10 Questions Buyers Ask Realtors®

A recent study by Realtor.com asked a lot of Realtors across the country what questions they were answering for today’s buyers. Eight of the questions below and some of the information and links embedded below about each question, came from that study. I’ve added my own insights to the answer for each question and even added another two question that I get a lot to the end.

Q: How much home can I afford?

That depends, of course—on your income and other financial obligations; plug them into realtor.com’s Home Affordability Calculator for a ballpark figure. Most importantly, meet with a lender to get pre-approved for a home loan which makes you much more attractive to sellers. One of the things that a good lender will help you determine is the answer to that question. A good lender will find out enough about you in the initial interview to give you a very good idea about what you can afford, as well as things that you can do to improve your credit score and things not to do that would hurt that score.

Q: Can I buy a home and sell my current one at the same time?

Yes, you can—but it is almost impossible to manage the timing of the two sales so that they both close on the same day (or close enough to each other) such that you can literally move out of your old home and into your new one with a single move and no disruption. You need to have a plan for covering the gap that most likely will occur. Remember that a buyer for your old home will likely want to take possession as soon as possible and asking for a long delay either before closing or long post-closing occupancy will make the sale of your current home unattractive. Of course moving out before you have a place to go is unattractive to you, too; but you need to plan for that happening.

Q: How many homes should I see before making an offer?

This varies for each person. Some people find their home within hours of hunting. For others, it takes months. While home shoppers these days can look at hundreds of homes online, national statistics show they only visit to check out 10 homes on average before they put in an offer. I have worked with a few buyers for as long as several years before we found the right house. On the other hand, I have had buyers who loved the first home that we saw and didn’t look any further before making their offer. I think it is key to spend some time making a checklist of the things that are important to you before you start looking. Share that list with your Realtor, so that he can save everybody some time and effort by customizing a search for you that returns homes that meet your criteria. I also recommend doing drive-bys before scheduling a visit. Sometime you can eliminate homes from your prospect list just by driving by them to check out the areas that they are in and the condition of the property from the exterior.

Q: What do you think the seller will accept as a fair price?

Each real estate area is slightly different and the market in each can vary as well. Some areas may be experiencing “tight markets” with very low inventory; while another market in the same town may have a glut of homes. Even the definition of what the “market” is varies in size, types of homes and other factors. Your Realtor should be on top of the markets in the areas that he or she covers and be able to tell you what type of market you are looking in. If the home is well priced and in a fairly stable and balanced market it, will generally sell for about 97% of the asking price, so knocking 5% off the list price won’t usually ruffle any feathers. If it’s been sitting on the market for months, especially in a slow or glutted market, you can make an offer more 5% off the listing price. The bottom line is you never know how low a seller will go. If the sellers are eager to move, you could luck out and score a deal. On the other hand you could just tick off the seller and he will refused to negotiate or dal with you in the future (I’ve had that happen on occasion).

Q: How do I know if the property is a good deal?

While there’s no crystal ball on whether a certain home is a bargain and will appreciate, rest assured that with research, you can keep surprises to a minimum. The best way is to have your Realtor check out comps—what similar properties are selling for in the area—and whether those prices have been going up or down in the recent past. The best deals are those in which both the Buyer and Seller feels like the sale was a win for them both. Also remember that some so-called bargains turn out to be just money pits because of the issues that made them such bargains in the first place. Many buyers, especially first time buyers, learn that lesson the hard way during the recent “Great Recession” by buying foreclosed bargain houses, only to lose them six to nine months later when they ran out of money to fix them up. Those bargains didn’t turn out to be good deals.

Q: How quickly can I close?

The old conventional wisdom was 30-45 days from the date of the offering being accepted. With the implementation of the Dodd-Frank Laws and the recent changes in the mortgage disclosure rules the new thinking is to plan on 45-60 days from the offer acceptance. The closing could stretch out if the inspection finds issues that need to be resolved prior to closing or if the appraisal does not support the sale price. For FHA and VA mortgages the appraisal is also an inspection of sorts (not to be confused with the home inspection that you still need to get – see below) during which the inspector may identify issues with the home that need to be fixed in order to proceed with the mortgage. Those issues are usually safety related these days, but they can cause delays and you negotiate with the seller for the needed repairs and then schedule the appraiser back into inspect the repairs. Those issues alone can add weeks to closing date on the deal.

Q: Should I get a home inspection?

While buyers often wonder if a home inspection is truly necessary, most Realtors unequivocally say yes, yes, and yes. I good home inspection will take many of the unknowns out of the process and reduce your risk of encountering major surprises later. The inspection process may also serve as a great educational opportunity for you to learn all about your new home, if you pay attention and follow the inspector through the process and take notes. The results of the inspection will allow you to ask the seller to make any repairs prior to closing or to make a concession on the sale price so that you can fix the issues later. A good inspector will be able to give you a ballpark for the repairs, but you should still get estimates for anything major. The inspection results also provie you with one of the “outs” from the contract (see below).

Q: When can I back out if I change my mind?

While buyers can always back out of a deal, doing so without good reason may forfeit their earnest money (the cash put down to secure the offer, typically around 1%-2% of the home’s price). But there are some ways to walk with your earnest money in hand. I wrote a post on the Realty Times blog site entitled, “I know I signed a contract, but what are my outs?” The outs are in the contract to protect you against having to go through with a deal if something so onerous comes up during the inspection process or the mortgage process or the title search that you no longer wish to purchase the house.

Q: I’m a first time buyer; what things do I need to know?

If you are a first time home buyer you may want to read through the whole series of posts that I made for first time buyers on my Milford Team Web site. The posts about advice for buyers in general  are written in a Q & A format. Click here to go to the web page that has the links to that Q & A series of post. There you will also find tons of other links to material that you may wish to read before you start the process. The things that I’ve posted about there came out of real life experiences with many first time buyers.

Q. Why do I need to have a Realtor?

In the Internet Age, when buyers can find out all about a house by searching on-line, there is a tendency to think that maybe you don’t really need to have a real estate agent yourself. After all, there is already one agent involved, so why not just call him or her? The answer lies in understanding the process involved and the roles of the people involved. There is quite a bit that goes on behind the scenes in the real estate process in a real estate transaction that the average lay person is not aware of or enough versed in to take on by themselves. It is not as simple as the HGTV shows make it look. Also one must consider who the listing agent is working for and what that means to the buyer. Listing agents work for the seller- period. Their job is to get the best deal for the seller, to negotiate on behalf of the seller and to protect the seller’s interests. They have no fiduciary responsibility to the buyers. Calling on the sign and trying to work with the seller’s agent puts the buyer immediately at a disadvantage. Some buyers mistakenly think that working through the seller’s agent will somehow get them a discount or a better deal. Most of the time, all that it gets them is a happy seller’s agent who gets to “double dip”.  It is not cynical or any reflection on the honesty of the seller or their agent to assume that you need your own representation. Having your own agent to do the market research to establish a fair price, protect your interests and negotiate on your behalf is important and does not cost anything more than going it alone.

If you have a home buying question that I might be able to answer, send me an email with your question to normwerner@comcast.net. Remember that I’m a Realtor in Michigan, so I won’t be able to answer questions that might be specific to the laws in some other state.

First-time buyer - What do I need to know about floodplains?

The vast majority of buyers, first-time or not, will never need to be concerned about floodplains. However, if you are buying property on a river, stream, lake or ocean in an area that has flooded in the past, you will probably need to get a Floodplain Certificate and be required by your mortgage company to carry flood insurance.

So, what’s a floodplain? It’s a low lying flat area (usually located between two higher ground areas) beside or alongside a body of water like a stream, river, lake or ocean that may have been subject to flooding in the past, but which is likely to flood if a record rainfall or tide or ocean storm raises the level of that body of water. Sometimes those storms are referred to as 100-year storms; meaning that they rarely occur (once in a hundred years), but when they do, watch out, the area is going to flood. If you live in one of those areas you may be forced to get flood insurance in order to finance your home. The government runs a program to make such insurance available, but it is expensive.

What if I don’t have flood insurance? Well then you may be out of luck if your home is flooded and you lose everything. You may think that there would be some form of aid available from the government, but you’d be wrong. You’re just screwed and you did it to yourself. What does the flood insurance cover? I’m not an expert on that, so call an insurance guy, but generally it covers the damages and loss of property from water that comes into the house from outside due to general flooding of the area.

What’s not covered by floodplain insurance?  As many in the Detroit and surrounding areas found

out this year, it does not cover sewer backups into your basement nor does it cover water leakage from your own plumbing, such as a failed hot water tank. Your homeowner’s policy may cover that last instance, but many do not and none cover the sewer backup issue. You may be able to get a special rider to your homeowners policy to cover the plumbing issue and perhaps even the sewer issue (more likely the insurance company will tell you to have a back-flow check valve installed instead).

f you want to buy on the Ocean you may have to have all sorts of extra coverage for wind and water damage caused by hurricanes. Both of our Ocean coasts and the Gulf area are prone to those huge storms and many people just accept the fact that they might get wiped out as part of the price to pay to live on the ocean. People on the Great Lakes have to be concerned about large storms causing a wind surge that could breach seawalls and flood lakefront properties. There has also been cases of large chunks of ice being wind blown into lakefront properties and causing damage. The flooding along major rivers, like the Mississippi River and further west and north along the Red River in the Dakotas and Minnesota are epic and can affect huge areas.  Millions of people live in the floodplains of those rivers alone.

How can you tell if the house that you are considering buying is in a floodplain? Well, that is the sort of things that should be disclosed in the Seller’s Disclosure; but, you can also go to the FEMA Web site and look at their floodplain maps. You may be pleasantly surprised that many areas that you may have been concerned about are not considered to be flood risks and are thus not shown as floodplains. However, if your location shows up within one of those FEMA designated floodplains make sure that you understand the cost and availability of flood insurance for that property. 

Editors correction - After I published this post I received an message from a reader with a corrected explanation of the term 100-years storm, which is below.

Please note that the so-called 100-year flood is not a flood that happens once every 100 years. It is actually a flood that has a one percent chance of happening (or being exceeded) every year. That is a 26% probability over 30 years. The probability of a fire resulting in an insurance claim over the same 30 year period is less than 5%. If you are \"deeper\" into the floodplain, those probabilities go up. Referring to the 100-year flood makes people complacent by making them think that it is an extremely rare event. - William Nechamen

First Time Buyers – I saw a sign that said Homepath Financing Available. What’s that all about?

First of all it means that you are looking at a foreclosed home that is now owned by Fannie Mae.  Fannie Mae is one of two Government Sponsored Entities (GSE’s) that buy up mortgage loans an package them into investment pools. The U.S. Senate has released the draft of a bill that would do away with Fannie Mae and Freddie Mac (the other GSE) and move the functions they have been performing to the new Federal  Mortgage Insurance Corporation. Both GSE’s are currently owned by the government as the result of having gone bankrupt during the great recession.

HomePath Financing, available only on Fannie Mae-owned properties, offers great benefits — a 5% down payment , no lender-requested appraisal and no mortgage insurance, expanded seller contributions, and more. There are HomePath Mortgages available for move-in ready properties for both owner occupants and investors. You also can use the financing of your choice from any lender, such as your local bank, credit union or other financial institution. The institution has to be a participant in the Fannie Mae program and accept the rules of the program.

Freddie Mac has a similar program called HomeSteps Financing that is only available in ten states. HomeSteps Financing is available in Alabama, Florida, Georgia, Illinois, Kentucky, North Carolina, South Carolina, Tennessee, Texas and Virginia. For more on the Freddie Mac program, click here.

If a HomePath home is not move-in ready and needs work, maybe before it can even be occupied, the HomePath Renovation Mortgage provides both the funds to purchase and to renovate in one loan. HomePath Renovation Mortgage allows a buyer to purchase a property that requires light to moderate renovation. The one loan amount includes both the funds for the purchase and renovation — up to 35% of the as completed value, no more than $35,000. As with FHA 203(K) loans, there are requirements and rules and the projected end value must be supported by an appraisers opion.

While these programs are available for both owner-occupant buyers and investors, Fannie Mae does give the owner-occupant an advantage, since they are trying to encourage individual home ownership over investor ownership. Owner-occupant buyers are given a head start through a program called First Look, which means that for the first two weeks of the listing only buyers who are going to live in the home are allowed to bid on it (similar to the HUD program for owner-occupants).

This is a great program if you can find the right property. In addition to the lower mortgage rates that are offered, the savings from having no PMI can make a big difference. Currently Fannie Mae also has a program in place to assist with closing costs, up to 3.5% of the purchase price. That program will go away shortly, unless Fannie Mae extends it. . Click here to download a PDF file with all of the details of the HomePath program.

So, is this a great deal for you? Well, that depends. If you can find one of those move-in ready homes it could be; however most of the HomePath homes, at least in this area, are in fairly sad shape. They may have mold from broken pipes as the result of our hard winter, or they may have been stripped by the previous owners or by vandals. Most have multiple issues that will need to be addresses and most will need those repairs before you can even live in them.  That scares off a lot of mortgage companies, so your choices for a mortgage may be limited.

The other thing to consider is how you will get that work done and making sure that you have a good handle on the costs involved. A common mistake is underestimating the cost and the time and running out of both before the house is ready to occupy. Most Fannie Mae homes that qualify for the HomePath program need much more than a few weekends with a paintbrush; so don’t get in over your head just because it initially looks like a good deal. If you have the wherewithal, the tools and skills and the time to take on the projects that the home will require it is a good deal. Good luck with your HomePAth house.

First time buyers – Why not just call the name on the yard sign?

Question - I see the listing agent’s name and phone number on the sign in front of a house that I like. Wouldn’t I get a better deal by going through him/her?

Answer – The short answer is no, you probably won’t get a better deal. You may make that agent very happy, since he/she would get what is called a double dip (both sides of the commission) but that doesn't necessarily mean that they work out a better deal for you on the sale.

Remember who that real estate agent works for. He/she has signed a listing agreement with the seller. Because of that they owe their fiduciary responsibility to the seller. They don’t have any obligations to you at all; however, they are obligated to tell the seller anything that they learn about you or from you in your discussions with them. Don’t you think that may put you at a disadvantage later when you are trying to negotiate the price or terms?

Speaking of negotiating; the seller’s agent is contractually bound to negotiate on behalf of the seller, to try to get the best deal possible for the seller. Who, in this call-on-the-sign scenario, is negotiating for you? That’s right; you are out there by yourself when negotiating with the listing agent. Negotiation is a process in which any little piece of information about the opposite side is potentially valuable and can impact things greatly. So, do you want to just hand the keys to the process to the other side?

How bad could that be? Well if you started out by calling on the sign and visiting the home with the seller’s agent, you probably wouldn't stop there. After all, they are probably really nice and

may seem to be really interested in you, so maybe you talk with them the whole time.  You may drop a hint to him/her about the maximum that you are willing to go to get the house or how much you have saved up for the down payment and closing costs; or, maybe you just casually mention that you have to find a place quickly because your lease is up in two months. Don’t you think those little tidbits might help the seller in his negotiations with you? Do you really believe that the seller’s agent, the agent that owes his fiduciary loyalty to the seller, is not going to tell the seller those things? What color is the sky in your world?

If you do call on the sign and happen to get an honest and ethical listing agent, he/she will tell you that they represent the seller and perhaps recommend someone else in their agency to help you. They will at least explain the concept of agency to you and what that means in terms of where their loyalties must be for this house. Depending upon the state that you are in they may explain any options that are available to them and you for them to act as dual-agents, representing both parties in the deal. Michigan is a Designated Agency state, so this is a big deal for us here.

In Michigan an agent must have a signed Agency Agreement with either the Seller or the Buyer. That Agency Agreement spells out in great detail the duties that are owed to the seller or buyer by that agent. There are also provisions that allow dual-agency to happen; but, it is a bit cumbersome and requires that the seller first agree to release the listing agent from his fiduciary responsibilities for the deal with this buyer. The agent then really just become a paperwork facilitator and is not able to negotiate on behalf of either side. Dual agency is rarely used because it is cumbersome and because most sellers don’t want to give up the fiduciary loyalty of their agent. Besides that, the listing agent was probably already privy to confidential information from the Seller and how does he/she now handle that? It’s a slippery slope that most Realtors® do not want to step out upon.

But let’s assume for the moment that you are not in a Designated Agency state. Even in that case there are reasonable expectations that any client should have and probably Real Estate Laws in every state that define what the parties in the deal can expect from their licensed real estate agents. These should include keeping the secrets of the party that they represent and negotiating on behalf of that party. They also include putting the interests of the client that they represent above their own interests. Nowhere in there will you likely find anything about getting you, the buyer, a good deal if they represent the seller.

So, you may ask, why is their name and phone number on that sign to begin with? The main reason is that it’s advertising for them. They hope that other would-be sellers see their name and call that number to list their house, too. It might also help a buyer’s agent by giving them someone to call directly to ask questions about the house. It does serve a purpose to have their name and phone number there on the sign, but that purpose for it being there is not about you, the buyer.

So, when the listing agent’s phone rings and someone on the other end says, “Hey, I was driving by this house and saw your name and number; can you show it to me?”; the answer

should be, “Well, I’m the listing agent for that house, so I represent the seller; but, I can find someone else in our office to show it to you if you’d like.” If instead you (the buyer) hear the sound in the listing agents voice of “ Yes- cha-ching!”; that is the listing agent counting his commission from a double dip opportunity that you just tossed him.  Just hang up and go get a Realtor® to represent you. You will be better off in the long run.

This whole issue won’t come up if you just start out by getting a good buyer agent – a Realtor® - to work for you and to represent you in any offers and negotiations. I posted here about the things that you should do before you start looking in a post in February that is meant for all buyers. Click here to read that post. You may want to read the entire 10-post series for Buyers, since that advice applies whether you are a first time buyer or have bought lots of houses.

The point of this post was not to denigrate listing agents. They are performing a needed and valuable task; but the point is that they work for the seller. You need an agent working for you. Buying a house isn't a fun and games process like buying a car. Most people know how fake that process is and how to play that game, now. Buying a house is the biggest financial decision most people ever make in their lives. It is a game that you are not qualified to play in alone. It is a team effort. Why would you choose to play 1 against 2 in this game? Get your own Realtor partner and then go for it.