Buyer FAQ: 5 Home Buyer Misconceptions
So, let's just get right into it...
#1 - "I have to work with the agent on the sign?"
A buyer can choose to work with any agent they think will best represent their interests in buying a home. In fact, the agent on the sign is already in an agency relationship with the person who owns the home behind the sign. That means that if a buyer chooses to work with the agent on the sign, the first thing that agent should tell you is that they represent the Seller and already owe that Seller a fiduciary duty of loyalty, confidentiality, obedience, etc.
There are a couple sub-misconceptions that follow the one above. Those include, "a buyer will get a better deal if they work with the listing agent," and "a buyer's offer will more likely be accepted if they work with the listing agent." The Seller decides which offer to accept and most Sellers have a bottom line amount they will accept.
Honestly, these misconceptions generally come from the misunderstanding of how commissions work. When a listing agent signs a listing agreement with the Seller, the Seller agrees to a commission to sell the house, maybe 6%. The listing agent then offers half of that commission to any other agent that may have a buyer that is interested in the Seller's home. If the listing agent ends up finding a buyer for the Seller's home, the listing agent will make the full 6% for doing double the work, they won't normally reduce their commission to pass those savings to the buyer and seller. The listing agent now has to navigate the problems of DUAL AGENCY.
There are positive reasons to work with the listing agent and drawbacks as well. The biggest drawback comes after an offer is accepted, during the inspections. It's difficult for the listing agent to serve two masters when negotiating repairs for the house if they are needed. It is also difficult to address problems with financing and earnest money if the transaction is canceled. Those aren't reasons not to use the listing agent, but buyers need to understand they have a choice and make their decision based on what they believe is best for them, that's all.
The best way to make that happen is by sitting down with an agent for a buyer consultation. You can schedule one here.
#2 - "The Sellers pay all the Closing Costs"
Closing costs are a negotiated term in the offer. In most cases, sellers do not pay for the buyer's closing costs. The default is for both parties pay for their own closing costs. The seller's closing costs are normally between 1% and 1.5% of the purchase price. The buyer's closing costs are between 2% and 3%, depending on the loan they have chosen and the lender they are working with.
Now the good news ... our team is often successful, even in this market, getting at least some portion of buyer's closing costs paid for by the seller.
One of the most underutilized parts of the negotiation process is the terms of the offer. Many people think the only term that matters is the price. Many buyers' agents in this market (a Seller's Market) come from a place of scarcity when representing their buyer clients and simply ask their clients what they want to offer on a house they like and kind of frown when it is anything less than the listing price.
Agents are often worried their clients will miss out on a home and blame the agent for not getting their offer accepted. The frustration comes on the client's side of things because no real advice was ever given to them because the agent mostly acted as a tour guide to find "the perfect home."
One of the most important issues we clear up in a buyer consultation is what's most important to our buyer clients when closing on their home, the upfront out of pocket costs paid at closing, or getting a better deal on the house. Understanding the order of priorities for our clients, is key to writing an offer that will lead to a successful transaction for them and help us to provide better advice along the way. Often times, the initial out of pocket is harder to come up with, especially for first time home buyers, then an extra $50-$100 a month on a mortgage payment.
#3 - "I’ll get Pre-Approved when I’m ready to make an offer"
Get pre-approved up front, before you even start looking at houses. PERIOD.
If you need help finding a lender let us know. We're probably your best resource to find a great lender, we do this for a living and don't want to leave you in a bad position with a lender that doesn't know what they are doing and can't close on your loan. Yes, there are a ton of "great deals" out there when it comes to rates, loan costs, etc, but most lenders can match what others are doing and most loan programs can be matched as well. Don't put yourself in a position of desperation when you find the house you love, it's not worth the stress.
#4 - "I can’t buy a house because I need 20% for a down payment"
I would say most of our clients put less than 20% down. We don't really track how much on average is paid as a down payment, but I would wager a guess of about 10% on average. There are conventional loans now that allow for as little as 3% down. There are a lot of considerations that come into play when putting less than 20% down, but it shouldn't stop you from checking into whether or not you can buy, especially if you are deciding whether to rent for another year.
Quick Case Study - We recently had a client contact us about a rental that was $1,600 a month. The inital move in cost was going to be about $6,000 (first months rent, a pet deposit, a cleaning deposit and the security deposit). We found a similar home that was for sale in a nearby neighborhood.
The home was listed for $185,000 and our client was able to qualify for a 3% down conventional loan and we negotiated for closing costs to be paid for by the sellers. Total out of pocket was about $5,550 for our client and to top it off, we timed the closing so that it was like she had a month off of making a mortgage payment. Her payment was less than $1,600 as well.
Same Payment Now - Get A List Of Homes You Can Buy For The Same Amount You Are Paying For Rent - No Joke.
#5 - "I can be represented by an agent when I am interested in a For Sale By Owner"
Absolutely not true. I used bold, italics and underline to let you know we're serious.
Most FSBOs will work with an agent and welcome them to show their homes and make offers on their properties. The FSBOs do not however usually appreciate the number of calls they get from agents that do not have a buyer client and simply want to be the listing agent. However, even if the FSBO is not willing to pay for an agent commission for someone to represent them, we can negotiate to have it paid for as part of closing costs.
There you have it. 5 misconceptions eliminated from your home buying experience.
For more information or to schedule a time to speak with us about any questions you have concerning closing costs, click here
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