When my wife and I were buying our first house we were pretty naïve about the real estate market. We didn’t know what to look for in a house, how to structure a competitive offer or what to expect from agents, mortgage brokers, lenders and sellers. However, after completing the process a few times, and through my work at trust for self-directed alternative investments, I am now far more knowledgeable and confident about buying and selling real estate. I also know exactly what to expect from my future real estate teams, and what you should expect from yours.
What an good real estate team should do for home buyers
1. Real estate agents should help you find the right property
In a highly competitive real estate market it’s easy to start relaxing or forgetting your core needs, especially after a few heart-breaking rejections. After several rejections, you may be putting in offers on anything with four walls and a roof. When we were first looking for houses in the Denver metro area, our agent was quick to to write up offers on just about anything on the market, but because we weren’t making competitive offers, we saw house after house go to other buyers.
A good agent has a deep knowledge of the local real estate market, as well as an understanding of what their client’s value. If you’re not competitive at a certain price point, your agent should be helping you to reexamine your expectations and prepare stronger offers at a lower price point, without sacrificing your core needs in a home. A good real estate agent should also be presenting opportunities to you, not just showing up when you find places you like on the Multiple Listing Service (MLS)
Related: The True Cost of Buying a Home
2. Real estate agents and lenders should be communicating with each other
The best real estate teams are comprised of an experienced buyer’s agent, an organized lender or mortgage broker and you, the motivated buyer. This power-triad sets the table for the quickest and easiest real estate acquisitions. In a seller’s market, if your real estate agent can’t get ahold of the lender, you will lose properties to faster buyers. In fact, a well coordinated buyer/lender team will be in daily contact until you get an offer accepted. They know that a concerted effort for a short amount of time is more profitable than a lackadaisical approach that could stall the buying process for months.
3. Your real estate team should help you prepare excellent offers
Among the mistakes I made when we were first in the market for a home, was to not investigate what makes a really strong offer. I assumed that we kept losing houses due to things out of our control, such as total cash offers or crazy high offers from buyers coming from more expensive states. Neither our realtor or our lender at the time told us otherwise. I didn’t know anything about appraisal gap contingencies, increased down payments or “as is” offers.
Related: How to Buy Houses in a Highly Competitive Real Estate Market
A good lender will help you make offers based on the what you could hypothetically afford, rather than what you plan on putting down at closing. They do this by including retirement assets (and other accounts you probably don’t want to use) as a basis to demonstrate higher down payments in your offer paperwork. A higher down payment signals to sellers that you have more capital to work with if the home appraisal comes in low (see link above for more on this). The best lenders know your minimum acceptable down payment ahead of time and can adjust the figures well before closing, while still presenting, “20% down” in your offers. Your real estate team should also be advising you of other additions to include in your offer, based on information they have gleaned from the seller’s agent about what the seller’s are looking for.
4. Your real estate team should be quick to reply and informative in their responses
Your real estate agent and prospective lender may be slow to respond to your questions, or even dismissive of them. You may want to forgive them because you know that they are very busy and have a lot of other clients. Don’t, you always should demand excellent service, especially as well-qualified loan applicant. Even though you still need the bank’s money, that doesn’t mean that the bank doesn’t need to compete for your business, or that they won’t make a huge profit on the deal.
The good news is that most lenders/brokers and agents work well together. It is in their best interest to do so given that they typically don’t get paid until you buy a house. That’s all the more reason to ditch the mortgage broker, lender, or your real estate agent, if you’re not getting all of your questions answered promptly and courteously early on.
5. Your mortgage broker or lender should be accurate in their projections
You should know the numbers (i.e. approximate interest rate, minimum down payment, maximum loan coverage and closing costs) before even making offers on properties. A well-organized, knowledgeable lender can get you fully approved first in order to strengthen your offers, and so that there are no surprises at the closing table. One of our initial lenders had our names and birth dates wrong, miscalculated our income, significantly underestimated the pre-payoff payment of our mortgage insurance (find out why PMI is like a scam here) and classified our purchase as a “secondary residence” without our knowledge, so that we could make non-contingent offers before selling the house we owned. Oh, and a few days before closing he advised us that our down payment would need to increase from 10% – 14%. Thankfully, the house appraised in a range that didn’t cause us to exercise our appraisal contingency and everything worked out. However, the added stress was unnecessary and could have been avoided if we had identified these inconsistencies earlier.
What your real estate team should be doing when you’re selling a property
1. Your real estate agent should price your home accurately
You pay 6% of the sales price (or more sometimes) to agent commissions. This 6% is most often split between the seller’s agent and the buyer’s agent after closing the sale on your home. In a competitive market with low available inventory, that cost is only justifiable if your house is priced accurately, staged properly and negotiated effectively. Pricing is crucial as a misjudgment of the market could cost you tens of thousands of dollars. Your home should also be listed within a range that it will likely be appraised, in order to simplify lending for the buyer and ensure that the deal closes. That’s because lenders will only underwrite loans up to the amount that a property is appraised at. A buyer can offer $200,000 over the asking price, but if the property is appraised for lower than the offer, then either the buyer needs another source of funding (i.e more cash or a complicated bridge loan) or the seller needs to reduce the price or cancel and relist.
Many people assume that they can avoid the cost of the seller’s agent by listing their homes on the MLS themselves. This can be done for as little as $5,000 through companies looking to undercut the high cost of real estate agents. The problem is that typical home sellers can’t complete detailed market analysis to ensure that, not only is the highest closable price is negotiated, but also that the contract is executed in their best interest. I was happy to pay the $34K in commissions when we sold our home because we needed to move fast, it was staged well and sold quickly and the contract provided us with the profit and flexibility that we need to move.
2. Your real estate team should help you prepare your home for showing
If your house is not staged well you will likely receive lower average offers. Some of the houses that my wife and I viewed had weird paint colors or peculiar decorations – like year-round, indoor Christmas lights – but most of the poorly staged homes just had too many personal items around. Or too much stuff in general; knick-knacks and collections don’t show well. An experienced real estate team will advise you to clear your house of as much clutter as possible. When buyers are considering a house they want to be able to picture themselves living there and the more of your things they can see, the harder that fantasy is to form. For that reason, we took down most family photos and everything off of counter tops and my wife, who has a keen sense for interior design, staged our house before every showing.
3. Your agent should be a strong negotiator and advise you of requests you should accommodate, versus when to negotiate
When we were selling our house we showed it for only two days and received only one offer. That didn’t stop our realtor from getting us exactly what we wanted in the contract. A good seller’s agent will work with the buyer’s agent to find out what the buyers will bring to the table. Further, they will determine which offer is strongest or “most likely to close”. A cash offer doesn’t have to go through underwriting and thus is sometimes even more valuable than higher offers that are dependent on lending. After accepting an offer, your seller’s agent should also field the buyer’s questions and requests and help you determine when to accommodate a request and when you can negotiate.
4. Your agent should advise you of every step in the process
The real estate selling process can be just as stressful as the buying process. You have repairs and touch ups, an endless parade of people coming in to judge your home, the anticipation of what, if anything, will be offered, the buyer’s requests and all of the stress that precedes closing. The best real estate teams know how this effects their clients and will keep you apprised of every stage so that the process feels as seamless of possible. The best agents are also level-headed and know that it is best to assuage your fears with a quick phone call or email.