LindseyRJohnson.com - HOW TO NAVIGATE THE HOME-BUYING PROCESS

HOW TO NAVIGATE THE HOME-BUYING PROCESS

LindseyRJohnson.com

Table Of Contents

How DO Real Estate Agents Help Home Buyers 1

Owning vs. Renting

Buyers' Needs and Desires

Real Estate Horror Stories To Learn From 33

Searching for the Right Home

Buying a House: Negotiation Dos and Don'ts 49

What to Know About Home Inspections

Shopping for a Home Loan

Programs For Home Buyers

10. The Closing Process

11. Organizing Your Move

Foreword I wrote this book with you the (home)buyer in mind. I hope you find it useful and informative. As a real estate professional with years of experience, I have always been passionate about helping buyers and sellers like you navigate the complex process of buying a home. I know how stressful and overwhelming it can be to find the perfect home for your needs, budget, and lifestyle. That's why I decided to create this book for you. It is a comprehensive guide that covers everything you need to know to buy a home with confidence, ease, and satisfaction. In this book, you will learn: • How to use proven strategies to negotiate a lower price for your home. • How to work with top agents who have your best interests at heart. • How to make your offer stand out from the competition and much more. This book is my gift to you, as a way of sharing my expertise and insights with you. By reading it, you will be well prepared to achieve your real estate goals and buy the home of your dreams. And if you need my assistance along the way, I would be honored to work with you and help you find your ideal home. Just contact me anytime and I will be happy to meet with you and discuss your specific needs. Enjoy the book!

About Lindsey R. Johnson y R. Johnson As a licensed Broker in the state of Kentucky, and a licensed Realtor in the great state of Texas, I bring expertise and experience to the home-buying process, and let's just say I am passionate about helping people find their dream homes. When I was young I was interested in acting, but life took me on a different path. I discovered that real estate was my true calling and I have never looked back. I believe that hard work pays off and that nothing is impossible with dedication and perseverance. That is why I strive to provide the best service to my clients and to exceed their expectations. I specialize in Single Family Homes and new Construction. I have extensive knowledge of the residential market in the Dallas/ Fort Worth Metropolitan area. I have over 20 years of experience in the industry and I have a proven track record of success. I have a knack for matching buyers and sellers and creating win- win situations. I can save you time and money by finding the perfect home for you and your family. I am also a proud United States Army Veteran and I value honesty, integrity, and loyalty. I am ready to serve you with professionalism and excellence. So, when you are ready to move, I am ready to serve!

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Testimonials & Reviews for Lindsey R. Johnson y R. Johnson Here’s a list of people whom I have helped buy or sell a home, and what they said about working with me:

Mr. Lindsey had a tough job, but he did it!

We were tough clients! We were moving to the city and didn’t have a lot of time to look at houses, having to deal with our employer’s relocation and all the other challenges that came along. Mr. Johnson went above and beyond to help us. Even now, one year after the sale closed, I can still call him for business and service recommendations in the area — he always comes through for us.

Mr. Johnson is The Realtor Man!

I’ve used Lindsey twice so far, and I was impressed both times. I bought my dream home with Lindsey a year ago. He worked long and hard to find me the perfect home. And he just recently sold another property of mine. Everything went quickly and smoothly. Both of my real estate deals were done very quickly and professionally. Lindsey is honestly the BEST in his business. I would highly recommend him.

Mr. Johnson, perseverance got me the house!

My experience with Lindsey during the entire home-buying process, from start to finish, has been nothing short of exceptional. I have a unique work structure, and because of this, it was very difficult to find mortgage lenders that would approve me for a home. I was very frustrated and on the verge of giving up, but Lindsey insisted that we continue searching. Not only did we find a mortgage lender but also a mortgage that I felt great ix

about. His perseverance is the reason I am now a homeowner. He is professional, punctual, knowledgeable, and very easy to work with. With the highest regard, I will recommend Lindsey R. Johnson to all my friends and family.

Very attentive to concerns, details, and negotiations

Mr. Lindsey helped me find a house by literally picking it out for me. Every house I wanted to go to, I got there and didn’t love it. Lindsey was busy taking notes of the likes and dislikes, I was stating and then he said, “I have a house that you’re going to love”. AND I DID! I went back 4 or 5 times to show other members of my family, and he accommodated me without complaint. I was a first-time homebuyer, and he walked me through the steps of everything, gave me advice, and constantly followed up to make sure I was doing OK. With his help, I was able to close the transaction on the house early, right before I started my new job. I would recommend Mr. Johnson to all my family, and friends to everyone, buying or selling. Lindsey made it so easy. He guided us through the entire process. He recommended great people to work with, every step of the way. He was available 24/7 to answer any questions we may have had. With his high standards, expertise in the real estate industry, and patience, we would recommend him as a realtor to anyone looking for a home. He was amazing! Mr. Johnson even advised me on how to prepare my house to sale. I could not have done it without his input. Mr. Johnson was just OUTSTANDING! In addition to being highly knowledgeable about the real estate market, with many years of experience, he is a consummate professional. He was extremely easy to work with, gave me very good advice about preparing my house for sale, and was very responsive during the entire process of receiving offers, selling, and closing. I would

work with him again in a heartbeat! He’s that good.

Lindsey R. Johnson is the first agent I would call!!!

Mr. Johnson and his team were able to rapidly list, show, and sell my property. Being an expert in real estate, he was spot on in his pricing of my property and getting this deal completed. Overall, I highly recommend him and his team. If I want to buy real estate, AGENT would be the first person I’d call.

Lindsey got us an offer in three days!

Mr. Johnson was the consummate professional during our stressful and difficult process. In the midst, of managing a ‘failed’ marketing effort with another agent, he presented a thought-out plan and strategy to sell our home in short order. We needed to move quickly due to a growing family and another baby on the way. He helped alleviate that pressure by securing an acceptable offer within 3 days of listing. We put pressure on him, and he delivered. We couldn’t thank him enough.

Mr. Lindsey kept us calm throughout the process!

Lindsey always made himself available to answer questions. He worked hard to sell our home and find the best fit for our family in the new home. Lindsey and his team operated in beast mode! They worked with us throughout the entire process and kept us calm when we got anxious. Team Lindsey is the way to go!

I am 100 percent satisfied!

Mr. Lindsey R. Johnson is very professional and knowledgeable about everything. He is also always available. I would recommend him to anyone. Very smooth transaction from start to finish. I felt confident, with his experience.

Lindsey saved us both time and money!

Lindsey was very efficient and helped us find our dream home within a few short months. He was able to negotiate the price that we wanted for the house. Overall, I would seek him out again to help us look for a house, if need be, in the future. Thank you so much, Mr. Johnson! Lindsey and his staff were very helpful in selling our condo. They kept me informed by way of email, sending reports on scheduled showings, offers, and feedback from potential buyers. We are very satisfied. Mr. Lindsey is great! and has the expertise to get your house sold quickly and for the most money! We had great communication throughout our sale (from beginning to end) process. It has been very rewarding working with Mr. Johnson, a true professional. Mr. Lindsey is great and has the expertise to get your house sold quickly and for the most money! The communication throughout our sales (from beginning to end) process has been outstanding. Mr. Johnson understands the stress involved in selling your house, and he updated our family consistently! This made us feel we were in good hands. I have worked with numerous agents, and I would highly recommend Mr. Johnson to represent you when it comes time to sell your home. Mr. Johnson, (Real Estate Man!) Excellent experience topped with a personal touch Excellent experience all around, not only knowledgeable but Mr. Johnson and his team have a very personal touch I felt like family throughout the entire process. He always took his time; we never felt rushed, or like “just a number.” I sold my home and bought a new home with him. We had lots of questions and he gladly

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answered them with no problem and guided us through the entire process, eliminating lots of stress. I truly appreciate that and would recommend him and his team to my family and friends.

Real Estate Man! (Mr. Johnson) Sold our home in a week!

Mr. Lindsey was an absolute dream to work with. Professional, responsive, efficient, and my moral support when in time of need...unfortunately for her. We sold the house within a week. What else can you ask for? Grateful, grateful, grateful!!!

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CHAPTER 1 How DO Real Estat eal Estate Agents e Agents Help Home Buyers

I am going to keep it real! From the start, I am sharing with you that I’m a real estate agent — and proudly so! I am going to say, How, nice it is meeting you! What I’m not going to do is try and sell you anything, but if you have any real estate-related questions I would be happy to answer them, and if you want me to help you find a house, we can talk about that too. Here is my information. 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, Redfin. or one of the hundreds of other real estate websites.

WHY (HOME) BUYERS NEED A REAL ESTATE AGENT

In today's market do you need buyer's representation? Can you go it alone? Maybe you can, but you probably should not. The reasons to use a real estate agent in today's market are as valid as markets of old. The ease of online transactions, and proliferation of services to assist buyers in handling their individualized real estate transactions came about recently, throughout the last decade. This has caused buyers to wonder if using a real estate agent is no longer necessary or if it's an expense that can be avoided. While doing the work yourself can save you money, 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 1

be pricier than a real estate agent’s commission in the long run. The reason to use a real estate professional (buyer agent) is because agents have extensive knowledge of the market, and understand the documentation, and mortgage process required to purchase a home. The buyer agent keeps you from having missteps that could cost you thousands of dollars in the form of option money, escrow, inspection money, and appraisal fees not to mention a clear/clean title. The buyer's agent is a part of your team and coordinates every step of the process, he, or she makes sure everyone that participates in the process meets their deadlines. Furthermore, the buyer agent is highly skilled in the art of negotiations, and you will need a strong negotiator to represent your interest in the transaction. The buyer agent is your advisor, and he or she should be compensated for guiding you through the home-buying process. Now, it used to be that the seller pays the buyer's agent commission, but times are changing. In today's market, the seller understands that he/she has a choice to pay, or not to pay a buyer commission. However, it should be noted that buyer agents work long hours and work very hard to get their buyers qualified by a lender to purchase a home. So why would a seller expect a buyer agent to bring his financially qualified, and pre-approved buyer to purchase your property if you are not willing to offer cooperating commission to the buyer agents? Now, should the seller decide not to pay the buyer's commission then the buyer's agent would seek his professional fee (commission) from the buyer he/she represents. Lastly, it needs to be understood--the buyer's professional (commission) fees and the seller's professional (commission) fees are two separate fees, and the seller is only responsible for the fee of the selling agent. Times have changed. It used to be that a buyer did not pay any commission to any agent on a home purchase. Nearly all sales saw the listing agent who represented the seller offer a cooperating commission split to the buyer agent or sub-agent.

Likewise, today, some real estate agents 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 guide the home buyers through the home-buying process till the closing date. 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. Again, it used to be the buyer’s agent's commission was paid by the seller, but in today's market, the seller does not have to pay the buyer's agent fee. The seller is only responsible for the listing agent fee, and the buyer is responsible for the buyer's agent fee. So, in today's market, the buyer agents will have the buyers sign a buyer's representation agreement stating what his/ her professional fee is going to be, and that he will try to get the fee from the seller, but if that does not happen then the buyers will be responsible for compensating their buyer agent. This is the new norm.

MORE ACCESS TO THE REAL ES O THE REAL ESTATE MARKE TE MARKET

A real estate agent will have better access to the market, with - special knowledge of local conditions in the community. 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 will 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 does not engage 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 - takes a special skill set 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 a certain amount in decorating costs, and thus can offer that much less.

CONTRACTUALLY SPEAKING…

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 completion. Buying a property is not necessarily a “fill-in-the- blanks” transaction. One 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 yard. The seller then put the home back on the market, and sold it 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 NECESSARIL N'T NECESSARILY SAVE MONEY

The point of not using a real estate agent would be to save money, right? Otherwise, why would someone turn down professional assistance in finding a home? 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 (FSBO) 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 from getting to keep, a percentage of the home’s sale price that might otherwise be paid to the real estate agent (say 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, so they look solely at FSBO houses. They might expect money to be saved 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 • Neighborhood knowledge • Price guidance • Market conditions information • Negotiation skills and confidentiality • The ability to handle paperwork • The ability to handle closing questions • Relationships for Future Business

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 IS A REAL ESTATE AGENT? GENT?

Simply put, a real estate agent is someone licensed to list and sell real estate, including homes, multi-family properties, 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®. As mentioned, real estate agents who work on behalf of the best 6

interests of the buyer are commonly called buyer’s agents. 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 UR 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. As with any Professional, there are degrees of professionalism, dedication, and experience. The “wow factor” will simply wear off. Meet with prospective buyer's agents in their office or a coffee shop, and because of Covid-19 good agents will conduct meetings by way of Zoom. A good buyer’s agent will want to know whether you’re preapproved for a loan by a financer, 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 just as much, as-talking, and asking- 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 you. 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, and not just listings that are handled in-house. Buyer agents have the legal duty to put the 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 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 the kitchen, and look at the space above the garage that will make the perfect art 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 didn't have the proper credentials, and licensing would you? 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 who can do the job, and who have the (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: • Accredited Buyer’s Representative (ABR): Completed additional education to better represent buyers in their transactions. • Certified Residential Specialist (CRS): t (CRS):Completed additional training during the handling of residential real/ estate, such as houses and apartments. • Seniors Real Estate Specialist (SRES): RES): Completed additional training to help sellers and buyers 50+ years old. • Graduate of the Realtor Institute (GRI): e (GRI):The mark of a Real Estate professional who is dedicated, to providing a higher quality of service. • Certified Real Estate Advisor (CREA): r (CREA):Completed additional education training to assist buyers during their transactions. 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). 9

RESEARCH LICENSING

Your state will have a licensing board for all active Realtors® and agents, which you can easily access. You will also be able to see their contact 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 homes that are out there for the taking. In short, you want an agent who's knowledgeable 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. When you find the right one for you, these real estate agents will work, day and night to ensure all your needs and requirements are met when it comes to finding the right home.

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 determine your needs and wants when it comes to finding a home and a neighborhood. The agent will teach you what you can afford, help you set a budget, provide some insight into the current conditions of the market, and explain what you should expect while shopping for a home. During the shopping period, you’ll meet with your agent for tours of homes in which you might be interested. They will give you 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, of local activities, restaurants, 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 are done in a timely fashion. This includes 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 there are documents to go through and sign.

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 or intermediary. 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. If you’re selling your home and you don’t want your agent to also work with the buyer of your home, it’s your right to say so in the listing agreement. This is also true for buyers. A buyer can get out of an agreement with an agent if they are interested in purchasing a home their agent is listing.

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 have already 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 for the seller 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. • 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 missteps in a dual agency sale, always ensure you have clarified important details with your agent ahead

of time. You can do this by using an exclusive buyer agency agreement, or a listing agreement.

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 in 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 earn a salary — 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 is 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 earned. The commission itself is negotiated — in most cases, between the seller and the agent. Traditionally, an agent will earn a negotiated commission from the sales from the sale price, but some brokerages have commission discounts for the sellers with whom they work. In today's market, the seller will decide what commission fee he or she will pay the listing agent, and what fee, if any, he or she

is willing to compensate (pay) the buyer's agent. If the seller does not want to compensate the buyer's agent the buyers will be responsible per their buyer's representation agreement with the buyer's agent as to what their agent will be paid. Although some agents are associate brokers or brokers in general, 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 between 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 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 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.

CHAPTER 2 Owning vs. Renting

Owning your own home might be one of the defining qualities of the “American Dream:” the set of ideals that includes opportunities for prosperity and success and upward social mobility for the family and children, achieved through hard work. Homeownership is surely ingrained as one of the strongest representations of that vision — 66% of Americans own their home and more hope they will or wish they did. Something about homeownership plucks a strong chord with Americans. Financial security, permanency, status, and pride are values many of us seek. 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 growing a family. 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. home-ownership rate has fluctuated between 62% and 70% since the 1950s. Most young people begin their independent lives by 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 homeownership, as opposed to rental living, is more appropriate to their growing family needs. At the other end, of the age spectrum are homeowners nearing 17

retirement who may desire to sell their homes, downsize, and avoid maintenance, and other obligations, 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 vs. renting, each has their own 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 storefront for wealth to liquidate in retirement; when downsizing their lifestyle. In 2015, Gallup 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 does home ownership fit into where your life is headed? Ask yourself, what is your budget. Does either buying or renting require you to stretch your

finances, do 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 lump sum payment that funds your equity in the property (how much of the property you own). Down payments vary; 20% is preferred and gets the best rates. Some loans allow down payments as low as 3%-3.5%. Sometimes relatives help with the down payment. If you have a choice, take a gift rather than a loan because lenders will add the loan 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 a loan principal and interest (both amortized over the life of the loan) plus homeowner’s insurance and property taxes (prorated). 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 the stress level. 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 (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 and that will serve your needs (i.e., proximity to schools, shopping, recreation, etc.)? Are you ready to devote the time, and attention to maintaining a home (i.e., leaf-raking, grass-cutting, appliance maintenance, and repairs, etc.)? Taking care of your biggest investment can be gratifying, but only if you’re ready.

ADVANTAGES OF BUYING YOUR HOME

Control over housing expenses. By selecting a fixed-rate 15-, 20-, 25-, or 30-year mortgage, the homeowner is assured that housing costs won’t increase over the life of the loan. Unless the homeowner decides to refinance. 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). Discounting 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%. Remember, home value appreciation in the different metro areas, and 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 homeownership. 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 from 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 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, up 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. 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, 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 can do what you want with it. You aren’t daunted about increases in rent or 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, or 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 expenses from a 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 an 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 house 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 ranging from 3.5% 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 special logistics and financial matters, such as 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 and done, 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 your future. 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.

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 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. Perhaps you envision a home on the beach or in the woods, a gourmet kitchen, a wood-paneled den, a crystal chandelier over a banquet table in the manor-sized dining room, or an Olympic- sized swimming pool with a hot tub and sauna. Your priority in any home purchase should be ensuring all of your needs are met. Sometimes, you won’t find everything you desire in a home and if you do, you may not be able to afford it. It’s important to prioritize the things you want in a home by how important they are in your search.

Decide your needs vs your desires.

• Would you like a swimming pool? Enough, so that a home without a pool will not be looked at? • In what areas or neighborhoods might the home be located? Where do you want to live? Where should you live for work commute, or home price reasons? 27

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