Understanding the Real Estate Process from A – Z – A Buyer’s Guide to Real Estate – Part 1
This is the first post of a series in an FAQ format that I hope will help would be buyers better understand the real estate process that they are about to go through. This is a follow-on series to the posts for real estate sellers.
FAQ – I’m looking to buy my first home; why do I need a Realtor®?
You may be a first-time home buyer or maybe you’ve bought homes before, but it’s been a while and things change; so this series of posts is designed to walk you through the process of buying a house. You can probably find all of the information that you think you need to look for a house on-line these days on sites like Realtor.com or Zillow; so, why do you need a Realtor®? I get that; and, you are correct that you can find lots of information about houses that are for sale at those kinds of sites and
First, let’s deal with the term Realtor®. How is that different from just a real estate agent or a broker? All three terms refer to someone who has taken a state approved 40-hour (in Michigan, it may be more in other states) real estate licensing course and passed the state test to receive a real estate license. A broker in Michigan has gone on to take an additional 40 hours of real estate education and passed a much more intensive test. Even getting to take that extra education and the test usually also requires that the broker candidate must have some defined amount of experience in the field of real estate as a licensed agent. Brokers are licensed to manage other real estate agents as well and may also own and operate a brokerage with multiple agents. State real estate laws dictate that all real estate agents, whether they are Realtors or not, must work under the management and control of a brokerage. Associate Brokers are agents who have passed the brokers licensing requirement, but who still choose to work under the management of a broker.
So, all three have passed the state test and have been issued real estate licenses; what makes a Realtor NAR Code of Ethics and Standards of Practice. They must also join their state’s Realtors Association. Why is that important? Well, that begs the question, “Is ethical behavior by the person that you are working with for your real estate transaction important to you?” The state Realtors Associations have processes that they follow to make sure that any unethical behavior by a Realtor is corrected and Realtors may be punished by fines for ethical lapses. Realtors all belong to some local real estate association, which requires that they be member of NAR and adhere to the NAR Code of Ethics.
The NAR Code of Ethics defines the duties and responsibilities that Realtors owe to their clients and to each other. Perhaps the most important concept embodied by the Code of Ethics is the Realtors’ fiduciary responsibility to the client. That means that the Realtor must put his/her clients’ interests above their own interests. Being a fiduciary for the client means that it is more important that the clients interests be protected than the Realtor worrying about his own interests, including his/her commission on the sale. It is that fiduciary responsibility that stock brokers have been fighting so hard against recently. Financial planners accepted some time ago that they owe their clients fiduciary responsibility and adopted practices to ensure that they do keep their clients’ interests first; but stock brokers are still looking out for number one, rather than their clients; so, they have successfully resisted accepting fiduciary responsibilities. Remember that when your broker calls you with that next “hot tip”. He is probably already counting the commission he will make on the sale, whether the stock is a star or a dog. So the bottom line is that you should find a Realtor, not just a real estate agent, because that agent, like a stock broker, doesn’t owe you any fiduciary duty.
It’s the Realtor’s job to help you through the whole real estate buying process; a process which starts well before visiting any of the houses that you saw on-line. So, just like the advice that I gave to the sellers in that series of posts, I always advise that you find a GOOD Realtor. That doesn’t mean just going with the sister of your best friend who happens to be in real estate or the guy that your uncle
A GOOD Realtor is going to take the time to get to know you and what your needs and desires are in a new home. He/she is going to guide you through the process of getting ready to go looking for homes, which usually starts with getting a mortgage pre-approval and sitting and having a detailed discussion about what you want and need in a new home. He or she will work with your mortgage person to understand what you can afford and what, if any, help you may need with your down payment or closing costs. That will help the Realtor guide you towards homes that you can really afford and negotiate terms that you can live with.
How do you find such a Realtor? Well, recommendations from past customers are a good starting point; so ask around your office, your church or your neighborhood for recommendations from people that you know will be honest with you. Get more than one recommendation and do a little Internet snooping of your own. Any GOOD Realtor will probably have their own Web site with testimonials from satisfied customers. You might also Google their name and see what other stuff about them shows up. Sometime complaints or bad reviews are only found on other web sites or on social media.
Once you have 2-3 Realtors in mind that you feel might be good fits for you, arrange for interviews with them all. You can tell a lot about a person and how they might work with, and for, you by talking with them about your needs. If you find yourself just listening to a bunch of bragging about how great they are and how fortunate you are going to be to have them work for you, find the nearest trash can and throw away their contact information. Sure, you want to work with someone who has had success in the past, but that should be secondary to the way that they approach working with you in the present.
The GOOD Realtor will ask a lot of questions and listen more than talking. At the end of the session they should be able to clearly tell you what they heard from you during the conversation and be able to define the perfect home that you are looking for and any constraints that you have. They should also be willing to openly and honestly tell you where you might be overreaching or setting yourself up for disappointment, especially as far as the price limit that you have is concerned. The bottom line at the end of the interview with the best Realtor for you is that both you and they feel comfortable with the process that you are about to embark upon.
We’ll move into the home buying process in the next post.