Twelve tools to help you make a smart, educated decision about your next real estate purchase.
Tool # 1: You have conducted a personal assessment to determine if now is the right time to buy real estate
Cons to buying a home now:
You hear prices have gone down, but could they go down further? You will look at local, state and national trends and get the opinion of your buyer agent. A real estate investment is considered a moderate risk investment--not as risky as penny stocks and not as conservative as insurance contracts or CDs.
You realize that the home you can afford is priced right, but not in the neighborhood you prefer, so you decide to look further. Even during this recession, the homes that held their value the best were in the most desirable locations. Those that declined the most were typically in less desirable neighborhoods. You realize the age-old mantra is true: “Location, location, location” is one of the most important factors to consider.
While location is also important for real estate investment property, you have also done all the proper calculations and assumptions for ROI (return on investment), and decided that other investments offer less risk and hassle.
You looked at the “as is” foreclosed home and realized the needed repairs on the home is not worth the price of the home.
You looked at your employment history and realized that most mortgage companies will require two years of continuous employment in the same industry. You have met that requirement, but are unsure of how stable your current job is.
You see that the location you wish to buy in has a great school district, but has very high property taxes. Being in a good school district is always a resale consideration and property taxes may be deductible on your itemized return. However you have decided that you do not want to pay this much of your monthly income in property taxes.
You ran numbers on the mortgage calculator and decided that the total cost of principal, interest, insurance, PMI, and maintenance all add up to a monthly cost that exceeds your comfortable monthly budget amount.
You have calculated maintenance costs, which may run as high as one percent annually of the value of your home and decide you do not want to possibly face a big expense such as a $15,000 septic system replacement.
Pros to buying a home now:
You have done an analysis of your personal finances and determined that
buying would be more advantages than renting because it will give you a
needed tax deduction. You ran the rent vs. buy calculator.
You are at a stage in your life when you are welcoming new additions to your family like children or pets and you want more home security that comes with owning a home
You are single and do not need pets or kids right now, but have determined now is a good time to start building equity and credit history.
You want your home remodels to be an investment for yourself rather than your landlord.
You wish to take advantage of the current low interest rates.
You wish to take advantage of home pricing in areas where it is considerably lower than it was a year ago.
You have the opportunity to buy foreclosures, short-sale and REO properties now.
You may qualify for the tax credit for first-time homebuyers, and other programs that may require only three percent down for first-time homebuyers.
An experienced buyer’s agent will be able to help you look at all of the above considerations and help you determine if now is the right time for you to buy.
Tool #2: You have taken a very close look at the financial analysis of renting vs. buying
Decision to continue renting:
You subtracted the cost of renting from the cost of owning, and you found that the invested savings from renting gives you more of a financial advantage than the tax deduction on owning a home.
You control the monthly payment when you get a fixed mortgage. You are not subject to rent increases. You also have the option of refinancing if rates go lower.
Tool #3: You have a process for choosing your buyer agent.
How to Choose a Buyer's Agent Video:
Here is a short video that explains how to choose the right buyer's agent.
You have examined the codes of ethics and standards of practice of trusted sources such as national and state associations.
You know information about the broker/owner or manager who is in charge at the firm where you are interviewing for a buyer’s agent.
You have studied the buyer agent’s Web site and the company web site as well.
You have set-up one or more no-obligation interviews before agreeing to work or physically viewing properties with a real estate agent.
You have thought about your personal style—
For example, you have assessed whether an outgoing and big picture-oriented agent or a detail-oriented real estate agent is the best match for you. Or one who is a combination of both.
You are Internet savvy. You realize there are many web tools available to help you find and evaluate properties yourself. However, you understand that it is extremely important for you to work with an agent who can fill in the vital gaps of what you cannot access yourself. You are very aware of the fact that a portion of the listing price of the home is already built in to pay both the buyer and seller’s agent—more than you might typically pay for a remodeler, a roofer, or the guy who gets a commission on your appliance purchase.
Tool #4: You understand the differences between exclusive buyer agent companies as defined by NAEBA and traditional companies.
According to the National Association of Exclusive Buyer Agents (NAEBA), an exclusive buyer agent company works solely for buyers, avoiding the conflicts of interest. The entire company, including the broker/owner and the agents are 100% dedicated to working with buyers. NAEBA Members are held to one of the highest codes of ethics in the real estate industry.
Traditional real estate companies have “listings” or written contracts to get the highest price and best terms for the seller. This may cause a conflict of interest if you are interested in properties listed within that company. You understand that a “designated agent” may be assigned in your transaction in a traditional company and to what degree that may or may not protect you.
Tool #5: As a smart investor, you have taken these proactive steps:
You carefully assess how much you can afford.
You know the advantages of being pre-approved. You realize that being pre-approved for a loan gives you an edge during negotiation because it shows a seller that you are a serious buyer.
You understand that “pre-qualified” is different from “pre-approved”. Pre-qualified means that you can potentially get a loan for a certain amount from a lender based on the information you provided. Pre-approved means that you have gone through the extensive background check and are approved for a certain amount at a certain interest rate from a lender.
You decide on your buyer agent first, and then ask them to provide you with several reputable lenders they have worked with in the past.
You preview properties on the Internet, but refrain from calling the seller’s agent or looking at other properties with the listing agent.
You understand that once you have physically seen a property with one agent, it is almost impossible to start working with another Realtor® on that same property, even if you don’t have a written agreement. If you are physically shown properties by a Realtor®, it may imply a working relationship, whether it is in writing or not.
You know that there is a way to switch agents, but your second agent will more than likely have to exclude any properties you have seen with your first agent. You get the terms of your termination from your old agent and your new agreement in writing.
You have taken additional costs associated with owning a home into consideration when determining how much you can afford.
You have set aside approximately one percent annually of the purchase price of the home for unexpected maintenance repairs and upkeep.
Tool #6: Your buyer agent has helped you determine that you qualify for incentives for first time homebuyers.
People in the US highly value home ownership and that is why there will continue to be incentives for first time homebuyers to purchase. A good buyer agent will be able to inform you of federal. state. and regional programs. Go to our Colorado real estate blog, written by a first time homebuyer who used an EBA, for some great discussion on many topics of interest to first time home buyers.
Tool #7: You understand the meanings of the designation letters after the names of real estate professionals, and realize which ones might benefit you most.
You understand something that most people do not: The word Realtor® is a trademarked word that means that the real estate professional belongs to the National Association of Realtors®. Most real estate professionals are Realtors® in the United States because this membership is often tied to access to the local multiple listing service and awarded designations.
You are familiar with the most difficult educational designations to attain, and which ones are special credentials for buyer agents:
Designations to look for:
CEBA: Certified Exclusive Buyer Agent
This accreditation is only offered by the National Association of Exclusive Buyer Agent’s and is limited to exclusive buyer agent companies. The rigorous requirements for this accreditation includes being licensed for a minimum of two years, closing a minimum of 12 EBA transactions while in an EBA firm, completing 18 hours of coursework, passing the exam with a 90 percent or higher and continuing their education every three years. Exclusive buyer agent’s with this designation shows their extreme dedication to representing buyers.
ABR: Accredited Buyer Representative
This accreditation helps teach real estate agents on how to better service buyers. The ABR designation can be obtained after completing a two-day course and passing the exam at the end of the course. After successful completion of the course and exam, the agent must fulfill the required educational and experience requirements over a three-year period to become an ABR® Designee.
GRI: Graduate Realtor® Institute
This specific accreditation is earned by less than 5 percent of Realtors®. Three courses are required in order for a real estate agent to receive this accreditation. The courses cover a wide variety of topics including sales, professional standards, technology, and legal issues. A GRI designated agent accreditation means that they have met stringent performance and educational requirements in order to service you better.
CRS: Certified Residential Specialist
This designation is considered to be one of the highest designations a Realtor® can earn in the residential field. Less than 4 percent of Realtors® hold a CRS designation. Experienced Realtors® can earn their CRS by completing advanced training in listing and selling and also by meeting other intensive requirements. A CRS designated agent is knowledgeable about all aspects of residential real estate and has gone the extra mile to learn how to assist you in purchasing your dream home.
SRES: Senior Real Estate Specialist
The SRES designation means that an agent has learned how to counsel senior clients (over the age of 55) through major financial and lifestyle transitions involved in relocating, refinancing, selling the family home, buying rental property, or managing the capital gains and tax implications of owning real estate. A Seniors Real Estate Specialist can offer you relevant information on current trends in senior real estate transactions, and can refer you to other professionals such as attorneys and C.P.A.s who also have specialty interest in senior clientele issues.
CIPS: Certified International Property Specialist
This specific designation is awarded to individuals who have experience in international real estate transactions and have completed a rigorous seven-day program that focuses on all aspects of international real estate transactions. A CIPS designated agent can provide you expertise and knowledge for your international real estate purchase from providing you with regional market trends to currency exchange rates and tax information.
e-PRO: Certification for Internet Professionalism
This is the only technology certification program that is offered by the National Association of Realtors®. It helps real estate agents learn how to work and market more efficiently on the Internet. A real estate agent with this certification can offer you the latest Internet tools that can help find your dream home with less hassle by promptly providing you with listings, online tours and neighborhood reports via e-mail.
Tool #8: You understand that it may cost you a lot less to work with an exclusive buyer agent than a broker who offers to trim one percent off an in-house sale commission.
You may have saved $1,000 on that $100K home, but what if the real value of the home you are buying is only worth $70K? If you would have used an objective buyer’s agent, they could have done a professional comparative market analysis to help you make an offer based on the real value of the home. As you can see, saving $29k with a buyer’s agent is better than saving $1,000.
Tool #9: You make sure your buyer’s agent has explained all of the anticipated closing costs ahead of time.
You understand that when you get a mortgage, your lender must provide you with a Real Estate Settlement Procedures Act (RESPA) statement within three days of turning in your application. You realize that will give you a fair estimate of your approximate costs of closing on a home. You use your buyer’s agent to help you compare RESPA statements from different lenders.
You realize that closing costs are on average three percent of the purchase price of the home and can go as high as six percent in higher tax areas. Buyer closing costs cover things buyers want control over such as an inspection. You also realize that a certain number of months of taxes and/or homeowner’s insurance that must be put in escrow for any purchase involving a mortgage.
Your checklist of typical closing costs:
Inspection:
A certified inspector can find problems that the naked eye cannot see. An offer on a house can be made with the contingency upon a successful inspection.
Property insurance:
You shop around and see that prices vary between carriers. You compare apples to apples by looking at various deductibles and whether you have replacement value or not.
Notary fees
You know that certain paperwork requires licensed notaries, and other small fees and taxes such as land transfer taxes.
Property tax:
You understand that property taxes vary from county to county and that it will have a significant impact on your monthly mortgage payment.
Tool #10: You have examined the average life span of structural items like heating and cooling systems, septic systems, and roofs, and factored this into your purchase decision.
Your inspection report is your friend. You see it as an important document to help you determine possible future repair costs. You understand that purchase offers that are written with a good buyer’s agent will protect you and allow you to discontinue the contract if the inspection reveals unanticipated costs.
Tool #11: You understand how quickly foreclosure can happen should you start missing payments. You are confident you can make regular payments on time.
You understand that if you are more than 30 days late on a payment, you are already on their radar screen for potential foreclosure action.
Tool #12: You understand how real estate professionals get paid.
How do Buyer's Agents Get Paid?
Here is a short video that covers the details about how agents get paid.
Although some agents have hourly, flat-fee or other custom arrangements to get paid, you realize that most buyer agents get paid a commission out of the transaction at closing. The agent fees are visible on the HUD-1 statement at closing. This is a tradition in the United States that continues because most of us are not prepared to pay someone by the hour to help us access, evaluate, and negotiate properties. This structure helps us focus on finding just the right property because there is a professional at your side.
You interview several agents in your local area and find out that a buyer agent usually seems to get about half of the commissions built into the home for sale. For example, if it is 6%, the buyer agent gets 3%. You realize that if you purchase a home for $300,000, the real estate buyer agent might earn $9,000 to assist you, and the listing agent might earn $9,000 to assist his seller. You want to take special care to understand how your agent is getting paid. You want to make sure this is one of your interview questions during the consultation process. You expect that compensation agreement to be in writing, as recommended by the National Association of Exclusive Buyer Agents.
You know that there is great risk to you if you go directly to the listing agent. They already have a written agreement with the seller to get them the highest price and best terms for the home. They are typically only obligated to disclose to you that their company also represents the seller. They may have to take a middle position to best assist you, sometimes referred to as a "designated agent" or "transaction broker".
You understand how traditional firms can get paid double for an in-house listing sale. For example, a $100,000 listed home may have three percent built in for the seller’s agent and three percent built in for the buyer’s agent and if you go directly to the seller’s agent, they double their commission and can make $6,000. Therefore their commission is a direct reflection of how much you are going to purchase the home for which is a major conflict of interest. The more money you spend, the more money the listing agent will make.
You are aware that exclusive buyer agent companies can only make their money on the buyer’s side of the transaction, and in the example above, they might not make more than three percent or $3,000 on the $100K home. They get the same $3,0000 commission no matter which house you buy or where the home is listed and if it is a for-sale-by-owner property. This structure ensures market objectivity. Exclusive buyer agents (EBAs) who are members of the National Association of Exclusive Buyer Agents (NAEBA) agree in writing with this professional association that they have this office structure.
You are thrilled to know that there are typically no additional costs to work with an exclusive buyer agent.
You know your trusted resources! The Buyer Agent Search headquarters staff are available 7 days a week at 303-670-0246 or 800-383-7188 to answer any of your questions and to find a buyer’s agent in your area.
(Don't worry, a good buyer's agent can help you with each and every step!)
