Why is that? Because they are paid by the seller and cost you nothing! That’s right, it’s like getting free legal counsel. The best part? When you have a broker-buyer’s agreement contract, they are obligated by law to protect your financial interests.
In California, it’s legal in real estate for an agent to practice Dual Agency. That means that someone who lists a property for sale can also assist a buyer to purchase that property. Many buyers assume that’s the best way to purchase, thinking they will get a better deal by going directly to the person selling the property.
Here’s the rub. With whom does that agent have a contract with? The seller. Who is his client? The seller. He can assist the buyer, but he cannot represent the buyer. In other words, the seller is his client and the buyer is a customer. Big difference. He is obligated by contract to get the most for the seller.
Many buyers assume that if they use an agent other then the listing agent, they are being "represented" in a client relationship. Wrong! Without an agency agreement, the buyer is considered to be a customer! According to California real estate law, the agent is assisting the buyer and is technically called a sub-agent for the seller. Yes, that’s right. His duty is to help the seller’s agent sell the property, not help the buyer get the best deal.
So what should a buyer do to make sure he is represented properly? Find a buyer’s agent and put that agent under contract with a Buyer-Broker Agreement. Explain what you expect that agent to do and hold them accountable to protect your fiduciary interests. Now you are in a client relationship by contract, not just implied.
You should ask the agent how they will be compensated if you should buy a property. They will point out in the contract that they will be compensated by the selling agent through the Multiple Listing Service. Unless you plan on purchasing a "For-Sale-By-Owner", it which case the agent will likely try to negotiate a fair commission from the seller. If the seller refuses, the buyer may have to compensate the agent in that instance. That’s ok, because now the shoe is on the other foot. In this instance, the buyer is the client and the seller is the customer. The agent will be working for the buyer’s best interest. He will likely have to do much of the paperwork for the seller and make sure the sale is done legally and properly according to real estate law. Because he is under contract to the buyer, he will be obligated to make sure the transaction favors the buyer and not the other way around.
Ok, so you’ve decided to take the plunge and join the ranks of happy homeowners.
What’s the first step? Find out if you can qualify for a mortgage of course. Unless you can pay with all cash, you will need someone to lend you the money to buy your property. If you are serious about buying a property , you’ll need to go beyond pre-qualification to pre-approval. How does that work?
When the market was red hot for sellers back in the early part of the decade, buyers only needed to get "pre-qualified" in order to submit offers. This could be accomplished by a simply telephone call or internet webpage being filled out. You simply stated your income and your debt obligations and then they ran a simple credit report. If things looked good on your credit report, you were issued a "pre-qual" letter and your Realtor could make offers and submit that with the offer.
Since funding was pretty easy, most sellers accepted that and the buyers would go through the process of actually getting loan approval during the escrow period. Nowadays, it’s a total different story. Sellers (especially banks) won’t accept offers without a "pre-approval" letter. This means tax returns, W-2 forms and actually paper documents of income and debt. Sellers don’t want to enter escrow with anyone who still has to get approved, they want assurance that the loan is all ready to go.
The mistake that agents make is taking out buyers who have not been pre-approved. Many times a buyer will see something he likes, but will find out he can’t purchase that home when he tries to get a loan for it. It’s a waste of their time, the agent’s time and the seller’s time. It’s important to know just how much a buyer can pay. It’s important to know just how much a buyer will have to bring to the escrow for a down payment. It’s also important to know if a buyer will accept the market interest rate and mortgage payments he will have to make.
"How is the land, is it fat or lean? Are there trees in it or not? Make an effort then to get some of the fruit of the land." Now the time was the time of the first ripe grapes. Numbers 13:20
This passage from scripture captures the essence of prospective. Moses had sent the spies out to the promised land and he was interested in their report. Only two had a positive report, Caleb and Joshua. During this time of great financial upheaval, I ask myself "how is the land, is it fat or lean?"
My response to this question is going to set my course to either a successful and profitable real estate career, or one of failure and disillusionment. Fear is rampant in the marketplace. Buyers are afraid to get involved in a purchase and sellers are worried they can’t sell. Throw in lenders who are overly cautious, and you have the perfect recipe for inertia.
How is this inertia overcome? By education and understanding. Buyers need to be shown why it’s a good time to buy. Sellers need to be shown how they can have a successful outcome to their sale. Lenders need to be shown the path to profitability.
All of this will take courage, faith and conviction. Those start with me, the real estate agent. If I’m missing just one of those three, I can’t possibly expect a buyer, seller or lender to trust my judgment or advice. So I must constantly ask "where is the opportunity?" People will trust me if I am courageous, faithful and act out of conviction. I believe I can change their lives in a positive way, but they need to see it from my prospective.
In my market, I can’t see lower interest rates or much lower home prices. It’s the best time I’ve ever seen to get into a real estate transaction, but will the buyer and seller have the courage to do it? Will I have the conviction to educate them on it? Will all of us have the faith to move forward and and experience success?
Lately I’ve been doing a lot of home buyer seminars. I enjoy teaching people how the process works and it’s great to give insights to first time home buyers. On the other hand, it makes me think, why don’t more people take the time to get educated on what to expect as a home owner?
How many people would buy a car without first learning how to drive? That would be reckless, yet time and again people will go out and make the single biggest investment of their entire life without any education into what they are doing. Down the road they’ll be wondering "what the heck did I get myself into?"
In this day of internet access, it’s easy to do searches and gather info, but how are you to know what info is correct and what info is incorrect? Because there is so MUCH info out there, it can get confusing and some stuff that is conjecture is passed off as gospel. People "pretend" to be experts all the time.
Misinformation is every bit as dangerous as uneducated. Sometimes more so, because buyers are so sure they know what they are doing. Imagine your neighbor offering to teach you how to drive that new car you just bought.
Neighbor: I saw a movie once where they drove a car. I’ll tell you what I remember them doing and you’ll be fine. Let’s head over to the freeway and practice.
Yikes! That would be nuts.Yet all the time I talk with potential home owners who were "educated" by fellow renters who never once owned a home (or worse, homeowners who are going through foreclosure and they are instructing first time buyers on how to buy in such a way that could lead THEM to end up in foreclosure!)
Not every Realtor or Broker is an expert, but they do have experience and training. Use that. Ask questions, take classes, read books. Take the time to understand what you are doing and how it would benefit you. Trust me, the education you get now will pay off in a big way later on.
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I’ve read that California Governor Schwarzenegger and President Elect Obama want to have a 90 day moratorium on foreclosures. You can hear Arnold’s reasoning here.
http://www.npr.org/templates/story/story.php?storyId=96753445
At face value, that sounds like it could be a good idea. The thought would be that a moratorium would allow the market to stabilize in hard hit areas, home owners would have more time to work out loan modifications and private sellers would get a needed break in competing with bank owned properties.
On the other hand, this could have a devastating effect on the market as well. What makes Obama think that most home owners want or could qualify for loan modifications? Here are the problems I see;
- Many owners are frustrated that their property values have fallen so much. They resent the fact that the new neighbor who just bought next door is paying half the property taxes they are.
- Many owners feel they will need to hold on to the property for a very long time in order for it to rise enough in value to create positive equity.
- Loan modifications will only be allowed if homeowners didn’t commit fraud and “pad” their stated income. The majority of people who purchased a home with an adjustable rate mortgage over a half million dollars certainly did that.
- Distrust of the banks. Many minorities were put in loans that they didn’t need to, with adjustable rates and long pre-payment penalties. They don’t believe that the bank will suddenly become honest and helpful.
- What good would a loan modification do if the homeowner gets behind on their property taxes? When homeowners decide to walk away from a property, they usually stop payiing everything. Unless the bank is going to pay the taxes current, most properties late in the foreclosure process are not going to be redeemable.
The big question I would have is, what happens after 90 days? A flood of foreclosures? The banks and investors certainly shoulder much of the blame for this situation, but what about homeowners who used their house like an ATM? They helped themselves to equity cash, bought that big beautiful Tahoe and loaded up all their appliances on the way out the door. Do they deserve 90 more days of free rent?
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Perhaps I’m the only one who feels this way, but I find Countrywide’s insistence that I get my buyer pre-approved through them BEFORE they’ll even look at my offer to be an unfair negotiation tactic. Other banks and private sellers are content to accept a pre-approval letter from a reputable lender, why not Countrywide?
How fair is it to know EXACTLY how much money the buyer has BEFORE an acceptable price is negotiated? Why not agree on selling price first, THEN insist on looking at financials before going to escrow? Because Countrywide wants to know how much they can counter offer the buyer. That’s not an arms length negotiation, that’s one where one side has an advantage.
Will Countrywide share with the buyer how much net they will accept BEFORE agreeing to purchase price? Of course not, they want the buyer to guess, hoping they will bid over that amount. Will Countrywide share with the buyer what the current "highest and best" offer is? Of course not, they are hoping the buyer will desperately overbid to get the property.
I find it highly ironic that now Countrywide insists that buyers be "properly qualified", when they were the leaders in poorly written mortgage loans. Why didn’t Countrywide check employment history and financials themselves during the sub prime heyday? Chase Manhattan did. Instead they relied on Mortgage Brokers who’s best interest was to see that buyers got approved and bought homes.
Chase Manhattan insisted on underwriting "safe" loans. They certainly didn’t have the profits that Countrywide had, but they also don’t have the number of foreclosures that Countrywide has to liquidate. Countrywide got greedy and paid the price. How interesting that the few foreclosures that Chase Manhattan has to sell don’t require the buyer to get pre-approved by Chase themselves…..
