot of money is needed for the down payment and closing costs. Buyers look for ways to cut costs. Why pay for a building inspection on a new house? After all, it’s brand new! Because builders make mistakes and so do subcontractors. It takes a clear, unbiased eye to go through the home checking everything out before you purchase it. It is important to make sure that your building inspector is experienced. Building inspectors do not need to be licensed in Maine or New Hampshire. Any one can put a sign in the paper advertising that they will do an inspection for $99! Sound too good to be true? It probably is. The good inspectors are booked weeks in advance and will spend 2-4 hours in your home. They are worth every penny. We recommend using an inspector with advanced training such as The American Society of Home Inspectors (ASHI) or The National Association of Home Inspectors, Inc. (NAHI). Some buyers want to use a relative who is “in the trades”. The problem is that most electricians don’t do plumbing and plumbers don’t install roofs etc. They are specialists in what they do, but they are not specialists in each area of the home. There are other tests that buyers need to know about. Radon in both air and water can be an issue in Maine and NH. The tests are around $100 but if the radon levels are high, a remediation system is over a $1,000. Buyers should test their water supply and have the septic systems inspected. If you have a problem in these areas, the solutions can be costly! 6. Not doing enough research. If something is important to you – check it out! Don’t rely on hearsay. Buyers frequently ask “How are the schools?” If you have children it is your responsibility to check out the schools to see if they meet the needs and standards of your family. The same thing goes for concerns such as traffic, crime, noise. Ask your Exclusive Buyer’s Broker for guidance about where to go to find out information. Walk around a neighborhood at various times of day and on the weekends. Stop and talk with people and ask them what they think about their neighborhood. Ask them if there are any “hot issues” that might affect your decision to purchase in that neighborhood. 7. Not being truthful with your agent. If you don’t trust them, why are you working with them? In the first place, you need to know who the agent is representing. Most States have written disclosure laws that spell out who the agent is representing. Tell your agent that you want to see their company policy. If the agent is not representing you, then get one who will! If they are a buyer’s agent in a traditional firm, there is a clear potential for a conflict of interest. The real estate industry has had tremendous changes since the 1980’s. Traditionally all agents represented the seller, so the buyer had to be careful of what they disclosed. The agent was required to tell the seller anything that you told them. It is different now. Buyers have the option of using the services of exclusive buyer offices who never list property for sale. They never represent sellers. That is the only guarantee that the agent will protect you during the entire real estate process. Sometimes buyers have problems that need to be taken care of prior to making an offer on a property. Let your agent know if you have had credit problems so that they can be taken care of before you get emotionally involved in looking for a house. Do you have a house to sell? The agent needs to know that. Are you the only person involved in the house buying decision? If a relative is giving you a gift for the down payment (provided they like the house), they must be involved in the process. The buyer needs to be honest with their agent about what they qualify for to purchase a house. In a tight market like we are in, a good buyer’s agent will not show them properties that are much above their stated price range. Of course a buyer is going to like a house they can’t afford, but once they see it they will be disappointed in the houses in their own price range. Tell your agent what you would like to spend, but if a really special property came on the market what price you could go up to. Most exclusive buyer offices are small because we are a rare breed. Our offices grow by client referrals, not by making a few more dollars on a commission. On the other hand, if a buyer is looking at houses in their lowest price range, they may miss a home that they could afford but did not see. 8. Looking for a house before deciding on an agent. Sometimes buyers don’t want to choose an agent until they find the house they want to buy. They are using a “hit or miss” approach to seeing what is available on the market. Newspaper ads are never going to be as up to date as the Multiple Listing System. When you go into an open house, be aware that the agent on duty is representing the Seller. Real estate agents are open and friendly people. While you are chatting with them, you might realize that the current house doesn’t meet your needs. The agent may mention that they have other listings that might work better for you. Would you like to go see them? And before you know it, you have developed a relationship with a seller’s agent. How well do you think you will be represented if the agent is representing “both” you and the seller? By the time you realize that you need your own agent, the seller’s agent may be reluctant to share her commission if she has already spent time with you. It is a sad and expensive lesson that some Buyers learn the hard way. 9. Being afraid to sign a contract to hire a buyer’s agent. Buyers need to understand what a contract is and why it is important for the buyer. A contract is a promise between parties. It is binding on both sides. It has legal consequences. If you sign a contract with a buyer’s agent they are legally responsible, under law, to represent your best interest. It even means telling you things you don’t want to hear. It means disclosing everything that they have learned about a property or anything that would have an effect on your decision to buy a home. If you work without a contract you are a “customer” and the only obligation that an agent has to you is honesty. You are no different than a shopper in Sears looking at washing machines. You will have their attention while you are in the store and once you are out the door they are concentrating on the next person in line. Buyers have obligations, too. An agent does not get paid until the property closes. That can mean many, many months of work without any pay. An agent is only going to work hard for you if they have reasonable expectations that they are going to get paid and that they have your complete loyalty. If you meet someone who will work without a contract, they may be a new agent using you to gain experience in the business. In some States it is now required that Buyers sign a contract with their agent. No agent should require you to sign a contract for more than a few months duration. Since agents do not get paid until closing, they will want to work only with serious buyers who want to purchase a house in the next few months. 10. Thinking that hiring an exclusive buyer’s agent is going to be expensive. Not having your agent could be even more expensive! Most buyer agents require a modest retainer fee. Since they do not get paid until closing, it is reasonable that they require a retainer fee to help pay their expenses while they find you that house. Retainers may be credited back to the buyer if they close within a designated time frame. If a buyer is unwilling to pay a modest retainer fee, then they may not be committed to actually purchasing a home. Most buyers do not understand how commissions are paid. During the listing process and as part of the contract between the seller and the listing agent, the amount of the commission is determined. It is part of the contract between those two parties. The listing agent tells the seller that he hopes that their company will produce the buyer, but if they do not, another agency will bring the buyer and the commission will be shared between the two companies. The listing agent gets the seller’s permission to cooperate with other licensed real estate agents. The listing agency’s company policy determines how much is going to be allocated for an agent bringing the buyer. Some buyers think the seller pays the commission, but actually it comes out of the transaction. Since the seller includes the commission in the listed price of the house and the buyer pays for the house with the commission included, it is paid through the transaction. Some companies share the commission equally and some do not. This commission will pay for all or most of the buyer agency fee. If it does not cover the fee, then it can be worked into the purchase and sales agreement. The exact process is on a case by case basis. Some buyers only focus on the commission. They need to realize how much it will cost them if they use an agent who is representing the Seller:
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