HOW TO NAVIGATE THE HOME BUYING PROCESS
Published by Authorify Publishing Copyright © 2020 Authorify Publishing
All rights reserved. No part of this publication may be reproduced, distributed, or transmitted in any form or by any means, including photocopying, recording, or other electronic or mechanical methods, without the prior written permission of the publisher, except in the case of brief quotations embodied in critical reviews and certain other noncommercial uses permitted by copyright law. DISCLAIMER AND/OR LEGAL NOTICES: While all attempts have been made to verify information provided in this publication, neither the Author nor the Publisher assumes any responsibility for errors, inaccuracies, or omissions. Any slights of people or organizations are unintentional. This publication is not intended for use as a source of legal or accounting advice. The Publisher wants to stress that the information contained herein may be subject to varying state and/ or local laws or regulations. The reader of this publication assumes responsibility for the use of these materials and information. Adherence to all applicable laws and regulations, including advertising and all other aspects of doing business in the United States or any other jurisdiction is the sole responsibility of the reader. The Author and publisher assume no responsibility or liability whatsoever on behalf of any reader of these materials. If your property is currently listed with a Realtor, please disregard this notice. It is not our intention to solicit the offerings of other brokers. Printed in the United States of America
Table Of Contents
How Real Estate Agents Help Home Buyers 1
Owning VS. Renting
Buyers' Needs And Desires
Real Estate Horror Stories
Searching For The Right Home
Buying A House: Negotiation Dos And Don'ts
What To Know About Home Inspections 55
Shopping For A Home Loan
Programs For Home Buyers
10. The Closing Process
11. Organizing Your Move
About Kim Blue "Your Realtor With a Heart to Serve"
Realtor, Trainer and Team Leader
Kim Blue's Client-First Philosophy
There are many qualities and skills that go into being an excellent real estate professional - integrity, in-depth community and market knowledge, marketing savvy, effective negotiation skills and a high-quality professional network, all of which are hallmarks of how our team works. That said, in our experience as a Realtor®, we have also found that providing the very best service is essentially about putting our clients first. This means keeping our selves accessible, being good listeners as well as a good communicator, and responding quickly to your needs. This "client first" philosophy has always been our approach and it requires us to continually improve our skills and ways of doing business. In addition, we have found that the latest technologies are enabling us to do everything we have always done, only much more quickly and efficiently. They've also helped us to extend the range of services we provide to our clients. I am a Listing Specialist, a Buyer Specialist, a planner, a therapist and 99% of the time if they allow me to be a Friend. Realtor® in Michigan 2006-2016. My dream was to move to Sarasota Florida and became a full time Realtor® here. In May of 2016 I accomplished that and have not looked back! I have a true passion for Real Estate. I have a background in Engineering which taught me to be very detail oriented, organized and working in a collaborative team environment. To me Real Estate is about serving and protecting people. I chose to put my customers’ needs ahead of the deal. I take the time to get to know every aspect as to why they are choosing to buy or sell. vii
Specializing in Residential Properties and Vacant Land
Residential Single Family – Our residential single-family services connect buyers with sellers every day, and we do it with professionalism and a total dedication to our clients. This property type is the majority of my market transactions, but by far not the only one in which we have expertise. Condominiums – While condominiums are residential, they’re a very different market focus, and we are experts in evaluating condos and helping buyers and sellers to cope with the special financing and homeowner concerns for this property type. Multi–family – Investors are great clients for us. Multi–family properties are a very unique market. The detailed return on investment and valuation calculations investors need to evaluate properties for rental are second nature to us. Vacant Land – Land is a very special property class. It’s relatively easy to show a gourmet cook a wonderful commercial kitchen in a home and see their eyes light up. It’s more of a challenge to help a buyer or seller to realize the potential in a piece of land. We are the best at it in the Michigan Real Estate Markets. Experience: ◦ Listing Specialist ◦ Buyer Specialist ◦ Nationally Certified through NAEA - National Association of ◦ Expert Advisors ◦ Licensed in Michigan ◦ Licensed in Florida
Education: ◦ CHSA - Certified Home Selling Advisor ◦ CHBA - Certified Home Buying Advisor viii
◦ CEA - Certified Expert Advisor ◦ BPOR - Broker Price Opinion Rep ◦ SFR - Short Sale Foreclosure Realtor (Certified) ◦ NLH - Nationwide Loan Help Advocate ◦ 25+ years of Personal Development Training ◦ Expert in Computers, Technology, Social Media Marketing Professional Associations: ◦ Realtor Association of Sarasota & Manatee ◦ GMAR - Greater Metropolitan Association of Realtors ◦ NAR - National Association of Realtors ◦ NAEA - National Association of Expert Advisors Personal Interest: ◦ I love animals and volunteer at various organizations ◦ I enjoy going to beach to relax and rejuvenate. ◦ I enjoy Kayaking ◦ I enjoy attending our local Church & the positive atmosphere. ◦ I love spending time with family and friends.
Testimonials & Reviews
For more Testimonials & Reviews visit: https://www.realsatisfied.com/Kim-Blue
"Kimberly Blue has been fantastic to work from her professionalism and personal care in seeing my requests meet. She's the right person to finalize your purchase or sale of a home."
Vicki, Sarasota (Buyer)
"We worked with Kim on selling our previous home so we were more than happy to work with her again on our new purchase. I was very satisfied with Kim’s performance in making this purchase happen. We ran into quite a few obstacles and Kim was there to work with us through everything. We will definitely be recommending her to other buyers."
Ashley Prieto, Bradenton Florida (Buyer)
"Kim Blue worked with us for a long time. Answered any questions which we had concerns about.If she was not sure of something, she would find out and would relay the information.$"
Jeannine Ross (Buyer)
"Kim Blue did an incredible job for our family! Kim is an exceptional real estate agent that is extremely knowledgeable and resourceful in every aspect of the business. Kim makes sure you
are getting the best deal possible when negotiating on a house price, and pays attention to the tiny details to ensure a successful closing. Anyone looking to purchase/sell a house with an agent that you can trust and like as a person, you should definitely contact Kim Blue. Kim Blue is top notch!"
"Kim was an absolute pleasure to work with. She made the whole process such a breeze. Kim quickly gained our trust and was easy to get in touch with when necessary. Kim really took the time to be sure she completely understood our needs and wants. She handled things in a timely and efficient manner. She always pushed to make sure we got the best deal and a home that was a smart purchase for my family. The best part was she did it all with a smile and positive attitude. I will be forever grateful that she helped us start our new chapter on the right foot."
Erik Visser (Buyer)
"Kim Blue is a remarkable person, realtor & now a friend. I would definitely use Kim Blue & Key Realty One again if the need arises but, hopefully not too soon as we are so pleased with our new home. The professionalism & work ethic go above and beyond, it could not have gone any smoother than it did with the purchase of our new home. I would strongly recommend to all my family & friends. (Already have)"
Amy Flanagan, Sarasota, Florida (Buyer)
"I met Kim at her open house for the property on Wee Burn. Kim was very approachable, knew the property and the neighborhood well and answered all of my questions easily.
As we went through the negotiations for the purchase of the home Kim was prompt and made every effort to get the deal together. We used DocuSign to execute the contracts which made the whole process run smoothly. I would highly recommend Kim Blue to all my friends and family."
Debbie Magner, Sarasota Fl (Buyer)
"We met Kim Blue at a property that she was representing and felt she was easy to talk to and that she would be good to work with in our search for our Florida home. As we worked with her we were very comfortable with the process and her help. She listened to what we wanted, followed through on everything she said she would and was honest in sharing information about the areas that we looked at. Kim was there when we needed her but not at all pushy - good instincts to what her clients needed."
Bob and Nancy Lengerich (Buyer)
Hi there! It’s nice to meet you. If you’ve received this book, it’s probably because you’re thinking about buying a home. And if you’re like most home buyers, you may be nervous about the entire process. But that’s why I’m here! My job is to make your job as a buyer as easy and seamless as possible. Throughout my years of experience in the real estate industry, I’ve amassed insider knowledge to help home buyers get great deals on their home purchases. And now, you’ve got all of that information at your fingertips.
In this book, you’ll find:
• An overview of the buying process • How to determine your wants vs. needs in your next home • Information on securing a home loan • Common mistakes to avoid • A negotiation guide to save money on your purchase • And much, much more Sure, you can try to employ these strategies yourself, but you should know that it costs you absolutely nothing to hire me to help you find your next home. Yes, buying a home can be stressful, but with this book (and my help!), we can make the process as seamless as possible.
CHAPTER 1 How Real Estate Agents Help Home Buyers
I’ll come right out at the start and tell you I’m a real estate agent — proudly so! Nice to meet you! I’m not trying to sell you anything, but I’m pleased to be of service. In fact, generally, real estate agents for buyers are paid for out of the listing agent’s commission. So, I’m not looking to part you from your money. I’m giving you the benefit of experience and advice I have picked up in my career selling houses and being in real estate transactions — for both sellers and buyers. Then, if you want me to help you find a house, we can talk. Call me if you need me. Technology has changed the way homes are sought and bought today. In this “Information Era,” most buyers are first introduced to the home they eventually purchase via the Internet, through Zillow, Trulia, Yahoo! Homes, Realtor.com, and Redfin. These are the top five “Most Popular Real Estate Sites,” as derived from eBizMBA’s Rank, which is a continually updated average of each website’s Alexa Global Traffic Rank, and U.S. Traffic Rank, from both Compete and Quantcast. So that means there’s no real need for a buyer’s real estate agent, right? If a buyer can find and visit a home on the web all on their own, why involve another party? The reason to use a real estate agent is to find a home and show homes available for sale, right?
WHY HOME BUYERS NEED A REAL ESTATE AGENT
Ah, not so fast, friend. The reasons to use a real estate agent today are as valid as yesterday. The ease of online transactions and proliferation of services to assist buyers in handling their own 1
real estate transactions came recently, arising throughout the last decade. This has caused buyers to wonder if using a real estate agent is no longer necessary, or an expense that can be avoided. While doing the work yourself can save you if you buy a “For Sale By Owner” (FSBO) house and the seller agrees to reduce the price by 3% (half of what a listing agent would receive), for many, a do-it-yourself home purchase might be pricier than a real estate agent’s commission in the long run. Besides, a buyer generally doesn’t directly pay any commission to an agent on a house purchase. On most home sales, there is a “listing agent” (the agent engaged by the seller to sell the property) and a selling agent (the agent who introduces the eventual buyer into the transaction). The selling agent is sometimes called the “buyer’s agent” because he or she is often working on a certain buyer’s behalf and it’s easier than explaining that the selling agent is not the listing agent but really the buyer’s agent. There are some real estate agents that market themselves as “buyer’s agents,” “exclusive buyer’s agents,” or “buyer’s representatives.” These real estate agents have chosen to make a business of finding homes for prospective buyers and handling the negotiations and transactions attendant to the purchase. These agents want to accentuate the reasons a buyer shouldn’t go directly to the listing agent when they purchase real estate. A buyer who goes directly to the listing agent and allows that agent to “manage” both sides of the transaction is dealing with an agent who has conflicting responsibilities. Their job is to get a good price for the seller, and they might not zealously represent the interests of the buyer. Those who market themselves as buyer’s agents indicate they’re only working for the buyer in a real estate transaction. The buyer’s agent commission is paid by the seller, with rare exceptions. They either get paid directly by the seller or set up the
transaction so that the seller provides a “credit” to the buyer for how much the real estate commission is — then the buyer pays the commission. A maxim in real estate is, “No matter how it’s set up, the buyer still walks away with the house and the seller still walks away with 94% of the purchase price.”
MORE ACCESS TO THE REAL ESTATE MARKET
A real estate agent will have better access to the market, and a special knowledge of local conditions. The agent is a full-time liaison between sellers and buyers. An agent will have ready access to other properties listed by other agents. Buyers’ and sellers’ agents know how to put a real estate deal together. A real estate agent will track down homes that meet your criteria, contact sellers’ agents, and secure appointments for viewing the homes. On their own, buyers have a more difficult time with these things. This is even more so the case when a buyer is moving due to relocation or employment opportunity and engages a “buyer’s agent” to handle matters.
NEGOTIATING IS HARDER ON YOUR OWN
A real estate agent will keep the transaction “at arm’s length,” such that personalities and emotions do not become involved. Price negotiations take a special skill and understanding of the psychology of offering and counter-offering. Agents keep the transaction dispassionate and rational. For example, a buyer (you) might like a home but despise its wood- paneled walls, shag carpet, and lurid orange kitchen. When you work with an agent, you can express your opinions on the current owner’s decorating skills and complain about how much it will cost to upgrade the home without insulting the owner. Your agent will translate that to the seller that you very much like the property, but can see having to spend $xx in decorating costs, and
thus offer that much less.
There are many contracts and documents involved in purchasing a house. The stack is more than an inch thick. Unless you’re a real estate lawyer or title agent, these documents will be foreign to you. Yet, they require detailed and accurate completions. Buying a property is not necessarily a “fill-in-the- blanks” transaction and a mistake, let’s say in title work, could haunt the buyer well down the line after purchase. This very situation happened. A property that sat on a double lot was put on the market. The neighbor bought it to carve off a bit of the second lot to expand his own yard. The seller then put the home back on the market and it sold. Months later, through a property tax notification, it came out that in preparing new deeds for the properties, the expanded yard area was correctly in the name of the neighbor; however, the house had been transferred to the home buyer. The new homeowner now owned both houses and the neighbor owned his expanded driveway and yard. Fortunately, they were good neighbors and settled the matter with a few signatures. A real estate agent deals regularly with these contracts, conditions, and unexpected situations, and is familiar with which conditions should be used, when they can safely be removed, and how to use the contract to protect you.
YOU WON'T NECESSARILY SAVE MONEY
The point of not using a real estate agent would be to save money, right? Otherwise, why turn down professional assistance in
finding a home to the buyers’ liking without their own effort and dealing with negotiations and the many attendant home-selling duties? However, it’s unlikely that both the buyer and the seller will reap the benefits of not paying real estate agent commissions. It works like this: An owner selling on his own will price the house based on the sale prices of other comparable properties in the area. Many of these properties will be sold with the help of an agent; therefore, the seller profits in getting to keep the percentage of the home’s sale price that might otherwise be paid to the real estate agent (usually 6%). Buyers looking to purchase a home sold by owners without an agent may believe they can save money on the home by not having an agent involved and so look solely at FSBO houses. They might expect it and make an offer accordingly. Unless the buyer and seller agree to split the savings, they can’t both save the commission — and that’s if the listing price was not already lowered by near the commission amount to make it more market- attractive. Here’s a short list of the advantages that using a real estate agent can bring to your buying experience:
• Education and experience • Agents are buffers • Neighborhood knowledge • Price guidance • Market conditions information • Professional networking • Negotiation skills and confidentiality • Handling Volumes of Paperwork • Answer Questions After Closing • Develop Relationships for Future Business 5
It’s extremely important to know the “ins and outs” of real estate agents before you bring one along with you to help in your search for a home, just so that you might know what to expect, and what will be expected of you.
WHO A REAL ESTATE AGENT IS
In short, a real estate agent is someone licensed to list and sell real estate, including homes, multi-family properties, and commercial and industrial buildings. A REALTOR®, however, is somewhat different. A Realtor® is a member of the National Association of REALTORS®. While an agent is always a real estate agent, a real estate agent isn’t always a Realtor®. Real estate agents who work on behalf of the best interests of the buyer are commonly called buyer’s agents (the seller’s agent/listing agent explanation above, aside). All listing agents represent the seller, but other agents who don’t have buyer-agency agreements with prospective buyers — even though they may show homes to those buyers — are working on behalf of the seller and must obtain the best price they can for the seller. In contrast, buyer’s agents work on commission, which is contracted in the listing agreement. When a buyer’s agent brings the buyer, the listing agent must split the contracted commission with the buyer’s agent.
HOW TO CHOOSE THE BEST AGENT FOR YOUR NEEDS
You might feel the urge to pick the first real estate agent who appeals to or approaches you, but that’s something to avoid. Like with any professional, there are degrees of professionalism, dedication, and experience. The “wow factor” will simply wear off.
Meet with prospective buyer agents in their offices. A good buyer’s agent will want to know whether you’re loan-preapproved by a financier, what kind, and the terms of the loan you’re getting. They should spend adequate time to discover what you’re looking for in a house. They should listen as much as talk and ask questions. Watch to see if the agent makes notes. If the agent doesn’t broach the topic, ask for an explanation of his understanding of agency relationships and obligations to you. The law requires agents to explain whether they’ll be working for the buyer or the seller whenever they have substantive contact with a customer or prospective client. If the agent doesn’t offer you a buyer’s agency agreement, that agent is representing the seller, not buyer. If the agent can’t explain agency concepts to you, then move to the next agent. Be sure that the agent will be showing you all listings or properties on the market that meet your requirements, not only listings that are handled in-house. Buyer’s agents have the legal duty to put buyer’s needs ahead of their own. Even when an agent will be paid more for selling an in-house listing, they must inform you about other available, suitable listings and take you to see those you believe are viable prospects. A good buyer’s agent will provide a home-buying education. The listing agent will point out all the features of a home; a good buyer’s agent will point to the faults — or advise when they can be overlooked. Competent buyer’s agents help their buyers to think clearly as the home-buying process unfolds. For example, if a house is a good buy, a buyer’s agent might suggest looking past the dated bathroom and kitchen and look at the space above the garage that will make the perfect studio you desire. Likewise, a cute house with all the amenities, but with knob-and-tube wiring or a 40-year-old roof might not be worth the asking price. According
to the San Francisco Chronicle’s Home Guide, if you decide to buy with the intention of building an addition, the agent should advise you to check the zoning before making an offer. Agree to sign a buyer’s agency agreement after you have met with an agent. Some people sign an agency agreement after attending a showing given by the agent. Working with a seller’s agent is a mistake, according to an article by Amy Fontinelle of Forbes’ Investopedia. Any information you reveal will become leverage that the seller can use in a purchase negotiation. A buyer’s agent is legally required to maintain your confidentiality, disclose material facts to you, and maintain loyalty to you. These are fiduciary duties.
LOOK FOR PROPER CREDENTIALS
You wouldn’t trust a doctor who doesn’t have the proper credentials and licensing. Don’t trust a real estate agent who doesn’t present theirs or doesn’t have them at all. It’s easy to find real estate agents who can take the job, but finding agents with special credentials, those who have gone that extra step to take additional classes in certain specialties of real estate sales, is worth looking into. Here are just a few credentials within real estate that you should be on the lookout for: • Certified Home Buyer Advisor (CHBA): Completed additional education during representation of buyers in their transactions. Nationally Certified to Advise Buyers on any Real Estate Purchase including For Sale By Owner, Off Market, Listed on MLS and New Construction Negotiations. • NAEA Certified (National Association of Expert Advisors Memeber: Completed additional training during the 8
handling of residential real estate, such as houses and apartments. Part of a National Association dedicated to serving the needs of both Buyers and Sellers. This goes above the Ethics of REALTORS®. • CEA Certified Expert Advisor: Completed training for the purpose of helping sellers and buyers. Similarly, if you choose to use a real estate agent who’s also a member of the National Association of REALTORS®, it will be a bonus. However, ensure they have credentials that are relevant to your need(s).
Your state will have a license board for all active real estate Realtors® and agents, which you can easily access. You will also be able to see their information, disciplinary actions, complaints, or any other information that you’ll need to help influence your decision — especially since most of the information is now posted online.
GIVE THE “WHAT ELSE” TEST
A good agent will know about all the other properties for sale in the area. Also, a good agent always does their research regarding the events in the current market, and those that are out there for the taking. In short, you want an agent who’s an expert of the current market, and someone who always stays on top of things.
RESEARCH THEIR BUSINESS ACTIVITY
Learning the type of market presence that a real estate agent has is the best way to figure them out. Ideally, you’re going to want an agent who specializes in one or two real estate markets, and who understands which types of homes and amenities are available
within your price range. You can unearth this information by asking them or by asking the state licensing authority if you’re not comfortable with asking the agent directly. You’re better off with an agent who’s engaged actively in one area and price range — e.g., residential homes around the $200,000 to $250,000 range or the $400,000 and up range.
GOING THE BUYER'S AGENT ROUTE
So, you’re ready to take the plunge and look for a place to call “home.” To get the most out of it, use a buyer’s agent to avoid a flurry of paperwork, stampedes of buyers competing for the same property, and other challenges. Home buying can be exciting and exhilarating; but it can also be complex and stressful — which is why having a pro by your side can make an enormous difference. As discussed, you’ve probably heard of buyer’s agents, seller’s agents, listing agents, and so on. You’re a buyer, so what’s a buyer’s agent? True to the name, buyer’s agents assist home buyers every step of the way; they can also save you both time and money on the road to homeownership. These real estate agents will work day and night, if you listen to the advice above and find the best one for you, to ensure all your needs and requirements are met when it comes to finding the right home for you.
WHAT BUYER'S AGENTS DO FOR YOU
Your buyer’s agent will have a vast knowledge of the current real estate market for the area, which will include neighborhood amenities and conditions, the law, zoning issues, price trends, negotiations, taxes, financing, and insurance. Once you meet with the buyer’s agent, they’ll generally help you to determine your needs and wants when it comes to finding you a home and a neighborhood. The agent will aid you in learning
about what you can afford, help you in setting a budget, provide some insight on the current conditions of the market, and explain what you should expect while shopping for a home. In addition, they will help you find a suitable level of financing. During the shopping-for-a-home period, you’ll probably meet with your agent for tours of homes in which you might be interested. They will give your insight into the floor plans, the home’s pertinent selling points, and the overall crime rate of that neighborhood. They will also give you the rundown for cultural activities, work centers, shopping centers, and schools nearby. Your agent is responsible for ensuring inspections of the homes are complete, as well as the disclosures therein. They’re also in charge of ensuring coordination and completion is done through the roof inspector, attorneys, lenders, and all other professionals involved with the purchase of the home. If bargains need to be made over the price, you won’t have to negotiate yourself. Your buyer’s agent will do that for you, along with signing the final closing documents. They will be present whenever documents you need to go through and sign any document.
DUAL AGENCY: THE BASICS
A “dual agency” relationship occurs when a buyer is being represented by a brokerage firm that controls the listing. Once an agent represents both the seller and the buyer within the same transaction, the situation is known as “dual agency.” In multiple states, this is illegal because of the conflicts of interest that can arise regarding the broker.
All agents hold the same responsibility, which is to inform their clients of all potential risks that could arise due to conflicts of interest. Legally, agents are not allowed to work on both sides of any transaction without consent from the clients. For example, if you’re selling your home, and you don’t want an agent to be working with the buyer, it’s your right to say so in the listing agreement. This is also true for the buyers. A buyer can get out of a buyer’s agency agreement, but only if their agent has a listing in which the buyer is interested. When it comes to dual agency, there are definite advantages for the seller. • Trust has already been gained with your listing agent, so representation for the buyer has been established. • Your agent brought you the buyer knowing that you’re selling, even if your property has not yet hit the market. • Your listing agent will already have covered and researched your neighborhood’s market to gain buyer inquiries, which means your agent will be working from all sides of the deal to sell your house faster, and with more incentive. • Your agent works together with corporate relocation buyers who need to find a house quickly, and they will ensure it’s your house that’s bought.
There are also cons when it comes to dual agency, and they are:
• You can’t be advised by your agent as thoroughly when they must act as a dual agent, because impartial facilitation is required. • Your listing agent is not allowed to negotiate the best or highest price for you if also negotiating both the best and lowest terms for the buyer. 12
• Earning a full commission, if the opportunity arises, may tempt the agent to coerce a deal that you might not accept otherwise. • Your agent may inhibit all access to your listing through buyers with agents. To avoid surprises or anything going wrong in general when going with dual agency, always ensure you properly represent and clarify your full relationship with your agent. You can do this by using an exclusive buyer agency agreement, or a listing agreement. Even with dual agency, one can’t have too many surprises once everything is outlined. There simply can’t be any surprises.
HOW REAL ESTATE AGENTS ARE PAID
The National Association of Realtors® 2017 Profile of Home Buyers and Sellers states approximately 8% of homeowners opted to put their homes up for sale during 2017 without using a real estate agent or Realtor®. A handful of For Sale By Owner (FSBO) transactions dealt with sellers and buyers who previously knew each other or were directly related; 87% of buyers chose to work with a real estate agent or Realtor®, on the buyer’s side. Real estate agents and Realtors®, unlike professionals in different categories who bill by hourly rates or at the end of the project, get paid through a transaction (commission) at the end of each sale. For example, if an agent has worked with a seller or a buyer for months, they don’t get paid for the time spent if there will be no transaction during that period. Agents receive a commission once the transaction goes through to settlement (closes) based on the selling price of the home. At that point, the commission is then earned. 13
The commission itself is negotiated — in most cases, between the client and the agent. Typically, an agent will earn a commission of 6% from the sale price, but some brokerages have commission discounts for the sellers with whom they work. Essentially, the listing agent and the buyer’s agent will split the commission. That can bring forth some issues. For example, sometimes the split might not be negotiated evenly. A seller could have agreed to pay a commission of 5.5% that, if further divided, the buyer’s agent would receive 2.5% while the listing agent receives 3% of the commission. Even though some agents are associate brokers, or brokers in general, from positions requiring licensing and extra training, all commission payments are instructed to go through to the broker who’s managing the brokerage where the agent is working. From there, the commission is then split to the agent and the broker according to the agreement that’s been made. The split will vary; sometimes, newer agents will earn a small portion of the commission compared to the experienced or successful agents who generally sell more expensive properties or homes.
PAYING THE COMMISSION ITSELF
The overall commission is paid for at the settlement period by the seller. The fee is taken from the proceeds of the sale of the home or the property. However, the buyers pay the commission because they’re literally paying to purchase the house, while the sellers take the commission for the agent into account during the process of determining the price for the listing. From there, the commission is then divided during the settlement process between the buyer’s agent brokerage and the listing agent’s brokerage. Afterward, the agents who made the real estate sale are further paid by their brokers.
KNOWING REAL ESTATE
If you know all the basics, and the technicalities regarding real estate, you’ll have no trouble making the best decision on which real estate professional to hire, you’ll know what to expect, and you’ll how to go about transactions and deals, ensuring a smooth sale.
CHAPTER 2 Owning VS. Renting
Owning your own home might not be one of the defining qualities of the “American Dream,” the set of ideals that includes opportunity for prosperity and success, and an upward social mobility for the family and children, achieved through hard work. However, home ownership is surely ingrained as one of the strongest representations of that vision — 66% of Americans own their own home, and more hope they will or wish they did. Something about home ownership plucks a strong chord with Americans. Financial security, permanency, status, and pride — whatever the reason for wanting to own your own home — there has never been a time in recent memory when the health of our credit reports meant so much. Lifestyle plays a big role in the decision to own versus rent. Home buying is most often driven by household formation, such as marriage and childbirth. Less than 40% of people under 35 years old own homes, 60% of people over 35 years old own homes, and more than 80% of people 65 years old or over own homes. Interestingly, for the millennial generation, the primary reason for buying a home? Owning a dog. The U.S. homeownership rate has fluctuated between 62% and 70% since the 1950s. Most young people begin their independent lives renting an apartment, maximizing lifestyle flexibility and minimizing the hefty upfront costs associated with purchasing a home. As they build careers, save money, and start families, many choose to buy a home, recognizing that home ownership, as opposed to rental living, is more appropriate to their growing family needs. Their needs might be better filled in a single-family
house, a condominium, a townhouse, or a duplex of their own.
At the other end of the age spectrum are homeowners nearing retirement who may desire to sell their homes, downsize, avoid the maintenance and other obligations of home ownership, and go back to renting.
WHICH IS BEST?
Is it better to rent or buy a home? Most adults ask themselves this at some point as they form their goals and plan for the years ahead. Before you answer the question, here are some things to ask yourself. Owning and renting each have their advantages, but what’s best for you depends on your circumstances. What will be the duration of your stay in the home? Each market is different, but whether the time you plan to spend in the house warrants its purchase is possible to predict. In general terms, it takes four to seven years to break even on a home (i.e., where there has been enough appreciation to pay back the cost of the transaction and cost of ownership). If you’re thinking about buying a home and selling it in two years, buying is very unlikely to be cheaper than renting. Do you think of or need your house as an investment in your retirement plan? Americans are used to their homes being a store for wealth to liquidate in retirement and downsizing their lifestyle. In 2015, Gallop reported that, for the second straight year, more Americans named real estate than stocks, gold, savings accounts/ CDs, or bonds as the best long-term investment. Real estate leads with 31% of Americans choosing it, followed by stocks/mutual funds, at 25%. A cautionary note though — although home prices have recovered their pre-2006 market slump and continue to rise, the value of your home can fall, as well as rise.
Are you financially ready? Owning a home is a financial
commitment that requires planning how home ownership fits into where your life is headed. Ask yourself what your budget is and if either buying or renting would require you to stretch your finances. Crunch all the numbers. A frequent mistake of first-time home buyers is comparing a month’s rent to a month’s mortgage payment. Many people don’t have all the numbers. There are many additional fees necessary to include to make a fair comparison: principal interest, property taxes, property insurance, homeowners’ association (HOA) fees, and ongoing maintenance. Are you prepared for the down payment? This is the lumpsum payment that funds your equity in the property (how much of the property you actually own). Down payments vary; 20% is preferred and gets the best rates. There are some loans that allow down payments as low as 3%. Sometimes relatives help with the down payment. If you have a choice, take a gift rather than a loan, because lenders will add that debt to other monthly obligations and potential mortgage payments to determine your debt-to- income ratio, which generally can’t top 43% to qualify for a home loan. Can you afford the monthly mortgage and its components? Generally, a mortgage includes loan principal and interest (both amortized over the life of the loan) plus homeowner’s insurance and property taxes (pro-rated). These items can affect the monthly loan-only payment by several hundred dollars. Are you emotionally ready? Can you handle the stress? A big factor to consider when buying a home is stress. The Holmes and Rahe Stress Scale, a landmark stress study, ranks many events that go along with buying a home in the top 43 most stressful circumstances in life. Four events are specifically home-related: change in financial state (No. 16), large mortgage or loan (No. 20), change in living conditions (No. 28), and change in residence (No. 32). If someone has recently made other life changes, such as marriage, which is No. 7, switching careers (No. 18), or having
a child (No. 14), it might be wise to postpone buying a home. Stress overload can lead to missed payments, which can result in destroyed credit or even losing the home. It’s better to rent if your life is in flux, and then buy when your stress levels are lower. Are you ready for commitment? Are you ready to make lots of decisions, from picking a real estate agent to picking paint colors? Are you confident enough to choose a neighborhood where you believe home values will continue to appreciate in value and that will serve your needs (i.e., proximity to schools, shopping, recreation, etc.)? Are you ready for devoting the time and attention to maintaining a home (i.e., leaf-raking, grass-cutting, appliance maintenance and repair, etc.)? Taking care of your biggest investment can be gratifying, but only if you’re ready.
ADVANTAGES OF BUYING YOUR HOME
Control over housing expense. By selecting a fixed-rate 15-, 20-, 25-, or 30-year mortgage, the homeowner has assurance that housing costs won’t increase over the period, and, in fact, will be eliminated at the end of the term (subject to refinancing). You build equity. Some of each monthly mortgage payment goes toward the loan’s interest. Other portions may go to homeowner’s insurance and county taxes. The remainder pays down the loan principal. Every dollar put toward your loan’s principal represents a dollar of equity — actual ownership of the property. Further, the property should appreciate in value each year, further adding to equity (what the house could be sold for versus what is owed on it). With certain blip periods such as the 2006 housing bubble burst, home prices in the U.S. appreciate nationally at an average annual rate between 3% and 5% (home value appreciation in different metro areas can appreciate at markedly different rates than the national average).
Improvements increase your home’s value. A homeowner can also
increase a home’s value through home improvements, thus both making your home more comfortable and enjoyable while growing its loan-to-value (LTV) ratio. For instance, adding a bathroom or finishing a basement substantially increases the property’s functionality and appeal, while potentially boosting its value. Tax advantages of home ownership. There are significant tax benefits associated with buying a house, both at the time of purchase and for the duration of time you own the home: • Homestead exemption. Many states exempt owner- occupied homes (homesteads) from a portion of the property tax amount that would normally accrue. For instance, Louisiana exempts the first $75,000 of a home’s value from property tax assessments, so a $200,000 home in New Orleans is taxed as if it were worth $125,000. • Federal tax deductions. When you’re looking to purchase a home, it’s important to understand what can be deducted on your tax return and what can’t. Property taxes and interest paid on your mortgage can be deducted if you itemize your federal income taxes, which can reduce your income tax burden. Many home buyers, unfortunately, overlook the effect of mortgage interest on their federal income tax payments. Mortgage interest can be a powerful financial planning tool. Calculate the amount of mortgage interest deductions you are eligible for and include that in your annual financial planning. Then, make a point of checking Internal Revenue Service (IRS) Form 1098 which you’ll receive from your lender at the end of the year. This form shows the amount of mortgage interest that you’ve paid. The Tax Cuts and Jobs Act (TCJA) applies from 2018 to 2025 and limits the aggregate deduction for state and 21
local real estate property taxes; state and local personal property taxes; state and local, and foreign, income, war profits, and excess profits taxes; and general sales taxes (if elected) for any tax year to $10,000 ($5,000 for marrieds filing separately). This limit does not apply if those taxes are paid or accrued in carrying on a trade or business or in an activity engaged in for the production of income. In other words, if you are just living in your home, you can only claim up to $10,000 in tax deductions on your property, but if you are earning income directly from your home in some way, the limit might be waived. Current mortgage rates are relatively low. Interest rates vary through the years. Several years ago, interest rates were higher, and it was more expensive to obtain a mortgage. Since these costs have been reduced, it’s now easier and less expensive to own a house. Ownership rights and creative freedom. Your decorating and home-improvement choices are just that — yours, provided they don’t break building codes or violate homeowners’ association rules. You can paint walls any which way, add fixtures, update or finish your basement, or build a patio or deck. Changing your environment to suit whims is a freeing aspect of homeownership. A sense of belonging to the community. Homeowners tend to stay in homes for longer than renters and are more likely to grow roots. They might join a neighborhood association, sponsor block parties or National Nights Out, volunteer at a nearby community center, join a school group, or align with a business improvement district. Renters might not do any of those things, particularly if they know their lease is up in a year and they might move. There’s an intangible pleasant feeling attached to owning your own house, a sense of freedom and independence. The home you live in belongs to you and you only (or your spouse or partner), and you can do what you want with it. You aren’t daunted about 22
increases in rent or risk losing the lease. You’re free to make improvements and changes. Also, owning your home gives your children the guarantee of attending the schools in the area on a more permanent basis; you never need to worry about a notice from the landlord to vacate your rented house or apartment for a variety of reasons over which you have no control.
ADVANTAGES OF RENTING
It seems a shorter list, but one man’s pro is another man’s con, and there certainly are advantages to renting to factor into your buy- or-rent decision. No responsibility for maintenance. Admittedly, this is a big one. As a renter, you’re not responsible for home maintenance or repair costs. If a toilet backs up, a pipe bursts, or an appliance stops working, you don’t have to call an expensive repair person — you just call your landlord or superintendent. Renters in condos, townhouses, or apartments don’t have lawn and grounds care obligations. Relocating is easier. When renting, relocating for work is easier. Though a sudden move may require you to break your lease, you can partially offset the cost by subletting your apartment or talking with your landlord. On the other hand, selling a home takes time and effort. If you have a short timeline to sell your home, you may be forced to accept a lower price and lose some of your investment. No real estate market exposure. Home values fluctuate and can decline over time. If you’re a renter, that’s not your problem. If you’re an owner trying to sell — it is.
DISADVANTAGES OF OWNING
Maintenance. The renter’s largest advantage might just be the
homeowner’s major disadvantage. While insurance might be available to protect against expense from major catastrophe, usual maintenance items are on the homeowners’ dime. Maintenance and repair can be as simple as repainting the baseboards and can also be as extensive and expensive as replacing a HVAC system or sewer pipe. The expense will vary from year-to-year; however, you can expect to pay about 1% of the value of your home annually toward these expenses. If you live in a $200,000 home for 10 years, that’s $20,000 over the period, and perhaps more if you must replace a costly, long-lived mechanical item, such as a furnace. Keep in mind the usual homeowner’s chores of lawn care, snow removal, gutter cleaning, and other regular home maintenance needs. Upfront and closing costs. Buying a home entails numerous upfront costs. Some are paid out-of-pocket after the seller accepts your purchase offer, while others are paid at closing. These include earnest money, down payment (typically ranges from 3.5% chiefly for FHA [Federal Housing Administration] loans to more than 20% of the purchase price), home appraisal, home inspection, property taxes, and first year’s homeowner’s insurance. Loss of relocation flexibility. It’s much easier to break a lease and move out of town than to arrange for the sale of a residence. Selling the home from out-of-town involves its special logistics and financial problems, such a dealing with the mortgage while the home is on the market. Financial loss potential. Homeownership builds equity over time; however, equity doesn’t equate to profit. If home values in your area go down or remain stagnant during your time as a homeowner, the appraised value of your home could decrease, putting you at risk of a financial loss when you sell.
DISADVANTAGES OF RENTING
No equity building. The monthly rent you pay goes to the landlord. It represents the fee you pay for using the property. You gain no ownership in the property, no matter how long you live there. No tax benefits. While homeowners can deduct property taxes and mortgage interest on their tax returns, renters aren’t eligible for housing-related federal tax credits or deductions. Home improvements go to the landlord. Any structural and decorative home improvements that renters make belong to the building owner and will have to stay behind when you move to a different place. Additionally, approval for desired major redecoration will be necessary. After all is said, the decision to buy or rent depends on the prospective home buyer’s circumstances. There’s no denying, though, that a home of your own is a good financial and a great emotional investment. An investment in a home can also mean an investment in the future of your children. Little is better than leaving a home behind as a legacy for your children to enjoy. There is much to consider when you want to buy a home. Switching from renting to homeownership is highly challenging, but an exciting and amazing decision to make. Owning a first house is the first step in the direction toward the home we’ve all been dreaming of. Because, at the end of the day, as we all know, there is no place like home.
CHAPTER 3 Buyers' Needs and Desires
After you’ve decided to buy a home, what sort of home it will be is your next decision point. It’s a better approach to have a rather concrete vision in mind of what type, features, and amenities you want in your home, rather than a “shotgun look” at every listing that’s out there in your price range. Imagine your dream house. It fulfills both your needs and desires. It fits the need for a good roof over your head, a sturdy structure, modern fixtures and appliances, living space (i.e., bedrooms, living room), and functional rooms (i.e., kitchen, bathroom[s]). Your needs fulfilled, you turn to your desires. A home on the beach or in the woods, a gourmet kitchen, wood-paneled den, crystal chandeliers over a banquet table in the manor-sized dining room, and an Olympic-sized swimming pool with a hot tub and sauna. In your first home, you must ensure all needs are met; however, there are probably going to be some desires that you’ll have to let go (for now) due to affordability issues.
Decide your needs vs your desires.
• Would you like a swimming pool? Enough that a home without one will not be looked at? • In what areas or neighborhoods might the home be located? Where do you want to live? Where might you have to live for work commute or home price reasons? • What features would make it special? • What can you afford and what is out of your budget?
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