Category: First Time Homebuyers

How To Make An Offer: Practical Guidance

This is the process I recommend to my clients on the “How-To” of making an offer.

When you make an offer to purchase a house you are opening a dialogue with the Homeowner. You want to buy the home at the price you’re willing to pay; that doesn’t always equal the listing price. I think it’s important to view the offer as a process and not the be all and end all of the transaction. Often Buyers feel “constricted” by the offering process. It is perfectly understandable that you might feel impatient with the process of shopping for a home. Too, some Realtors might try to make you feel as if you must make your “best and highest” offer.

I encourage you to discard that oppressive feeling. Liberate yourself and use the offer as a way to get what you want: the home you like at the price you’re willing to pay.

Follows is a process I recommend to my clients on the “How-To” of making an offer. I hope you find it useful in achieving your goal of homeownership.

In my view of the offering process, I want my clients to present themselves as the best Buyer for a home the Homeowner has ever seen. Everything you do within this “How-To” creates that sense in the mind of the Homeowner.

I know from personal experience these methods work. Many of my clients have had offers accepted by following my advice. Realtors have told me, “We had another Buyer offering $10,000 more than your client, but your client impressed us and the Homeowner as clearly being the ‘better Buyer.'”

1. Always make offers in writing. Yes, it is absolutely true that offers can be presented verbally. Don’t do that. Put your offer in writing every time. Even if you are in a situation where you and the Seller are sending counter offers back and forth, every new offer should be in writing.

When your offer is in writing, you come across to the Seller as serious. Think about it, anyone who is taking the time to go in to the real estate office and sign the form is serious about buying a home. Seriousness counts big time.

Put the following into your written offer:

-The amount of your “earnest money deposit” or “good faith deposit.” That is the amount of money you’ll put into escrow with the Seller’s attorney upon signing the contract of sale.

-The amount of your mortgage financing. Of course you’ll back this up with a prequalification letter, but you must include the amount of your mortgage in the offer.

-Items included in the sale. If the appliances and the chandelier in the dining room are to be included in the sale, make sure they are written in to the offer. This shows the homeowner you were paying attention when you inspected the home and asked, “What’s included in the sale?”

-The name and telephone and fax numbers for your attorney.

-Anticipated contract date. Always make this date within 48 hours of your offer. Present the assumption the Seller will accept your offer and immediately forward a contract to your attorney.

Again, this demonstrates to the Seller how serious you are. You are in effect saying, “I am so serious about buying this home I want to sign the contract immediately!” Imagine how many other Buyers out there are delaying things like signing the contract (and potentially changing their minds).

-Anticipated closing date. This is an interesting point for the offer. I always recommend putting the closing date for an offer within thirty days of the contract (check with your mortgage Lender to be sure this is possible). The fact is most closings take place within 60 days of contract, and your attorney will likely put that in the contract, but if your offer says “thirty days,” once again you demonstrate how serious you are about buying the home.

2. Prequalification letter. Your mortgage professional should be available to fax a prequalification letter within hours of your making your offer; even on Saturdays or Thursday evenings. The prequalification letter should match your offer, not display a higher loan amount. You don’t want to give away your negotiating position by showing the Seller you can afford more than you’re willing to pay.

3. Mortgage pro phone call. I think a phone call from your mortgage professional to the Listing Agent is a home run. When the Listing Agent here’s from the mortgage person directly how eminently qualified you are, imagine how that raises your profile to the agent and the Seller!

4. Credit Scores. Your mortgage person should be prepared to disclose your credit scores. While you don’t want your credit report released (that’s not allowed, anyway), many times the Listing Agent wants to know the credit scores.

5. Engineer ready to go. When you sign your offer, be sure to tell your Realtor that you’ve already spoken with your Home Inspector and you can have the inspection done tomorrow. Whoa, that’s really the mark of a serious Buyer!

6. Get ready with your counteroffer. If you offered less than the asking price, then you need be prepared with your counter offer if the Seller either declines or counters your opening offer. All of the steps above should be repeated with the new price replacing the original number. Organization and swift responses rule the day! Oh, you may not want to counter offer. That’s okay, too.

LifeHacker.com: The “Walkthrough” Inspection

A great discussion came up this week on LifeHacker prompted by a reader’s question about the “walkthrough” before closing.

I love LifeHacker.

LH is a wonderful blog presented under the manifesto “Computers make us more productive. Yeah, right. Lifehacker recommends the software downloads and web sites that actually save time. Don’t live to geek; geek to live.”

I have learned so many great things about computers, the internet, and life in general from the information and links to blogs, websites and news articles posted there. I highly recommend you bookmark the site, put it in your RSS reader and geek to live!

A great discussion came up this week on LifeHacker prompted by a reader’s question about the “walkthrough” before closing.

When you’re getting ready to close on your home, schedule an appointment with your Realtor to inspect the home. You usually do the walkthrough inspection the night before or morning of the closing. You want to make sure there are no nasty surprises waiting for you once you move in and you want to verify that everything in the house and the condition of the house is reasonably the same as when you decided to buy it.

Below are the suggestions I offered on LifeHacker. Be sure to check out the LH site, too, as there’s lots of good advice from the LifeHacker readers.

1. Take your original home inspection report with you. Highlight in advance any major items that were to be repaired by the Seller prior to closing.

2. Take your time as you conduct your inspection.

3. A standard purchase contract provides that Plumbing, Heating, and Electrical systems are in working order and the roof free of leaks. Concentrate on these items.

4. If any personal property is included in the sale, such as refrigerator, stove, A/C, chandelier, etc., be sure those items are present and in good working order.

5. Observe any major cosmetic damage. Often you’ll see damage to a floor or wall that was previously obscured by furniture or carpeting.

6. Does it look like the Seller is packed and ready to move? Most contracts call for the Seller to vacate within 3-5 days. If it looks like they haven’t even begun packing yet, be prepared for a surprise request at closing.

7. Bring to the attention of your Realtor and attorney your concerns or checklist of missing or damaged items. Remember that for the most part you are purchasing the home “as is.” You can’t start negotiating price reductions at the closing table. Your attorney should be your guide in this area: she’ll know what you can and can’t fight for and/or ask for a credit for at closing.

8. Don’t forget your utilities. Once your closing date is confirmed, you should coordinate with the Seller their moveout date so you can have all utilities switched to your name and turned on effective that date.

9. If something is a glaring problem—huge hole in the wall, leaking bathtub onto ceiling below—be sure to snap photos. And, if you’re going to ask for a credit at closing, you’d better have at least two contractor estimates for the damage/repair. Don’t expect the Seller’s attorney to concede to your informal, “Well, I went online and saw a new bathtub is $3,000” estimate when deciding if and how much credit you’ll get.

10. Remember the Seller is holding your money in escrow. If it appears you are trying to “default” and get out of the transaction they could very well walk away and keep your money. Tread carefully, rely on the counsel of your attorney, and remember this is supposed to be a happy time, the purchase of a home. Don’t get bogged down and angry over minutiae. The fact is, when you own a home, things break. It could happen the day before closing, three months or six years later.

Protect yourself: engage an attorney to represent you for your home purchase.

Have your attorney on your “team” before you get out there shopping for a home. It makes good sense to protect yourself in this way with the single biggest purchase of your life.

It is common here in New York to have an attorney represent the Buyer in a purchase transaction. I know elsewhere in the country this is not necessarily the case. Frankly, I can’t understand how anyone could proceed with signing important legal documents without an attorney present to review and advise.

I’ve recently encountered two situations where the Buyers were not represented by an attorney at contract or closing.

In the first case, the Buyer purchased a property in Florida. Until I reviewed their documents a year later, they had no idea a prepayment penalty existed on the mortgage loan for the Florida home. Their mortgage person was one of those, “Sign here! No Problem!” quick-talking salespeople who doesn’t bother to counsel, advise, inquire of, or explain the loan product.

Sure, the Buyers received a Truth-In-Lending statement for the loan prior to closing. But the TIL does not actually explain the loan terms. It provides only the fundamentals such as term (30years), Fixed/ARM, and the prepayment penalty box is way down near the bottom of the page and only says, “…may have to pay a penalty.”

That’s not much detail is it?

Had the Buyer been represented by an attorney at this Florida closing, their lawyer could have advised them right there at the table about the existence of the penalty, and the particularly onerous nature of this penalty (five years!).

That’s what the attorney does at closing: reads the documents before you sign and explains or questions those documents if there is something there that may be detrimental to your best interests.

The second case I heard of was last night. A Buyer signed a contract to purchase an apartment without an attorney representing her. The Buyer is not the least bit qualified for the mortgage loan. There is no way possible this Buyer can obtain financing to purchase this apartment.

Normally, you might think, “Well, alright, Buyer makes application to the bank, is denied for the loan, presents the denial letter to the Seller and gets the downpayment back.” Seems simple enough—and very common, indeed—but, not in this case.

The contract of sale has no mortgage contingency. And the Buyer put 10% of the purchase price down on signing.

If the Buyer had an attorney, at the very least the attorney would have made provision for a mortgage contingency in the contract. If the Seller refused to provide such a contingency, the attorney would have advised the Buyer of this deficit and the potential loss of downpayment. If the Buyer insisted on proceeding with the purchase minus the contingency, then an attorney could have advised the Buyer to be absolutely certain that mortgage financing was possible before signing the contract.

No attorney. No mortgage contingency. No mortgage loan approval. No way to get back the 10% downpayment.

Have your attorney on your “team” before you get out there shopping for a home. Your team of professionals should be at your disposal to advise you before you open up the paper to look at the “Homes For Sale” ads or contact a Realtor to show you homes.

It makes good sense to protect yourself in this way with the single biggest purchase of your life.

Buying Strategies: Prequalification Letter as negotiating tool

Two tools. Buyers use them to get what you want: your dream of homeownership at the price you’re willing to pay. Sellers beware!

I believe the prequalification letter is a negotiating tool. Buyers must use this important device wisely when making offers to purchase a home.

In today’s uncertain and changing market, a Buyer has only two fundamental advantages when bargaining with Sellers. Remember, Sellers are still holding all the cards on price and timing of a sale. Those Sellers who aren’t “real” Sellers, will just sit it out until they can get their price or they finally give up, take the sign down, and head for the backyard barbecue grill.

Too, there are many “real” Sellers who want to believe beyond all hope they can still get top dollar (read: Summer 2005) for their home. As such, they’re not willing to negotiate on price, closing deadlines, downpayment, financing, or incentives (tossing into the sale price that freezer in the basement they would otherwise sell you for $350!). They really do want to sell, but haven’t gotten it through their heads, yet how dramatically the market has changed.

If you’re a serious Buyer—that is, you really want to get out of the rat-trap of renting an apartment—you’re faced with the dilemma of breaking through this impregnable mindset of Sellers. I don’t believe we’re in a “Buyer’s Market” yet, and there’s no guarantee this market will become a full-blown “Buyer’s Market.” Therefore, you have to focus on the fundamentals if you are truly to accomplish your goal of homeownership.

A Buyer has two devices, tools, or “weapons” in the quest to make the dream come true.

The first is the ability to get up and walk away from the negotiating table. I’ve said it before, and I’ll say it again a thousand times, a Buyer’s power is defined by the willingness to get up and say, “No, thanks.” You have to draw the line, and force a Seller to negotiate. If they come running after you as you leave the table, great, you’re making progress. If they don’t, well, you’ve just saved yourself a whole bunch of aggravation and potentially financial distress.

The second tool is the prequalification letter. Never show a Seller your maximum loan qualifications. If you’re negotiating down a price of, say, $425,000 to your offer of $387,500, and your prequalification letter says, “$500,000” the Seller has absolutely ZERO incentive to bargain with you. After all, according to the letter from your Lender, you can handily afford the price the Seller is asking. Boy! You’ve got nerve trying to bargain that Seller down when you’re obviously well-off enough to afford more than the asking price! The nerve!

Your letter should reflect only the price you are offering. If you increase your offer, have your mortgage person increase the prequalification letter. If you have to do this three or four times to get what you want, then so be it!

I have always customized my prequalification letters based on the offers my clients are making. Since
I specialize in 100% financing, the offer and the letter are usually the same amount.

But, there’s more to the use of this important tool. The letter is just a piece of paper, and you want the Seller (and their Realtor) to truly have confidence in you. You want to present yourself as the one and only Buyer for this home, so, “Take my lower offer NOW!”

The prequalification letter should be delivered immediately you make the offer. If you made your offer on a Saturday afternoon at 3:30p.m., the latest the prequalification letter should be delivered to the Seller is 10a.m. Monday morning. I usually send mine within hours of the offer, even if it’s a Sunday evening. Yet, too often, I hear from Realtors how they’re still waiting for a prequalification letter the following Wednesday! Frankly, I think that’s ridiculous.

This delay only serves to dilute your credibility in the mind of the Seller. And if you’re trying to get the home for less than asking price, if you’re strong enough to use option one in bargaining (walking away), then why would you knock yourself down a few pegs by working with a mortgage person who isn’t as aggressive as you are? The speed with which you—and your team of professionals: mortgage person, engineer, attorney—work puts action ahead of words. As the old saying goes, “Actions speak louder than words.”

Two tools. Buyers use them to get what you want: your dream of homeownership at the price you’re willing to pay. Sellers beware!

How To Buy a Home: Strategies for a Changing Market

Buyers need new strategies to help them accomplish their goal of homeownership. You can make your own buying opportunity.

Buyers need new strategies to help them accomplish their goal of homeownership. The market has changed. While I don’t believe it’s a “Buyer’s Market,” as yet, certainly the prices have leveled off.

Buyers may still be stymied by intransigent Sellers and Realtors who are living in the past and pushing Buyer’s offers higher, higher, higher.

My advice to Buyers: prepare for War. First, get all your ducks in a row. Get prequalified, have your mortgage person available and ready to act quickly to send out a customized prequalification letter with each offer you make. If you make an offer on a Saturday afternoon at 4p.m., that letter should be faxed to the Seller or their agent within two hours. It’s complete nonsense to wait until Monday.

If you do this, you set yourself above the crowd. You also set a tone of seriousness in the negotiations. You get the high ground. That makes it easier for you to set the price you want to pay (not what the Seller or their Realtor wants to get). It also prepares you for hard bargaining. You’re hot, you’re ready to buy and close. This preparation raises your confidence level to Herculean strength.

Buyers can seek out opportunities. Identify a house that has been on the market for a while. The house might be on MLS or it might be a local FSBO (For Sale By Owner) that you have noticed in your travels the past three months.

A house that isn’t sold quickly is most likely not priced correctly. Take your Herculean confidence, set your price and make your offer. Keep it simple.

You can make your own buying opportunity this way. It’s so easy. Don’t fall in love with the house. Fall in love with the numbers. Put your offer out, give the Seller just enough time to consider it. If the Seller doesn’t move (counter offer or accept) you move on.

Find another house. Repeat. Buy your first home. Tell tales of your Herculean adventures over cool lemonades and hot steaks on your back patio years from now.

I live on Long Island. There are several FSBO’s in my immediate neighborhood—within two blocks in either direction. All of them have been “on the market” for a minimum of two months, probably longer (I’ve lost count).

These folks seem to think the way to sell a home is to just put up a cheesy red “For Sale” sign with a phone number scratched in on the bottom in Scripto black. Yah. Right.

We checked on the price of one. Ridiculous. Absurd. Ludicrous. And the guy was in the habit of running two open houses every weekend for about six weeks. He would make sure there were no cars parked out front and he’d spend two hours Friday afternoon with his visor down, and his weed-whacker going at full throttle trimming to perfection the edges of the lawn. Yah. That’s going to sell a house. Right.

If I show up at the farmer’s market with a batch of potatoes and the going price is 20 cents a pound, why on earth would I price it at 35 cents a pound? What, I think I’m going to sell my potaters by cleaning and polishing and trimming off the nasty bits? I Don’t Think SO!

I’ve been doing mortgages for seventeen years, and looked at FSBO’s for three years before that as I shopped for my first home. The single common denominator with ALL FSBO’s: highest price, largest greed factor, Most Cluelessness, and stubborn refusal to pay a professional to SELL the home.

Homes don’t sell themselves: salespeople do it. Their incentive? Profit, plain and simple.

These homes are prime opportunities for Buyers. Show up, make your offer and either buy your first home or walk away and go down the block to the next FSBO.

The Rules of Real Estate

Do you know the three rules of real estate?

There are three rules of real estate. Do you know them?

Rule number 1: Location.

Rule number 2: Location.

Rule number 3: Location.

With all the talk of “bubbles” and “ROI” it seems absurd that everything important about real estate can be boiled down to one word, but it’s true. That word is location.

Whether a property is something to be lived in or something to be invested in, the location of the property determines the price and so much more.

Clients ask me all the time about why a certain property is priced the way it is, or if I think a property is priced incorrectly. The first thought that comes to mind when considering a reply to the question is “Where is the property located?”

That question could mean any number of things. It could be very general like, “The property is located in New York City.” Or very specific, such as, “This property is the second house from the end of the block, in a block of neat and well-maintained detached homes, but immediately adjacent to the commercial property with the nasty-looking truck garage and oil stains on the sidewalk.”

Sometimes you come across a house that is priced correctly for the location. Even in this crazy market, it happens!

Then there is the personal opinion of the purchaser that affects location.

My wife, The Realtor, and I are working with a young woman looking to buy her first home. We went out with her last Saturday. One of the houses we looked at was located a short walk from the elevated subway line. I’d say about 100 yards or so.

The client indicated she really liked that feature of the house. She stressed to us that she wants to be at least that close to the subway line, that she likes the short walk, and she doesn’t mind the noise.

This client is, like me, a native New Yorker.

I, on the other hand, having grown up in apartment buildings both located less than a hundred yards from an elevated subway line want to be as far as possible from such a location. Heck, where I live now on Long Island, just the noise of the LIRR trains honking their horns at RR crossings bugs me sometimes. And they’re half a mile away!

The point is, location is not only related to the physical characteristics of the property, but is also a function of the personal opinions and, more importantly, desires of the owner or purchaser.

Remember the three rules of real estate when you are shopping for a home. It all comes down to that one simple word. That’s a good thing to remember as you worry your way through open houses, showings with Realtors, grammatically incorrect advertisements on Craigslist, and various other strange home-shopping experiences.

Negotiating an offer in a changing market

There are plenty of houses out there. Keep going until you find a Seller who really is serious about selling their home.

Negotiating an offer in a cooling market.

Okay, so there is a general consensus that the market is cooling off. Houses are sitting a bit longer on the market; some prices have been reduced, but not all. New houses come on the market, still priced at zany “summer of 2005” prices.

What’s a Buyer to do?

Let’s assume you are past the whole “housing-head” “bubblehead” thing. Let’s assume you believe the investment in a home involves much more than just some silly investment pricing strategy. You understand the intangible benefits of owning a home, you’re tired of paying rent, and you want your own “piece of the rock.”

Right, so you are heading out there in this “cool” market and you’re shopping for your first home.

I have some negotiating strategies for you that may help you “shake the trees” and “turnover some rocks.”

1. Know your market. You must create a personal pricing sense; you must do an appraisal in your mind of the home you wish to buy. For that, there is no substitute for going to see as many houses as you can in your chosen neighborhood.

You have to learn the prices of the homes so you know almost instinctively what a house is worth by comparing it to the 23 similar houses you’ve seen over the past six weeks.

When you walk into the home you want to buy, you will know the right price to offer. You will know the maximum price you’re willing to pay for that home.

2. Your Prequalification Letter is a Negotiating TOOL. You should not be walking around with a blanket prequalification letter stating the maximum loan you are qualified for. Rather, your letter should be customized for each offer you make.

This way the Seller never knows your maximum price. If you have made an offer and the Seller counter offers, and you wish to increase your next offer, have your letter updated to reflect the higher amount.

And when you make your offer be sure your prequalification letter is faxed over immediately. I can’t tell you how many times I have heard from Realtors the reason they accepted one of my client’s offers is due to the alacrity with which we submitted our letter. Realtors relate stories of offers that come in on a Sunday afternoon, and the Buyer is still trying to get a prequalification letter the following Tuesday or Wednesday from their Loan Officer!

I send out my letters the same day you make your offer, even on weekends. I followup with a phone call to the Realtor to support your qualifications verbally.

If you want to buy a home for the price you are willing to pay—-not what the Seller wants to receive—you must show the Seller how serious you are. Sending over the prequalification letter right away is an important part of that.

3. Offer less, Offer more. When you make your offer, it doesn’t have to be for full price anymore. Summer of 2005 is long gone. The market has changed. While many Sellers may still be asking outrageous prices, that doesn’t mean they are getting it.

Since you are an educated Buyer who has researched your market, set a maximum price you are willing to pay for a particular house and create a pricing strategy. You should have an opening bid, then one or two counter offer positions ready. These counter offers raise your price, but do not exceed your maximum price. Start with your opening bid and your prequalification letter for that amount.

The Seller will do one of three things. First, the Seller may accept your offer. Bully for you! Second, the Seller may not respond, or refuse. Third, the Seller may counter.

If your offer isn’t accepted, or countered, the next step is up to you. If you like the house enough to move up your price, then step in with your next position and a new prequalification letter.

If your offer is still not accepted, it may be time to move on. If you decide to increase your price, that’s fine. Just don’t go over the maximum price you decided originally you would pay for this house. The heat of the moment of a negotiation quickly becomes emotional and you may lose all sense of reason.

Remember: you want to buy the house at the price you’re willing to pay for it, not the price the Seller wants. Don’t go over the maximum price you set before making your first offer.

4. Serious Sellers. Oh boy there are a lot of houses on the market. Don’t let that fool you into thinking they are all ready for the taking by smart Buyers like you.

Assume there is a percentage of Sellers out there who are not serious about selling their homes. They still think it’s last year and the prices are still mega-millions. Note to Sellers: the market has changed!

You want to discern who is serious about Selling and who is standing there thinking their homes are cash cows waiting to be milked by an unsuspecting Buyer. Note to Buyer: that’s not YOU!

Some folks don’t need to move. The job is not relocating to Arizona; it’s not time to retire; they don’t need to buy a bigger house to accommodate the elderly Mom who is moving in with them. Some folks just have this idea they can sell their home and make tons of money. That’s not “serious about selling” in my book.

You can ask a lot of questions to get at the “truth” behind a Seller’s motivations to sell. You may not get answers to your questions, or the answers may reveal nothing of the Seller’s intentions, or, worse, you may be lied to.

In my long experience I have found the best way to get at the secret of whether or not a Seller really wants to/needs to sell a home is to make an offer.

The person who doesn’t respond to an offer probably thinks he’ll just sit tight to get his price. That’s fine, but if the house isn’t worth that price anymore, then you, educated Buyer, will be moving on to greener pastures.

If your original offer is seriously low, and there is no response, try raising it. If still there is no reaction—a counter offer from the Seller is what I consider a reaction—then this Seller probably isn’t serious.

Time for you to move on. There are plenty of houses out there. Keep going until you find a Seller who really is serious about selling their home.

These are just basic suggestions to help you chart the mysterious waters of a cooling market.

You really must be out there looking, looking, and looking some more, making offers, and making more offers in order to develop a good sense of where the market is going and how you can achieve your goal of homeownership.

FSBO’s: For Sale By Owner

Two important rules you should remember when shopping for a FSBO

People have long asked me about “For Sale By Owner” houses. These are commonly referred to as “FSBO’s.” No real estate office is involved in selling the house; the Seller has undertaken to sell the house. You find FSBO’s advertised in local newspapers, the local Pennysaver, or just a sign on a lawn or in a window as you drive around home-shopping on a Sunday afternoon. Lately a new industry of real estate services has sprouted up offering Sellers assistance in selling in the form of marketing materials, signs, and even MLS access. These services are offered at a flat fee to the Seller; no real estate commission is involved.

These are the typical questions my clients have about FSBO’s:

Should we consider buying a FSBO?

Of course you should consider buying such a house! Any house on the market that fits your needs, your wish list and your price range is worth considering for purchase.

Are they a good deal?

That’s hard to say. The definition of “good deal,” is different from one person to the next.

In terms of general market price, only you can know if it’s a good deal. As I am wont to say, “Know your market.” If you know your market area, have a pretty good idea what the prices are in your target area, and feel confident of your knowledge then you approach a FSBO from the perspective of being an educated Buyer. You determine the market price for the house when you agree on a price with the homeowner.

Therefore, if you get the house that is acceptable to you based on your knowledge of the market then you surely are getting a good deal. The good deal is the house you want at a price you’re willing to pay.

Now, if you mean good deal as in, “Wow, I got this suit at 75% off and no tax and free tailoring!” then, well, that’s really a whole other ballgame and in my opinion has no bearing on the idea of buying a home to live in. Homes are not pork bellies, used cars, or shares of Google. Or cheap suits for that matter, either.

Aren’t FSBO’s priced lower because there’s no real estate broker involved?

Ahh! Now we get to the crux of the problem with FSBO’s. Do not make the dangerous assumption that a FSBO is priced lower just because it’s not listed with a real estate office. Remember there is that word hanging in the background of any real estate transaction, “greed.”

A Seller who doesn’t wish to pay a real estate commission is not necessarily lowering the price accordingly.

No. More likely the Seller wants every possible dollar for the house in a sale. Therefore the price might be higher than market or the Seller refuses to negotiate with you once you try to “discount” for the real estate commission. Worse, the Seller might not give you any price reductions after your engineer tells you certain items in the house need to be replaced immediately.

Remember, these are the same people who will negotiate with real estate offices for lower commissions. Assume the worst case: the Seller wants top dollar (maybe even more than the house is worth). If you walk in the door of a FSBO with that worst-case scenario firmly lodged in your mind, then you can negotiate more sensibly, or make a quick decision that this house just isn’t going to work for you.

Two important rules you should remember when shopping for a FSBO:

1. Know the market prices of your target area. Negotiate based on market price, not on what the Seller tells you is so amazing about the house.

2. Input the “greed-quotient” into your shopping equation. Assume the Seller is not really interested in selling the house as much as getting the highest price for the house (and this price might be absurd).

We check FSBO’s on a fairly regular basis. My wife, The Realtor, does that to target potential listings. Many FSBO’s convert to real estate offerings before long: it’s hard work selling a house. My wife indicated to me this morning, based on the this week’s research, the number of FSBO’s in our area has dropped.

I’m not surprised. The market is cooler than last summer.

I have said it many times: it’s easier to sell a house in a “HOT” market. Thus, Sellers get greedy, decide to sell on their own, and avoid paying a real estate commission. Then those new breed of real estate offices sprout up. You know the type. They offer Sellers MLS listings, signs, and other “services” for a flat fee. No real estate commission involved.

That’s all well and good in a busy market when Buyers are knocking down the doors. When the market cools, however, folks pretty quickly realize (or maybe not so quick!) that the business of selling a house is complicated, difficult and requires a lot more than just an ad in the local Pennysaver or a lawn sign stating, “Open House Sunday 1-4 p.m.”

If you notice fewer FSBO’s, you are not crazy. It’s symptomatic of a cooler real estate market. The hard work of selling in such a market is undertaken by real estate professionals.

Danger! Will Robinson! The Closing Table

Karen shared some stories from closings at other mortgage companies/banks she’s attended recently.

I closed a refinance loan in our Brooklyn office Tuesday morning. I shared a ride in with Karen M. who closes titles for my refinance loans. We had a great chat catching up on business stuff.

Karen shared some stories from closings at other mortgage companies/banks she’s attended recently.

Most disturbing is the ridiculous prevalence of the nasty Option Arm loans. This is the Negative Amortization loan where you borrow, say, $100,000 today. On your mortgage payment coupon you have two or three payment “options.” If you select the lower payment option, the interest you’re NOT paying on the mortgage that month gets tacked on to the end of the loan. If you do that every month—select the lower option—you find yourself owing $120,000 instead of the original $100,000.

Huh? Yah, apparently that’s what a lot of people are saying at the closing tables that Karen is sitting at. The borrowers are sitting there pop-eyed, blood draining from their faces, and shocked into submission as the attorney for the Lender explains how this all works.

“Well, where’s the Loan Officer who wrote the loan?” I asked Karen.

“Oh he’s never there. Loan Officers never attend closings. You’re the exception, not the rule, when it comes to attending closings.”

(Actually, at my office, ALL the L.O.’s attend their closings; it’s not a company requirement, it’s just what we do)

She went on to say how terribly she feels for these borrowers. “But he never explained that to me. I didn’t know that.” All this as the borrowers sign the loan documents. Hey, it’s a purchase loan and the downpayment is on the line. What is the borrower to do, walk out?

I’m nuts about explaining stuff. Lorraine (my wife the Realtor) giggles and chides me a bit (in a nice way) when she’s trying to show a house to our customers and I’m interrupting and pointing to things and explaining, explaining, and explaining some more.

When I write loan applications, I explain the facets of the loan programs to my clients. I need to have them understand what kind of loan I’m approving, the reasons why I selected this program, how the monthly payment is structured, what an escrow account is, why you need life insurance, and, and, and…

Yes, sometimes I ramble. But, rather that than having my clients caught like a deer in the headlights at the closing table wondering, “What the…?”

How to Find a Realtor to work with.

My longstanding advice to my clients is: find a good Realtor to work with. They’ll work hard to get the right house for you.

The age-old question, it seems, for homebuyers is, “How do I find a real estate agent who isn’t going to waste my time? One that will help me find the right house at the right price?”

I have long advised my clients, both in person and in home buying seminars, how to locate a good agent to work with to buy your first home.

First, a New York Minute: In New York State, a Licensed real estate salesperson represents the SELLER in every transaction. The ONLY exception to this would be when a Buyer signs an Exclusive Buyer’s Agency agreement with a Licensed real estate salesperson. Therefore, even if a real estate agent is your Mom, she MUST work for the best interests of the Seller (i.e., highest price) or she could lose her license.

When you first walk into a real estate office, the very first action required by New York State is that you sign the “Agency Disclosure,” form. The purpose of this document is to make it explicitly clear to a Buyer that the real estate office works for the Seller.

Life for a Buyer becomes less complicated when you understand this concept. The agent doesn’t work for you, even though she is working to find houses for you. Huh?

In any event, I believe you can also use this understanding to help separate the wheat from the chaff, as it were, when you first encounter a real estate agent and decide if you want to work with her or not.

An agent who makes it clear from the beginning, and who makes certain you have signed the Agency Disclosure Form—and explains it to you—is an agent with excellent ethics. Not to mention she also has a healthy respect for the laws that govern her license.

When you don’t know who you’re dealing with, this demonstration of good ethics and legal-respect can go a long way to assuring a Buyer you’re dealing with an experienced professional.

What comes next?

Money. Money. Money.

Yup, this house you wish to buy, your first house, a precious experience for you, is an extremely emotional event. For a real estate agent, though, it’s all about the money. Agents don’t work on salary, they work on commission. A serious, experienced agent wants to earn that commission with the least fuss and bother possible.

She is going to avoid time-wasting activities. She will listen to your requirements for your house—how many bedrooms, proximity to public transportation and/or highways, etc. —and invest the time to find the best possible houses within your price range.

The agent will take you out and show you just a few houses, probably no more than five. You will be quite amazed when you see the first or second house exactly meets your needs.

This is where things can get slippery for a Buyer. You think, “Wow! That was easy! Two trips to the real estate office and we found two great houses. Let’s go look at more! Let’s keep going until we find the right house!”

Big mistake.

That agent spent considerable time in not wasting time. She doesn’t want to show you thirty seven houses. She wants to show you the right houses and sell one of them to you. She wants to earn her commission. Money; it’s all about the money.

If this is your experience with that same highly ethical, legally-respectful agent, then you can be certain you are in good hands.

By the way, you don’t really have to buy any of those houses. If you give your agent detailed feedback on what you liked and what you disliked about the houses she showed you, she will continue to work for you to find a house.

Good agents get frustrated and quickly lose interest with Buyers who don’t communicate. If that happens, the good agents will drop you faster than you can say, “Open House!” and send you packing to work with the less experienced (or worse) agents.

Some more of my thoughts on agents who won’t waste time: Benefits of Prequalification

Experience means everything for you, the Buyer. You have none. The experienced agent wants to get you into a home and earn her commission. You must rely on her experience to get you a great home in your price range.

Some signs of experience:

-While you’re sitting in the waiting area of the real estate office, look on the walls for awards. There may also be a gallery of “Thank You,” letters from satisfied customers. Those aren’t there to look pretty; they are placed there to show you the experience of the agents.

-A good real estate agent has a real business card, not one of those hokey, prints-‘em-yourself cards from someone’s home computer.

-Here’s a good example of experience versus inexperience: What is a “Customer?” For a Licensed Real Estate Salesperson, the definition under NYS real estate regs.: A “Customer” is a Buyer.

A “Client,” is either a Seller (the most common usage) or a Buyer represented in a Buyer’s Agency agreement. A Buyer cannot be a Client to a real estate agent unless Buyer’s Agency is in effect.

If your agent calls you her Customer, “I have a Customer here and I’d like to show them your house. Can we stop by in fifteen minutes?” then you’re dealing with an experienced professional.

Finally, one of the telltale signs of a good agent is one who is a Realtor. Realtor is a special designation for members of the National Association of Realtors. Realtors wear their “R” pins with pride. The Realtor designation requires an investment of time and money on the part of the Realtor. This is yet another mark of a good agent you should watch for when deciding who to work with to find your first home.

My longstanding advice to my clients is: find a good Realtor to work with. They’ll work hard to get the right house for you.