If you are looking to buy Real Estate in the next 2 years, then this is probably the most important blog post you’ll ever read, here’s why…
Buying a home for most is not easy.
It can be stressful, expensive, and even the savviest consumers make mistakes due to inexperience, oversight, or the frenzy that can surround the purchase.
Here are the TOP 2 Deadly Mistakes and Reasons home buyers overpay for a house by tens of thousands of dollars.
In essence, these misfortunes can potentially put home buyers just like you in a financial straitjacket.
In short, it is my hopes that this blog can shed some light on this potential equity drain and prevent you from doing what other buyers do on a monthly basis.
Financially Crippling Mistake #1
Buying Directly From the Listing Agent
First off, a Listing Agent is under contract and legally obligated to get seller the highest and best price possible and is NOT responsible for the Buyer overpaying for a home.
Secondly, they canNOT give confidential information to a Buyer other than information the Buyer can attain by themselves. They can’t reveal 2 critical things that can help determine motivation and price:
1. Number of days on the market
2. How much activity the house is getting
Thirdly, the agent canNOT reveal past sales and listing history to the buyer. The Listing agent would be in violation of our rules and bylaws if they revealed any of this information to a Customer (a buyer not under contract).
Misguided Windsor Home Buyers Think They
Are Saving Commissions
You see, Buyers usually go directly to the listing agent in an attempt to save commission BUT this is rarely the case.
Frankly, in most cases, the Buyers overpay for the home usually because of the lack of information and the Sellers gladly end up paying the full commission to the listing agent.
In Fact, Home Buyers Are PAYING
Here’s the scary part, this is unfortunate because the Buyers are the ones that pay the commissions NOT the Sellers.
Could this be true? Check this out… the Seller is the one that cuts the cheque for the:
• Mortgage Payout
• Mortgage Penalties
• Discharge Fees
• Legal Fees
• Any Liens on the house
• And yes, the Real Estate Fees
BUT without the Purchaser agreeing to come up with a purchase price high enough to cover these fees AND an amount the Seller whimsically thinks they deserve for themselves, there will never be a sale irrespective of “Fair Market Value”. So a Buyer willing to pay all of the above is needed to make a sale.
All appraisals have those fees already built into them as appraisers use Local MLS data
So, if there are no real estate fees, the Seller is the one pocketing the money, NOT the buyer unless you pay below Fair market value.
How to Determine Market Value
Here’s the secret, Market value is determined by:
• Supply (how many houses are for sale) and
• Demand (Current Sales Prices). These prices change monthly as houses are constantly selling and new ones are coming on the market.
Here’s what else, to accurately determine and project what a house will sell for, you need current local M.L.S. Data, NOT:
• Appraisals – as they are usually greater than 30 days old and the supply and demand will have changed in that time period.
• Assessed Values – As these values are based on a formula of houses in your neighborhood from 2 years ago. These values are rarely ever accurate and are in most cases at least 20% off either way
• Another Real Estate Agents Opinion – Their opinion of value is useless unless they look at recent sales, current listings for sale and the level and activity and days on market of those homes for sale together with the history and the areas absorption rates.
THE SOLUTION – Get Representation
If you are going to buy a home directly from the listing agent, here’s what you need to do to protect your interest…
Sign a Buyers Agreement and have a Real Estate Agent represent you as a Client, NOT a Customer. Click here to learn the difference between a client and a customer and the Realtors obligation to each form of representation.
Once you are a Client, a Real Estate Agent owes you:
• Full Disclosure – So now you have all of the pertinent information that you will need to determine price and motivation
• Competence – The Realtor is now responsible and liable if you overpay for a house unknowingly or if the contract is not written in a way to protect you.
Financially Crippling Mistake #2
Buying Directly From a FSBO
It’s you against the Seller!
But listen, did you know that home buyers are even more likely to overpay for a house when they buy directly from the Seller than from the Listing agent.
This is because most FSBO’s (For Sale By Owners) are GROSSLY overpriced.
Let me explain…
First you need to consider the facts about all residential houses in our local real estate board, they…
• SELL for around 94% – 95% of the Asking Price;
• The Houses That Sell are Roughly 70 – 80 DAYS ON THE MARKET and;
• Only 45% – 50% of Homes SELL, the majority EXPIRE Each And Every Month!
And here’s a clue as to why they expire…
Majority of the Homes For Sale
I’m sorry but this clearly shows that there is greater than a 50% chance that you will overpay for a house without proper representation.
And, here’s the scary part, those odds go up drastically against you if you buy a FSBO!
Let’s take a closer look why this is true…
To begin with, you have to analyze how a FSBO comes up with their asking price. In short, they all typically take the following 3 steps:
STEP 1: Look and compare their home with houses that are currently for sale;
STEP 2: Add on any improvements they made and finally;
STEP 3: Add on some intrinsic and arbitrary value because their house is naturally better
My House is Better Than Your House
You see, naturally everyone thinks their house is better than their neighbors because they built it and decorated it based on their own personal likes and desires. However, this doesn’t necessarily mean that most other buyers will like it.
Also, by basing your asking price to other overpriced homes around you and then adding to that again and again, leaves these overpriced turkeys anxiously awaiting to pounce on and gobble up an overzealous and inexperienced buyer.
Here’s What You Need to Know
As a home buyer, you need to know how to determine market value…
• Sales Data – Comparable Sales in the Last 12 months. The more recent, the better
• Current Listings – What is this homes competition. How long are these houses for sale and what is their activity level
• What are the housing Absorption Rates in the area. How long does it take on average to clear the current listing inventory.
In short, once you have the answers to these questions, you’ll be able to determine market value on a home.
One more point, this is precisely why some real estate agents charge more when negotiating with home sellers directly because a lot of energy and time is spent educating sellers of the true value of their home verses their perceived value.
THE SOLUTION: 2 Paths You Can Take
When Buying a FSBO
Let’s take a closer look as to what you need to do when buying a FSBO.
Basically, here are 2 paths that you can take:
The easiest way is to have a Real Estate agent represent you as a client. Since you are paying for everything anyway, you may as well get proper representation.
But if you want to do it yourself, here are 5 critical things that you must do:
1. Pay for a current appraisal (Between $350 – $400). Make sure you tell the appraiser the reason you are getting the appraisal, and to be very conservative. Some appraisers tend to inflate the appraisal a bit for refinance purposes.
2. Once you have the appraisal, discount the price by 2.5% – 3% because the appraisers use MLS data with commissions built in. So by discounting the appraised price, you save on the selling portion by buying directly and assuming the risk.
3. Pay for a home inspector ($400 – $500). You are simply foolish if you do not get an inspection.
4. Get familiar with all of the Forms and Clauses. I have all of the forms and their interpretations under the Buying tab above called “Understanding Real Estate Forms”. You need to know and understand what you are signing.
5. Get Familiar with the Buying Process by reading blogs, reports, articles and watching video’s. You can find many here on my site.
2 Key Ingredients To Buying a House
Finally, buying a home can and usually is an easy process. The key ingredients to getting
your ideal house at a good and fair price are:
• Speed – Getting to the house as soon as it’s listed and avoiding competing offers. This is best done through a Automated Computerized Home Search System where you get homes emailed to you the second they hit the market rather than you looking.
• Knowledge – Knowing key information so that you can make an educated decision.
– Home History
Helpful Tools for Home Buyers
There are many tools and resources for you to take advantage on this site such as:
Anyone can find a home these days online or through other media. However, you need a real estate agent to protect you from the moment you find one until it closes, to ensure you don’t squander what will probably be your biggest investment in your lifetime.
After all, since you are already the one paying for the commission anyway, shouldn’t you at least get proper representation as a client? For example, if you were going to be buying Windsor Real Estate within the next 2 years, Click here to learn what our duties would entail if we were to represent you as one of our clients.
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