Real Estate For Atlanta Blog

Home buyers often feel that they will somehow be better off without an agent representing them. Some of the common reasons for this are based on somewhat flawed logic. Be sure you don’t make these mistakes. 

1. The first mistake many buyers make is in thinking that they will automatically get a better price on a home if they negotiate without having an agent represent them. In order to see how this works, it helps to have an understanding of how real estate commissions usually work. In just about every case, there is a listing agreement between the seller of the home and an agent who is representing the seller. This contractual agreement obligates the seller to pay the SAME total amount of commissions out of their proceeds whether the buyer is represented or not. If the buyer is unrepresented then the listing agent gets to keep the entire amount. If the buyer is represented, then they are required to share their commission with another cooperating agent. So, as a buyer, if you submit an offer on a home without an agent, the listing agent does not have to automatically reduce their commission at all and has the right to simply keep it all. In reality, some agents will reduce their commission a bit in that scenario; but rarely by 50%. The truth is that YES you can sometimes get a slightly better price on a home if you don’t have an agent; but before you make the choice to do so, you need to realize what you are giving up and what your true savings is. It is almost NEVER a 3% savings as most buyers are led to believe and in many cases, it is actual ZERO.
2. For the little bit of potential savings mentioned in #1, you will be putting yourself at greater risk by not being represented. NEVER be fooled into taking comfort in the fact that the nice and friendly sales agent in the builder’s model home is going to help you get the best deal. That agent is representing the seller and ONLY the seller’s best interests. In fact, it’s would be a violation of their listing agreement to do anything other than that. If all goes well, this is not a problem; but a professional agent might be better suited via their experience to identify potential snafus and modify the terms of your agreement slightly to minimize your risk as a buyer. One example of this that is common today is the builder deposit. Many builders demand a builder deposit instead of earnest money. Most buyers do not know the difference. If the transaction closes successfuly, there is not much difference; but the way the money is handled from contract to close is grosely different. In the event of the builder going out of business (rather common these days) or another unforseen glitch, the buyer’s money is at much greater risk in that scenario. This is just one of many things that a good experienced agent will know to look out for on your behalf.
3. When finding the right price to offer, agents who know the local market and are in the trenches every day are better positioned to analyze the market and advise you on how low the seller might go.
4. All the time, I hear people ask me, “You make money on a percentage of the sale price; so isn’t it in your own best interest to make me pay more so that you get more commission”. What I say to that is that I pitty the agent who has such a dead end and short sighted view of their client relationships. With the relationship that I have with my broker, raising the selling price by $10,000 puts a whopping $192 bucks of taxable self employment income in my pocket. Now, I can only speak for myself that on a $500,000 sale, I’d much rather get $15,000 in gross commmission and have a happy client that feels that I represented them properly which will lead to referrrals and repeat business than to secretly voilate my fiduciary responsibilities to my client and try to make them overpay to sell the same home for $510,000 so that I can make $15,192 in gross commissions instead. No good business person would ever make that mistake or they’d be out of business pretty quickly.
5. If you are selling a home in the same area and buying, you can benefit even more by having an agent. If you present an agent with an opportunity to represent you on the sale of you old home and the purchase of a new one, you can often negotiate a better rate on the listing commission. Best of all, you’ll know you won’t be compromising on quality or service because the agent who has 2 transactions tied to the sale of your home and doesn’t get paid on either until both happen will be the most motivated listing agent you could possibly ask for. This is the real way to “beat the system” and get a deal.
6. Convenience is important. Having an agent represent you makes the home shopping process much easier. Every agent has the same incentive to sell any listed property as they do to sell their own listings. With an agent’s lockbox key, they can take you out and show you every property on the market at once - rather than requiring you to make individual appointments with the many different listing agents to get into each home.
7. A good agent is well networked with other agents in the area and often knows of new properties BEFORE they come on the market. This includes having inside information about potential future foreclosures, etc.
8. Agents usually have a tried and true list of vendors including loan officers, inspectors, handymen that they can put you in touch with and facilitate a smoother transaction.

These are just some of the benefits of having an agent as a buyer and once you factor in all of these; plus take a realistic look at your potential savings, hopefully you will be making a much more educated decision about this.

Home Price Surprise

Many home sellers are facing sticker shock these days when they ask an agent what they should list their home for. Unfortunately, this does not necessarily have to be bad news and a lack of ability to deal objectively and make sound business decisions about a home that one is emotionally attached to often leads to a missed opportunity or financial loss.

The following chart showing historical home prices in the United States is a good indication that, although there are some minor dips in values periodically, this is the first time in most of our adult lifetimes that an extreme loss in value has taken place.

home price history chart

Because home value declines such as this happen so infrequently, many home sellers (and even agents) have extreme difficulty accepting the realities of the market.

But before you break out the alka-seltzer and tissues to deal with the sticker shock that you might face as a home seller in today’s market, consider the following and it might help to put your mind at ease:

1. The only thing that really matters for most is not what their home is worth; but rather what their home is worth in comparison to what a replacement property would cost. If my home were to drop in value while everyone else’s remained the same, then I would have something to cry about. However, if everyone’s houses are falling at the same time, then it is simply deflation across the board and my buying power has remained the same.
2. Market conditions vary significantly from one area to another - even within the same city. This can actually present an opportunity to benefit from a declining market. If you are selling a home in a market that hasn’t declined as much as the market that you wish to buy into, then a “down” market might actually be the best time to make the move.
3. If you are moving up to a larger (or more upscale) home in the same area, then a down market is the best time to do so. For example, if you live in a home that would have sold for $400,000 when the market was good and you wish to buy a home that would have sold for $600,000 when the market was good and home prices in your area are down 10% then you will have to deal with the sticker shock of facing that your $400,000 home is now only worth $360,000 (a $40,000 loss)which may be a hard pill to swallow; but you will buy your new home which would have been $600,000 for only $540,000 (a $60,000 savings). Therefore, it is actually financially better to make the move now. If you wait for the market to recover, you’ll be effectively $20,000 worse off even though psychologically it may be difficult to realize this.
4. When prices are rising, you can get away with overpricing your home a little bit above market value and eventually the market will catch up to it. In a declining market, it’s important to do the opposite: price below market so that you are ahead of the curve.

All-in-all, there is no such thing as a “bad” market. There are buyer’s markets and seller’s markets. If you are both a buyer and a seller, then fluctuations in the market will always be cancelled out. So, when your agent tells you that your home is worth a certain price, try to look past your emotional attachment to your home and objectively look at your whole situation. Price your home to sell so that you can quickly take advantage of the buying side of the equation and you’ll be glad you did.

Foreclosure Road Sign

Until this year, many people who were not in the real estate industry had never even heard of a short sale. Now, short sales have become very common and many bargain-hunting buyers are seeking them out as value priced properties. Those who have tried to put offers on a short sale property have learned the hard way just how frustrating this experience can be.

It is important to understand what a short sale is. In a nut shell, when a homeowner is in financial distress due to a life situation that can cause a sudden loss of ability to continue keeping up with the payments on their home, they are likely to foreclose in the future if they don’t make their payments. In a “normal” market, many homeowners will choose to sell their home and downsize to something they can still afford or become renters. Today, with the extremely unusual situation in which homes have lost value, sellers are often in a situation where selling is not such an easy solution because the new market value of their home is lower than what they owe on their loan(s). Sellers and their agents can negotiate with their lender(s) explaining their situation and presenting an offer for whatever they can get in the current market. Then, the bank is faced with a decision of whether they’d prefer to accept the loss by not getting the full amount they are owed or continue with foreclosure preceedings. Since foreclosures cost the bank money, the banks are sometimes willing to make such concessions. When this happens, it is a win-win as the seller protects their credit rating (they still get a hit; but not nearly as bad as a foreclosure), the buyer gets a great deal on the home and the bank loses money; but less than they would likely lose if the owner stopped making payments.

So, the distressed seller and their agent put out the yard sign and enter the property in the MLS system with an incredibly low and unrealistic asking price; which falsly entices buyers into thinking that they can really buy a home like that at that price. The offers come in. The buyer who submits the offer is anxious to know if they got the home or not. However, the seller’s hands are tied and they can not accept the offer without the bank’s approval. This process can literally take months. During that time, the buyer and seller both will be in limbo-land; waiting for weeks or months and missing out on other potential opportunities while they wait.

What’s worse is that this artificially created price (afterall, it’s easy to put a low asking price when you’re giving up the bank’s money instead of your own) gives the buyer a false impression of what homes are worth in the area and compares other non short sales to this fictitious price in terms of value.

The truth is that there are different kinds of short sales. Some are pre-negotiated with the bank and pre-approved; meaning that the bank has already authorized a sale at a given price. These are the best. Also, the process can be complicated further if the seller has a second mortgage as both banks need to agree on it. It is important to ask the right questions BEFORE you submit the offer and your real estate professional can help you a great deal in this area.

Nonetheless, keep all of this in mind when home shopping and realize that it is often a better deal to buy a home that is not in a short sale. However, since when short sales work out, you could get an incredible deal, it may be a viable option if the slowness and uncertainty of the process do not impact you (i.e. you don’t have to buy a home in any timeframe and don’t mind being strung along).

It has become common practice for builders to offer incentives such as $2,500 towards the buyer’s closing costs IF the buyer uses the preferred lender. New laws which take effect on January 16th will limit the ability for builders to continue this practice.

The new laws will require that any incentive that is being paid for by the builder be offered to everyone regardless of what lender they use. Of course, it is quite possible that the preferred lender may still be the best choice for a buyer of new construction. Firstly, since they are getting many new clients from a particular subdivision, they may be able to still offer rates that others can not beat. Also, it is possible that using the preferred lender can lead to a smoother, quicker, and easier closing and possibly slightly more lenient loan qualification requirements. It is still advisable to shop for the best loan; but consider the preferred lender as one of your options and let them compete for your business.

If you are a person who can buy a home and you have a personal desire for a new home and you are simply scared to make such a purchase in the current market conditions for fear of the home losing even more value after you purchase it, here is some food for thought for you:

The market statistics are generally reported in past tense; meaning that the statistics you are hearing are for last quarter, etc. The markets can change rapidly so that by the time you hear that first bit of good news, it’s already too late to get in at the bottom. Just as with the stock market, it is literally impossible to time the market and predict when things will recover. The fact of the matter is that no matter what the future holds for the real estate market, over the long term, real estate has consistently proven to be a solid investment and depreciating values are an extreme rarity (home prices almost always continue to increase over time). Some homes are currently available in some areas now that have reversed over 10 years of appreciation (selling for 1999 prices or lower). If you buy one of these homes now, you are making a solid investment choice even if the market worsens further right after you buy. If you didn’t get in at the bottom, you still got in near the bottom and stand to make a pretty penny in the long term future without running the risk of missing the opportunities that are available now. Furthermore, this is one of the only times (if not the only time) in history when home prices are extremely low AND interest rates are extremely low at the same time. Right now, I’ve seen clients getting 30 year fixed loans at rates as low as 4.5%. If you wait and market conditions go down further; but interest rates rise back up to 5.5% (still relatively low), that 1% rise in interest rates can have the same effect on the cost of home as a 10% change in price. For example, the principle and Interest payments on a $300,000 loan at 4.5% are approximately $1,520 / month. If you buy the same home at a price 10% lower ($270,000) but you have to pay 5.5% interest instead, your monthly carrying costs on that home will actually be slightly higher than if you bought the home at $300,000 and took advantage of the extremely low rates while they were around. I think we often get so cought up in the “mood” of the market that we fail to see the opportunities and kick ourselves later for missing out.

Just about every home shopper wonders how much below asking price they can expect to get a home for. There is a false perception that a good deal on a home is based on how much you get the seller to come down off their asking price. 

For example, you can list a home at $300,000 and let a buyer negotiate it down to $250,000. The buyer will feel like they got a great deal because the caused me to come down $50,000. The exact same home could list for $250,000 and most buyers will refuse to pay full asking price because they hear that it’s a buyer’s market.

To determine good value, it is best to ignore the asking price and do the research to know what the home is really worth. Before making an offer on a home, you’ll need to do some research to see what the home worth and make your offer based on that. There are many homes where an offer more than $100,000 below asking is fair and reasonable. There are others where you’d be getting a bargain even at full price. This is where a good real estate agent can help you make sure you are making the right choices.

I am often asked by my clients how to compare lenders. What interest rate they should expect to get in today’s market, what reasonable fees are, etc. While I am not a lender myself and I am not officially qualified to give advice on loans, I am in the industry and have seen hundreds of buyers go through the loan process and this is my advice:

When comparing lenders, I’d ask for what is called a Good Faith Estimate. Ignore the estimated amounts for attorney fees and 3rd party fees since these will be the same regardless of who you do your loan with and they are merely estimates. Look at the interest rate combined with the fees that the lender is charging you including the origination fee to see what your best deal is.

The origination fee is all part of the package. The more origination you pay, the lower interest rate you should get. For example, the lender I was going to use for my own refinance will often say he can do x% with 1% origination or a slightly higher percentage, y% with a .5% origination, etc. Basically, the lender makes their money either on the markup on interest rate or fees they charge. It’s like a pay now or pay later choice.

Which is better will partly be determined by how long you plan on staying in your home with that loan. If you’re going to be in for a long time, it’s often best to go with the lowest possible rate even if you have to pay some extra fees. If you think you might be moving in a few years, then it’s usually better to get the slightly higher rate with lower fees.

Also, rates are so volatile now that they are literally changing mid-day; so when comparing lenders, make sure to do so rapidly within the same day so you know you are comparing today’s rates.

I think your credit score does have something to do with what rate/fee structure you can qualify for; but I am honestly not sure what the formula is for that.

One final not, there is more to a lender than just the lowest rate and fee structure - especially on a home purchase (not as important on a refinance). You need to find a lender who has good customer service, organizational skills, and communication skills to get the job done smoothly and keep you informed of any complications that may come up. I have several top-notch lenders that I work with on a regular basis that I’d be happy to recommend for any of my clients.

Believe it or not, there is a law in the state of Georgia that prohibits real estate agents from advertising exact square footage for a property. There is no field for this in any of our MLS systems. I’m not really sure where this law originated and I personally think it’s counter-productive since square footage is so important to determining home value. Nonetheless, that’s the rule and all agents are required to follow it.

The good news is that even though the square footage information is not in the mls system, it is recorded in the public tax records. Therefore, home shoppers and agents can still obtain the information from an external source. The problem is that the data in the recorded tax records is often incorrect; particularly if there have been improvements to the property that were not reported to the county. Once you get experience looking at a lot of homes, you’ll be able to know if the tax record square footage is at least in the right ballpark. The best way to know for sure is to go into the home and measure it.