Real Estate 101 - chapter 1

Jim Hunt — Thu, 27 Oct 2011 13:05:00 GMT

Real Estate 101

Blog for First Time Home Buyers

I am a real estate agent and a Realtor. Most people use those labels interchangeably, so let’s clear that up right off the bat. A Realtor is a member of the National Association of Realtors, which is a trade group for the real estate industry. Kind of like a union, or small business association. We pay dues, and get some member benefits and some advertising. We also are required to adhere to a strict code of ethics and high standards of practice.

A real estate agent is not required to join the NAR and many agents and offices opt out in order to save money on the dues which are kind of high. I’d say most of these agents are hard working and ethical without having to join the trade group. But technically, they are not Realtors. The name Realtor was invented by the NAR to differentiate their members from non-members. I guess it’s safe to say that they have done a lousy job of making that distinction clear to the public. OK, so that’s cleared up.

The Truth

I am writing this blog in an effort to connect with first time home-buyers so that I can work for them, sell a property and get a paycheck. So, in order to do that, I think a good way to meet home buyers is to help them understand how the whole real estate game is played. And believe me, there are some “players” out there in the industry. I’d say that real estate agents as a group are viewed with about the same respect as a used car salesman. (No offense to you guys – you have my sympathy.) Why? Plenty of reasons, and plenty of horror stories, and a lot of misinformation, suspicions, and mistrust. After all, we get paid to sell properties, so we definitely have an agenda. You as a home buyer do NOT want to be “sold”.

I am 59 years old. That sounds “way over the hill” to many younger people, and I’ve heard plenty of them express the desire to work with someone closer to their own age. That’s fine, and I understand. But consider this; my age group contains people who have attained the highest levels of their careers. CEOs, Senators, writers, artists, etc. etc. With age comes experience and caution. Those are qualities that should be important to you when choosing an agent. I also own a home, have no kids and have a comfortable level of investments for lean times and retirement. In other words, I don’t have to scramble for money to pay for costs associated with children, cars, rent, mortgages, loans, credit cards and all that goes with that kind of life. So I don’t need to make an immediate sale, and I don’t need to push anyone to do anything.

I don’t care how long it takes for you to find the right home for your circumstances. I’ve driven clients all around the Seattle metro area from Federal Way to Everett, the Eastside and everything in between. I’ve shown some clients over 100 homes before they settled on the right one. Why? Because these clients wind up happy and satisfied, and I get referrals from them when someone they know needs a real estate agent.

The Cost

Here’s the good part for you, the buyer. Working with a buyer’s agent to find and buy a home doesn’t cost you a dime if you buy a house that is listed with the Northwest Multiple Listing Service. Most homes for sale wind up getting listed in the MLS in the end, even if the seller started on Craig’s List, or a FSBO (For Sale By Owner) service. In those cases, most sellers are still willing to pay a buyer’s agent a fee or percentage since they bring a live buyer to the table, and handle most of the transaction details. I’ll get into an explanation of the MLS and FSBO’s later.

Who pays me then? The seller pays both me and the listing agent (the real estate agent who is marketing the seller’s home) a split of a percentage of the selling price from the proceeds of the home sale. This may sound like a conflict of interest since the seller is paying me. It is not. When working with a buyer, the laws of Washington State designate me as a buyer’s agent and all of my duties are bound to my client. Read about the Law of Agency here: http://www.mapleleafnews.com/Real_%20Estate_contract_page.htm

On the other hand, if you go to an open house hosted by the listing agent, or call him or her directly, and you want to make an offer on the home, then the listing agent becomes a “dual agent” and juggles the deal between the seller and the buyer. He then is unable to disclose any confidential information to either party. He cannot and will not help you arrive at a price or terms for your offer – you are basically on your own, other than getting the documents drawn up for you. He won’t tell you that the furnace is old, or the panel is obsolete, or that the roof needs replacing, etc. If it were me, and I didn’t know much about value and procedure, I’d stay away from a dual agent. He is conflicted financially too – he gets to “double end” the transaction, getting both the seller and buyer sides of the commission – in many cases doubling his take. Oh yes, he would love that!

There is no set commission rate and the percentage and split are all over the place. Typically the buyer’s agent gets 3% of the sale price, but not always. That’s a good pay check, and makes the risk of working for buyers worth it.

What risk? Let’s say I did show you over 100 homes; that’s countless hours of research, communication, driving, gas, and time that I get nothing for unless you buy a home. You might be working with more than one agent and not telling either one about the other. You might walk into an open house and make an offer directly with the listing agent without calling me. You might not be completely honest about what you can afford, or if you really want to buy and are “just looking”. It may be months before I see any money, especially on bank-owned or short-sale properties. I’ve had all of the above happen to me over the years. So yes, there is a risk, and it’s all mine. I prefer to trust people, so I don’t ask them to sign an “exclusive buyer agency” contract. I figure that if you don’t like my service, you should be free to fire me. On the other hand, I’d like to be able to trust you too.

Do I deserve the nice check? Absolutely. I am a licensed professional, and I am required to participate in continuing education to stay licensed. I’ve attended classes on everything from finance to feng shui. I advise you on what makes sense financially, and I advise you on the condition of the home. I drive you around, I educate you about the entire process. I draw up and manage complex contracts from the offer to closing the sale. I can help you select a mortgage professional, and inspector, and repair services. I answer every question of yours that I can, and those I can’t, I find the answers for you elsewhere. Plus, there are about a zillion agents around here, all scrapping over the same pie. Which means that most of us don’t get as many sales as we would like.

Sure, there are “heavy hitters” who bank-roll a listing and volume sales machine, but most agents can’t afford the marketing expenses associated with “production”. The heavy hitters go out and get the business, and their associates do most of the work. Unless they are staffed up really well, you will be competing with plenty of other clients for their time and attention. You are usually better off with the little guy who is helping you almost exclusively.

So yeah, I deserve the check. But the only way I get it is from the proceeds of a sale for my client. I get no salary, no expense account, no medical insurance, no car allowance. No nothing! As a real estate agent, I am an independent business person just as if I ran my own espresso stand, or dentists office. So that nice check gets to cover all those expenses, as well as a monthly brokerage fee to the office I belong to. Most agents pay at least $300/month, and some as much as $1500 a month. Others work on a “brokerage split” where the office gets half of their pay until they’ve coughed up a minimum. Anywhere from $12,000 to $24,000 per year. Yikes!!

So now you’ve got the insider low-down on how agents get paid, and hopefully you will be somewhat sympathetic to the challenges of working as a real estate agent. It is a tough gig, and about 80% of those who try it decide not to stick with it. Managing brokers spend about half their time trying to recruit new agents. Once these agents run out of friends and family for sales, they hit the wall and wash out. So yes, there are plenty of desperate characters in the industry fighting to keep their heads above water. And YOU don’t want a desperate character working for you. They WILL try to sell you something as quickly as they can.

And that’s how we as a group got our reputation. On the other hand, if you ask someone about “their agent” you will most likely hear very good things about them. It’s the old “one bad apple spoils the barrel” thing that people notice. When I read online reviews, it’s often the bad experiences that people like to share with world – to both vent frustration and warn others. Good experiences, (like news) are generally under-reported. Call it human nature – I’m the same way sometimes.

Watch for my next blog – I will try to keep it sequential unless a tangent comes along.

Permalink | Comments

Real Estate 101, Chapter 2

Jim Hunt — Fri, 23 Apr 2010 14:59:00 GMT

Real Estate 101, Chapter 2 - Why work with an Agent?

OK, so in chapter 1, we covered what a Realtor is, how they get paid, and why we often get the bad-rap in on-line discussions about real estate.

As a real estate buyer, why should you work with a real estate agent?

After all, you do have internet access, and can take some time and learn all you need to know to make an offer and buy a property. That is the truth. But do you really want to? If you are going to that kind of trouble, it certainly would make sense if you saved a lot of money, or got an under-market price on a property. And it is possible that you could. But what are the odds of that happening, and how much time and effort would you need to expend to achieve savings and discounts? Are you aware of the fact that you don't have to pay a dime to a buyer's agent to search for and buy a house? The exception may be if you buy a FSBO (for sale by owner), but even then, FSBO sellers are generally willing to pay the buyer's agent something for bringing a willing buyer and handling the transaction. And still, what you would pay would be voluntary and negotiable. On 99% of MLS listed properties, the seller will pay the buyer's agent a commission - you pay nothing! Seems like a pretty good deal to me.

I have been in sales of one kind or another since I was 24 years old (now over 50), and one thing I have learned is that most people feel that they already know enough to proceed on their own in making purchases. With most things, that may well be the case. You can go on-line and read reviews, you can comparison shop, you can even try things for free for a limited time. You are comparing apples to apples and oranges to oranges.

How about a house in the city of Seattle? Or any established city for that matter. I'm not talking about cookie-cutter tracts in the burbs, I'm talking about neighborhoods in the city where a brand new house might be next door to one that is 100 years old. Where no two houses are alike. What should you look for? What should be of concern to you? Is new always better than old? Do you feel confident that you can walk in on your own and trust the listing agent or FSBO seller to give you the low-down on the home from sewer to roof? From wiring to appliances, from windows to siding, from dry basements to leaky ones? Is there a gigantic hornet's nest in the rafters?

Are you a condo buyer? Do you know what a Re-sale certificate is? A Public Offering statement? Conditions, Covenants, and Restrictions? Have you considered Dryvit or LP siding, zoning, wiring type, or past legal issues such as liens and lawsuits? Hmmmm - maybe a free counselor in the form of a real estate agent might not be a bad idea after all.

This should really be a no-brainer, however, there is human nature to consider. You have to find an agent who has YOUR best interests front and center. Not someone who is thinking how their sales commission might cover the car payment, the credit card bills, trip to Vegas, etc.

That is the tough part, and that is where you need to focus your energy. Find the right agent, and the rest will be done for you. Ask around, go online, ask questions of your agent. And please realize that asking how many homes they have sold is not necessarily the definitive criteria. The more homes an agent is selling, the less time they have for YOU. You need someone with plenty of experience ideally, but many agents who are new have a mentor, or a good broker to make sure that they don't make mistakes.

Either way, forget about the "Top Producers" being the best buyer's agent, and focus on customer service that takes care of your personal agenda. I'm not saying that they are bad, it's just that they are very, very busy people. And do you know what they are really good at? -Getting more clients! I personally would want someone who can devote their primary energies to finding me a home and handling the transaction - someone who is not primarily focused on rounding up the next client.

If any readers have a specific question about buying a home, please do not hesitate to contact me!

Permalink | Comments

Real Estate 101 for Buyers

Real Estate 101 - chapter 1

Real Estate 101, Chapter 2