House on Money

Buying a home is for most of us the most exciting and terrifying thing we are likely to do.  Lets face it most people will never sit in a boardroom and authorize a billion dollar merger but spending two or three times your annual income to secure your place in the world has to be almost as nerve racking especially if you don't understand all the myriad pieces that have to come together to make it happen.  

To buy a home you'll love you need to do a little soul searching.  Then look at what the reality of your market is where you live.  One of the best resources available in helping you understand your local market is a good Real Estate agent.  To get the most out of your experience with an agent there are a few things that need to know when evaluating an agent.  

First is to understand what an agent does and does not do and who they work for.  Most of us believe that the agent showing us the house is in some way looking out for our best interest.  In most cases this is contractually untrue.  A Real Estate agent is a contractor just like the home inspector or the appraiser and just like any other contractor they work under a written contract.  There are three types of agent contracts in most states.  They are Sellers Agent, Buyers Agent and a Transaction Agent.

For instance Jim and Jill have saved up and have decided it is time to buy a home.  They start by looking through the newspaper and finding houses they like in the area they think they want to live in.  Under each house picture is a name and number of the “agent” so they call and go look at the house.  They love it and since the agent showed it to them they like most people believe that she is their agent.  The agent being a good agent is more than happy to help them and gives them all the relevant information and even has them sign the agent agreement that explains that she is the sellers agent.  In good faith as she should, the agent helps them close the deal.  However what they were probably not actively aware of, even though it was probably disclosed somewhere in the myriad papers you sign at the agents office, is that the agent worked for the seller and was contractually obligated to help them get the best price possible not the buyer.  Without a written buyers agent contract the listing agent legally works for the seller.  The exception is in a dual agency set up or in states that have a transaction broker agreement.

This is another one of those places we have to get into confusing industry terminology.  Single agency means that the agent works under contract for either the seller or the buyer.

Seller's agents work to represent sellers and are working in a single agency capacity as a listing agent.  That does not mean that they are prevented from showing property to potential buyers or helping them make an offer it does however mean that they owe a fiduciary responsibility to their client in this case as we have stated that is the Seller.  In other words by law they do not have your best interest as the buyer in mind if it conflicts with the needs or interests of the seller.  They are still required to use care and due diligence to perform duties, disclose all material facts and be honest.

Buying agents represent buyers and are working in a single agency capacity as a buyers agent as such they owe a fiduciary responsibility to the buyer just as the listing agent owes one to the seller. They cannot share confidential information with the other party or the other party's agent.

Buyer's agents and the buyer usually sign a buyer's broker agreement which lays out the duties and obligations of the agent. This is important as in some states, if the buyer does not sign a buyer's broker agreement with the agent, that agent does not represent the buyer but instead becomes a sub-agent of the seller. Sub-agents owe the same duties to the seller as the listing agent.

Most agents work as both seller and buyer agents of different deals in a few cases they will even attempt to work both sides in a dual agency agreement.  

A few states have a transaction broker agreement and the broker has neither agency or fiduciary relationship between brokers and sellers or buyers. They act as no more than a facilitator.  transaction brokers assists buyers, sellers, or both during the transaction without representing the interests of either party who may then be regarded as customers.

Now that you know a little about how Real Estate agents work don't be afraid to use that information.  Many people treat Real Estate agents like they do Doctors they think just because that is who showed them the house or did the initial consultation that that is who they are supposed to use.  That is simply not true.    I recommend finding an agent before you start looking at houses if at all possible.  Ask your friends and associates see if they have someone who has done a good job for them in the past then set up a meeting and interview them just like you were hiring an employee because in the end that is really not far off.  

Find out what kind of person they are?

How do they work, what hours, what areas, etc.?

Do they have a team  and they just run that team or will you be working with them personally?

What kind of agency do they operate under?

Ask for references!

Any good agent will be more than happy to go through this process with you as it helps them as much as it does you.  For me personally I always use the same agent we have worked together for years because we got to know each other and he knows what I want and I know he is honest and how he works.  For instance I cannot stand an agent that up sales me.  If I tell you I will spend $100,000.00 on a property don't show me $170,000.00 houses unless you are sure they can be negotiated to my price range.  He knows this and knows I have left agents in the past because they did it to me.  Likewise I know he does not show property on Sundays so I know not to call him on a Sunday to look at something.  The few hours you spend interviewing your agent will pay in peace of mind later.

Once you find an agent and start looking for your house, listen to them.  People buying their dream home are not in their right mind, every house is either junk or The One.  When you find The One this is where your agent can save you. Let them do their job and listen to their advice.  Always ask that they get you a home inspector, if at all possible walk through with the home inspector ask him to point out his concerns.  Then go through the report with your agent especially if they are working as a buyers agent. They will know what is no big deal and what will cause headaches for years to come. 

Remember as much help as a good agent can be though, you are the one who will be living with the purchase for years to come so study up and do not be afraid to ask for a second opinion if you think something is out of whack.  Also understand that home inspectors etc. cost money that you will have to pay so budget accordingly but, don't skimp, $500.00 - $1000.0 for inspections may seem like a lot but is a lot cheaper than a $30,000.00 foundation repair 6 months after you move in.

OK you have the agent, you have made the offer and the inspections are done. Don't do the inspections till you have a contract, just make the contract contingent on getting financing and the inspections being clear or the problems being fixed to your satisfaction to protect yourself.

Now you need the money, hopefully you have learned something  from hiring your Agent and use the same process to find an Lender.  Many time you Agent can help you and will recommend some Lenders early in the process as most agents want you to be preapproved so that they know they are not wasting everyone's time by showing you houses you cannot afford.  Preapproval is basically applying for a loan against your credit and income the last portion the lender will look for is the collateral IE the house.  The nice thing about preapproval is you know when you go to look that the lender is willing to lend x dollars as long as the collateral supports the loan.  This article does not really deal with finance as such so I will leave it at that, other than to add that there are many options to obtain financing and many types of loan do your research and know what type loan you are buying.  You do not want to wake up ten years down the road with a massive balloon payment looming because your mortgage is expiring and now you have to refinance under a higher interest rate or worse terms.

Down to the final wire your agent will at this point be coordinating a whole bunch of people to make the closing happen.  If you have picked a good agent you should be kept aware of what is going on but be largely unaffected by it.  As closing day approaches the appraiser has to be coordinated, The title has to be updated by the abstracting company.  The title has to be reviewed by an attorney (in some states) generally your agent has an attorney they use but if you prefer to have your family attorney do the review you can ask that it be sent to them.  Before you do so make sure that your attorney is competent to review the title there are many aspects of law and not all attorneys do real estate.  

What has to be done to the Title/Abstract will vary from state to state but this is a crucial step in the process as it makes sure that the property is unencumbered which is real estate speak meaning that no one can come back and try to take the property because of something that happened before you bought it.  This can and does happen.

Finally everyone has to come together for the closing.  Contrary to what it shows on television this is usually not a huge room full of people in fact usually you do not even see the people you are buying from you just go in an office at the closing agency and sign a bunch of paperwork and they give you the key.  There you are you're a home owner!

I hope this has helped you to have a little more confidence approaching one of the biggest purchases of your life.  I wish you luck and many years happiness in your new home.