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Finding Real Estate Agent Right

FINDING
AGENT
RIGHT

Ask the right questions and get the right answers before choosing your real estate agent.

Do you remember the classic television commercial Charlie the tuna? I can remember Charlie doing everything that he could to show that he had good taste. I used to feel bad for poor old Charlie. No matter what he did, StarKist (the tuna distributing company) would always come
back with the same response: “Sorry, Charlie. StarKist wants tuna that tastes good, not tuna with good taste.”

I don’t want you to wind up with some unscrupulous real estate agent like Charlie, who looks good but leaves a bad taste in your mouth. You deserve a good agent, a good transaction, and a great real estate experience. I don’t think you should settle for anything less.

If you’re selling or buying real estate, make sure you get the right agent. How do you do that? Use this guide to hire Agent Right! Good-bye, agent Charlie. Hello, Agent Right!

Selling a Home

Selling a home is one of the largest financial transactions you’ll make in your lifetime. With variable commission rates, complex transactions, changing market conditions, and many real estate companies to choose from, you need to hire the right agent and get the best deal.

For sellers, that means:

• the house is optimally priced and effectively marketed;
• the offers and counteroffers are successfully negotiated;
• the contract is complete and correct;
• the closing goes smoothly; and
• you, the seller, realize the greatest net proceeds possible.

Please click on the question to expand the answer.

01
Agent: Based upon this CMA (comparative market analysis), your home should sell somewhere between $400,000 and $500,000.

Agent Right: Folks, that’s too big a spread. If an agent truly knows his or her market, a $25,000 price range (for a home priced somewhere between $400,000 and $500,000) would be acceptable. A good rule of thumb would be that the price range should not exceed 5 percent of the highest suggested selling price. Pricing a home correctly is critical. When a property is fi rst listed, it generates a very high level of interest from many prospective buyers. That level of interest declines dramatically over time.
Therefore, your price needs to be in line.

NOTE: Don’t just take the agent with the highest price. He or she could just be looking for a listing agreement.
02
Agent: If I were you, I would accept any price that falls within that price range in the CMA.

Agent Right: That’s not a sound strategy. If the offer is high up in the price range, then it might be a good idea to accept it. But even then, it would still depend on what the rest of the terms were. For example, are you being asked to pay any closing or loan-related costs? Are you being asked for a decorating allowance? Does the closing date and possession date work for you? It’s also important to know the market. If it’s a seller’s market, then holding out for the highest price makes sense. Whereas in a buyer’s market, any offer in the price range would be acceptable.
03
Agent: It’s a determination of the current market value of your home.

Agent Right: It’s much more than that. The CMA (comparative market analysis) is a comprehensive analysis to determine the correct selling price and the best marketing strategy for your home. The correct selling price is the highest possible price the market will bear. While some agents seem to pull this number out of the air, others may subject you to a fifty-page
thesis. So which one do you believe?

For starters, have at least three CMA presentations. There’s no charge,
no obligation, and they should be interesting and informative. It’s a good
idea to let the respective agents know that you will be interviewing three
of them. That should prevent them from pressuring you too much. It will
also motivate them to produce an outstanding analysis for you, maybe even
give you their best deal.

During the presentation and interview, keep an eye out for the following things:
• Look for comparable homes that are currently for sale to compare your home against the competition.
• Look for comparable homes that were recently sold or pended (sold but not yet closed) to obtain a clear picture of how the market has valued homes that are comparable to yours. These are the same sales statistics that banks and other lending institutions analyze to
determine how much they can lend to qualified buyers.
• Look for comparable homes that failed to sell (i.e., cancelled or expired) to avoid pricing at a level that would not attract buyers.
• Look for a marketing plan that clearly spells out the methods that will be used to promote your property to the widest possible audience of prospective buyers.

Finally, make the agent stand behind his or her market analysis and price determination. Ask for a way out of the listing agreement if there is no progress made in selling your home. It would be best to ask for this at the end of the CMA sales presentation. It could be jotted down on the last
page of the presentation. It should say that if the agent does not act in accordance with the methods and objectives in the marketing plan and/or the plan is not working (not resulting in showings, feedback, or offers) after forty-five days, the seller may:
• ask the agent for a revision of the plan, or
• cancel the listing agreement.
04
Agent: Somewhere between three and six months.

Agent Right: If an agent is good at analyzing the available home selling statistics and understands the current market conditions, “within a specific number of months” would be a better response. The time it takes to sell your home will be affected by the price and the condition of the home. With the right marketing, your home could sell in less than a week.
05
Agent: We’ll lower the price and extend the listing.

Agent Right: Here’s what your response should be to that agent: “Okay, I’ll lower my price if you’ll lower your commission.” An agent should stand behind the pricing of your home. If the house was priced right in the first place and then effectively marketed, it should have sold. Valuable market time would not have been lost. Sometimes an unscrupulous agent may suggest a higher price to get the listing. Then when it doesn’t sell, the agent tells you the price is too high. Before you sign a listing agreement, ask the agent if he or she believes that your home will sell in the suggested price range. If the agent says yes, then ask that agent to agree to lower the commission if the house does not sell in the price range suggested. What can be fairer than that? If the agent won’t agree to that, don’t list with him or her.
06
Agent: Our company charges 7 percent. That’s for full service and proven results.

Agent Right: That may be a true statement, but how much service do you actually need and how much money do you want to pay? It’s a good idea to shop around for agents and companies, not just for price, but for services offered and proven results. A good way to accomplish this is by speaking to real estate company broker-managers by telephone or by reviewing their company Web sites. For example, in Real Estate Five, we charge a variable commission ranging from 5% if other agent finds the buyer to as little as 3% if you find the client.
07
Agent: This is the rate that the firms around here charge.

Agent Right: That’s the wrong answer and the wrong agent. There’s no set rate in any area. That would imply price-fixing, a big no-no in the real estate industry. Fees and commissions are independently established and usually based upon the quality and quantity of services provided. When discussing rates, there are two rates of commission that you should be
aware of:
• the total rate of commission that you, the seller will be required to pay, and
• included in that total commission, the rate of commission that will be paid out to the company bringing in the buyer.
For example, in Real Estate Five, we charge a variable rate that ranges from 5% if other agent finds the buyer to as little as 3% if you find the buyer.
08
Agent: I’d be careful about those discount companies as nobody will show their listings.

Agent Right: That’s not true. Real estate is very competitive, and there are a variety of business models out there, giving the consumer many choices. It’s a good idea to talk to different companies and compare their commissions and their services to fi nd the one that’s best for you. You may be pleasantly surprised to fi nd that your home will be shown just as much and maybe more regardless of the amount of commission that you pay.
09
Agent: If you go with us, I’ll see if the manager will agree to 6 percent instead of 7 percent. And you’ll still get all of our services.

Agent Right: The manager will, and I’ll bet the agent already knows that. But maybe you can do even better! Negotiation is the key here, and if one company won’t negotiate, another company will. Do you really need all of their services, or can you get by with a little less? If you can get by with less, then you should pay less commission. You know, some companies may give you more services and still charge you less commission. It’s best to compare and negotiate.
10
Agent: No, but I can get the job done to your full satisfaction for 6 percent. Will that work?

Agent Right: There are many options available to the savvy seller. They include the following: for sale by owner, for sale by owner with assistance, online listing service, limited MLS (multiple listing service), full MLS, discount real estate companies with limited service, discount real estate companies with full service, local full-service companies, and national full-service companies. For example, in the “for sale by owner” option, you might be doing everything on your own. With the “online listing service,” you should receive ongoing exposure to many prospective buyers. If you went with a full-service company, many agents would be trying to sell your home. Choose the option and company that works best for you.
11
Agent: Not really. For the 7 percent, you’ll get our full service regardless of what the market is.

Agent Right: That may be that company’s policy, but current market conditions will have an effect on how homes are sold and marketed. Therefore, some companies might consider modifying the commissions accordingly. For example, in a seller’s market, the broker’s job is much easier. There’s less work to do, fewer resources to be expended, and the sale cycle is considerably shorter. This might be a very good time to negotiate a lower commission. On the other hand, in a buyer’s market, maybe that 7 percent is a good deal all around (depending upon what and how much the agent and real estate company will do for you).
12
13
Agent: By keeping your home spotless, picture-perfect, and always ready to show.

Agent Right: Great advice. You want to wow them as they drive up the driveway and as they enter the house. However, in a real buyer’s market, you and your real estate agent may have to do even more. You may have to offer a home warranty on all mechanicals and appliances or a decorating allowance or a rebate for closing costs or maybe even a cash bonus to whomever brings in the best offer.
14
Agent: No, you have to wait until the listing agreement ends in six months. But if you want something done differently, just let us know.

Agent Right: This answer is unacceptable. Tell the agent that a cancellation clause has to be included. Make it become effective forty-five days after the date the home was listed. That will give you the option to get out of the listing agreement if your home doesn’t sell or if you’re not satisfied with the service. The cancellation clause must be written within the listing agreement.

Incidentally, if you are told that your home will sell within three months, then make the listing agreement for three months. If you’re told that it will take more than three months to sell, still make the contract for three months and include an option to extend if you so desire. If you decide to extend the listing, you would usually make that decision a few days before the listing expires. At that time, you would meet with the listing agent and modify the listing agreement accordingly. Always state the new expiration date to avoid any confusion. If all terms of the listing agreement remain the same, include a statement to that effect. However, if you and your agent agree to change some of the terms (and it’s okay to renegotiate terms and make changes), make sure that those changes are included in the modified listing agreement. You both should sign and date the modified agreement, and that’s it. In the absence of a written agreement to extend the listing, the listing agreement expires at midnight on the last day. There’s nothing you have to do. You’re free to go with another company, sell on your own, or take a breather while you decide what you want to do.
15
Agent: We’ll you can try it; but there are a lot of pitfalls and potential problems, and you won’t get the full service and assurances that you’ll get from our company.

Agent Right: If you want to try it on your own, there are plenty of resources and companies that provide advice and assistance. There are books that prepare you for selling on your own. There are for sale by owner shops that will provide you with supplies and forms. There are companies that will offer you online listing services. There are also full-service companies who will partner with you and market your home at the same time that you are trying to sell your home on your own.
16
Agent: Oh, we can’t do that. The listing agreement is standard and specific as it is. But we can certainly modify our marketing plans to include all of your concerns.

Agent Right: The listing agreement is the contract that spells out the specific terms that the seller and real estate brokerage agree to. And like any contract, it can be modified to include what is agreed upon. If it’s written in the listing agreement, then that’s the way it is. If it’s not written in the agreement, then it will not happen. I’m going to repeat something now that I said before. The seller should add a cancellation clause that allows termination of the listing agreement before the expiration date. Now we have to be reasonable here; we are not trying to hang the agent. We just want a way out if we are dissatisfied with the service we’re getting.

Buying a Home

Buying a home is one of the largest financial commitments you will make in your lifetime. With construction costs increasing, home prices rising, market conditions changing, interest rates fluctuating, and numerous funding options to choose from, it’s critical that you have the right real estate agent working for you during the entire purchase transaction.

For buyers, that means

• a search for the right house includes the greatest number of houses that are available that meet your requirements
• the agent or broker can work with your schedule, including evenings and weekends if necessary
• offers and counteroffers are successfully negotiated
• a contract is completed correctly
• your closing is problem-free
• you get the best house, the best value, and the best terms for your money

Please click on the question to expand the answer.

01
Agent: Your mortgage will not be too much more than your rent. So if you can afford to rent, then you can afford to buy.

Agent Right: Okay, imagine that you are at home, and it’s the weekend. Your air-conditioning stops running, you live in South Carolina, and it’s August! Or your heating goes out, you live in Minnesota, and it’s January! You’re the owner. There’s no landlord to fi x it. Do you get the picture? Because you will certainly get the bill!

There may be more expenses related to owning a home than renting a home. These expenses may include emergency repairs, routine upkeep, property taxes, utilities, hazard insurance, flood insurance, association fees, lawn care, landscaping, snow removal, and pest control. And do not forget about that one-time down payment.

That being said, I still believe that buying a home is one of the best decisions and investments you can make. I purchased my first home when I was twenty-nine years old. Looking back, I should have bought it earlier. There are tax advantages when you own a home. They may offset some of the additional costs of owning a home. You can also build equity as you pay off your mortgage and the home appreciates in value. It’s almost like having a large savings account that gets bigger each year.

The bottom line is that it’s important that you prepare an affordability analysis to assess your fi nancial condition. Look at the increase in living costs and see if you can afford a home. When you get prequalified for a home loan, you will get a good idea if you can afford to buy a home and how much home you can afford to buy. You will also receive a good faith estimate of what your closing costs will be. But be careful. The loan officer gets a bigger commission for a bigger loan.

Here are some guidelines that lenders use when determining home affordability for prospective buyers:
• The ratio of your monthly payment to your monthly income should not exceed 28 percent.
• The ratio of your monthly payment plus monthly non-housing debt to your monthly income should not exceed 36 percent.

NOTE: However, since these rules of thumb are not completely accurate, lenders are not rigid in using them. But you can use them as a simple test of home affordability.
02
Agent: Altogether, probably about 10 percent of the cost of the home.

Agent Right: It will probably be more than 10 percent. When getting a mortgage, the down payment will vary based upon whether it is a primary residence, a second home, a vacation home, or an investment property. Here are some costs to consider: down payment of 10 percent of selling price (usually more but sometimes less), closing costs of 5 percent of selling price, earnest money of 1 percent of selling price (or possibly more), additional escrow, and reserve costs. Sometimes the sellers will pay for all or part of the buyer’s closing costs. In any event, it’s important to consider cash needed up front and monthly cash outlays as well. That will give you a true picture of how much you will need to buy and to maintain a home.
03
Agent: Yes, I think you can.

Agent Right: That’s right. You can. The 1997 Taxpayer Relief Act allows first-time home buyers to use up to $10,000 from their IRA with no penalty for a down payment to purchase a home. For the specific rules, check with your accountant or financial advisor or check out http://www.irs.gov/ for IRA rules. You can also take out a loan against your 401(k) company plan. You don’t have to be a first-time home buyer to do that. If you take out a loan against your 401(k), it may have to be paid back if you leave your job. Check with your employer for 401(k) loan conditions.
04
Agent: I listed the home, so if you buy it from me, I can get you the best price and the best deal.

Agent Right: Now, how can that be when the listing agent is trying to get the highest price for the seller? I’d like to know what that agent’s plan is for getting you the best price and the best deal. You would want to know also. If you decide to work with the listing agent, remind yourself that the listing agent is representing the seller. Therefore, you’ll have to be a good negotiator to get the best deal. Remember, when the listing agent brings in the buyer, he or she gets the full commission. There is no commission to pay to another broker. You could ask the listing agent for a cash rebate at closing. Or maybe you could ask the listing agent for some assistance with
paying your closing costs. If the listing agent is not receptive to either of those suggestions, it might be better to hire a different agent to represent you.
05
Agent: I am a buyer’s agent, and I only work with buyers. I will work with you and for you until we fi nd the right home.

Agent Right: Sounds good and makes sense, but what will that agent do for you that other agents may not do? You will fi nd that different agents have different plans for helping buyers find the home that’s right for them. Some agents rely solely on the multiple listing service. Others may include foreclosures and homes that are for sale by owners. And then there are those agents who know how to fi nd homes that are not even on the market. That’s right! They can fi nd your dream home before that home is even available for sale. For example, if you know that you want to live in a certain area or a specific development, it’s not unusual for an agent to canvass that area with your exact requirements in mind. (As a matter of fact, that’s how my wife and I found our dream home in the Hilton Head Island area.)
06
Agent: That will not be a problem. I’m part of a team, so if I’m not available, someone else will be.

Agent Right: Generally, a team is good. But a team can also be bad. For example, aside from you, the person most likely to know what kind of house you want to buy is your agent, not a team. Sometimes, when more people are involved, there can be more problems and confusion. When you are buying a house, you want your agent with you all the way. That includes evenings and weekends.
07
Agent: First, we’ll sign this exclusive buyer’s agreement. Then we will determine your exact requirements, get you prequalified, and start looking at homes until you fi nd exactly what you require.

Agent Right: That sounds reasonable, but it is best to fully understand what this “exclusive buyer’s agreement” is all about before signing it. You will also want to be preapproved instead of prequalified. Most sellers will only accept offers from preapproved buyers.
08
Agent: It is an agreement that states that you agree to work with me exclusively in finding and buying a home. It also explains what our obligations are during the term of the agreement and what fees our company will receive upon the successful closing of the purchase transaction.

Agent Right: True enough as stated, but it is much more than that! It is the contract between the buyer and the real estate company that includes all the conditions and commitments negotiated and agreed upon. It is also an excellent opportunity for the buyers to put in writing exactly what they expect the agent to do and what the buyers plan to do in conjunction with the agent in finding and purchasing the “right home.” In the exclusive buyer’s agreement, the buyer should ensure that he or she considers the following factors before signing:
• Is the agent a buyer’s broker who is representing only you?
• Are for sale by owner homes included in the agreement? What length of time are you committed to work with the agent?
• How are deals facilitated if you decide on a property that is listed with that same agency?
• Who pays for the agent’s services?
• Will your agent’s remuneration come solely from the commission that the seller is paying or will you have to pay your agent on an hourly basis or a set fee negotiated in advance?

If you sign an exclusive buyer’s agreement, make it for no more than two months, and do not pay anything up front. Two more things to consider:
1) It’s okay to modify the exclusive buyer’s agreement by adding amendments.
2) Never sign anything that you are not sure about or comfortable signing. Add conditions if you feel they are warranted. If you are going to do a lot of the leg work in researching the listings, locating the homes, eliminating the ones you do not want to see, and only then using your agent to look at the homes you want to see, maybe you should ask for a cash rebate or some other buyer incentive, like a home warranty, inspection credit, or move-in allowance. It has been done many times before.
09
Agent: As soon as you are ready to buy before the prices go up.

Agent Right: The best time depends on your needs, wants, and your resources. Some people can buy anytime; the money’s there, and it’s not a big issue. But most of us need to get the most for our money. That means buying when more homes are available and when sellers may be willing to lower their prices to compete in a very competitive market. When the housing market begins to slow down, sellers may also be willing to assist you with closing costs. You can usually get a great deal when it’s a buyer’s market.
10
Agent: You could buy on your own; but without an agent, you will not be represented, and you will not have the assurance that you are getting a good house and a good deal.

Agent Right: You don’t need an agent to buy a home, but a good agent will be able to get you a better house, a better value, a better deal, and coordinate all aspects of the transaction. You do not pay for that service either; the seller does. Sometimes agents will offer valuable rebates if you buy through them.
11
Agent: Here’s a list of people I’ve worked for. They will vouch for me.

Agent Right: References are good but not good enough. You know what kind of home you are looking for and what kind of lifestyle you want. So you have to find a good agent who understands your needs and wants. That might be a challenge since there are so many agents out there. Here’s an approach that I’m sure will work. Call one of the local real estate companies
and ask the manager for a referral. Ask your friends or relatives for a referral. After you have some referrals, call them and tell them what you are looking for. Ask them to send you a list and description of the available homes that match your criteria. Then, carefully review what you have received. Were you impressed with the information that they sent you?

If you were, then include that agent in your list of three agents to interview. That approach should improve the quality of the pool of agents that you interview. Take your time with the interview process when looking for Agent Right. Ask the right questions, get the right answers, and choose the agent who will work best for you!
12
Agent: We’ve been around here longer than the others. We know the market better and have more agents and resources to assist you with buying.

Agent Right: Don’t get hung up on how long they’ve been in business and the number of agents and resources that they have. Focus on the real strength of the company: how resourceful they are, how successful their agents have been, and what the company and agent can do for you today. Look at things like the number of homes they sell, their professionalism, the number of referrals and leads they generate, their knowledge, training, experience, marketing, community involvement, their networking, and the competitive advantages that they have to offer. Remember, the quality of the service that you will receive will depend upon both the company and the agent that you choose.
13
14
15
Agent: A real estate agent works for a real estate broker, whereas a broker may actually own the real estate company. Otherwise, they pretty much provide the same services.

Agent Right: I would also add that a broker’s license requires additional education and related experience and that it’s the designated broker or broker-in-charge who is ultimately accountable for all company operations, policies, and procedures. Whether you choose to hire an agent or a broker, all of the questions and answers in this FAQ apply.
16
Agent: A buyer’s broker works for the buyer only but may charge the buyer a fee. There’s no real advantage to having one.

Agent Right: A buyer’s agent or buyer’s broker is definitely worth considering as they are legally obligated to represent the buyer and the buyer only. Furthermore, since their experience is primarily in assisting buyers, they may be
• better at finding the homes that best meet your specific requirements, and
• better at negotiating price and terms that are most advantageous to you.
17
Agent: Yes, I know some very good mortgage companies and loan officers who can help you.

Agent Right: Good agents only use good loan officers. The right agents probably got rid of the wrong loan officers in the beginning of their real estate careers. So when you hire the right agent, you are sure to be referred to the right lender and loan officer as well. That would be the loan officer with the best rates, terms, and flexibility to work hand in hand with you and your agent to get you the best overall real estate deal.
18
Agent: After a day or two of looking, you’ll know which one you want to buy.

Agent Right: Looking at homes can be and should be fun but can also be exasperating. It’s best to have a realistic idea of the home you’d like to buy. Make a list of the features that you must have and those that you would like to have. Give that list to your agent. Think about features that help or hurt resale value. That’s important also. Search online to see what’s available. Ask your agent to give you the best link for searching and comparing properties. Your agent should be searching as well. Have your agent show you the houses that best meet your criteria. Keep track of the properties you see. Rate the houses that you see. Discard the ones that won’t work. That’s one way to zero in on your dream house.
19
Agent: I don’t have a list of them. They’re advertised in the newspaper. But you’ll have a better chance of finding what you want by looking at homes that are currently listed.

Agent Right: That may be true. But you don’t want to rule out FSBOs (homes that are for sale by owner), especially if there’s one out there that’s perfect for you. And they’re not only advertised in the newspapers. You can also fi nd them in For Sale by Owner magazines and For Sale by Owner online services. If you see one that you like, work with your agent to look at it and compare it to the other homes that you’re interested in. Even though a FSBO may not be listed on the MLS (multiple listing service), the right agent can be extremely helpful in determining its value and in purchasing the FSBO as well. Incidentally, most homeowners who are selling their homes on their own are willing to pay some commission to the agent who brings in a buyer.
20
Agent: Working with a builder on a new home can be a headache. You’ll probably get a better deal on a resale home.

Agent Right: There’s no right answer in deciding whether to build new or buy existing. It really depends on what you want and current market conditions. Either way can be a good deal. You might even get a better deal on a new home. For example, some builders offer incredible financing packages that are only available when buying a new home. So don’t rule out any of your options. Work with your agent, and decide what you want and what works best for you.
21
Agent: Look at homes with similar features and amenities and compare their prices to the home you want to buy. That will give you a good idea of the value of the home you are interested in.

Agent Right: That’s a good start. As you look at different homes, you will begin to get an idea of comparative value. But the determination of the market value of a home is based upon many different factors. These factors include, but are not limited to, number of bedrooms, number of
baths, finished square footage, total square footage, size of the garage, condition of the home, quality of the mechanicals, size of the lot, location of the home, and more. But you know something? Smart buyers won’t buy overpriced homes, and the right agents won’t let them. So while you’re looking and comparing, let Agent Right prepare a comparative market analysis. That analysis will help you determine the value of the home in the same way that it helped the seller price the home. As an added benefit, it can also be utilized when you decide to make an offer.
22

Purchase Agreements

You get a call from your agent that an offer has been written on your home. They want to present it this evening. You’re excited. You’re also anxious. You hope it’s a good offer. After all, your home is special, and you want to get as much as you can.

Or you’ve found the perfect house and you’re ready to make an offer. You want to pay less than the seller is asking. You need to include certain conditions as well. But you don’t want to insult the seller by offering too little. Especially since this is the perfect house. Maybe it’s worth every penny of what the sellers are asking. How do you know how much to offer? How
do you present the offer without offending the seller?

Welcome to the purchase agreement: how to write it, how to read it, how to negotiate it, and how to get the best deal.

Please click on the question to expand the answer.

01
Agent: It’s the written offer that you make for the home.

Agent Right: It’s more than that. It’s the written document that dictates how the rest of the sale will be handled. Sometimes called the “sales offer,” it includes how much will be paid, when it will be paid, how it will be paid, and when the buyers take possession. It also includes buyer contingencies, seller disclosures, home warranties, repairs agreed to by the seller, and the
length of time the seller has to respond to the offer.

When you are ready to make your offer, tell your agent. Your agent will be more than ready to write it up. Take your time and be sure to include all of your conditions and contingencies. If you want the seller to do something or pay for some repairs, it has to be written into the purchase agreement.
02
Agent: Not really. For new homes, the base price of the house and the prices for special features and upgrades are fi xed amounts. All you can do is add or delete what features and upgrades you want.

Agent Right: That’s not totally true. Just as you can negotiate on a resale home, you can negotiate on a new home. This may come as a big surprise to many buyers, but the right agent will assist you in obtaining valuable buyer incentives, features, or upgrades at no cost to you.
03
Agent: If you go in with a low bid, you may insult the seller and lose the home. Better go in with your best price.

Agent Right: Folks, here’s how it really works. Different houses and different market conditions require different strategies. For example, in a seller’s market, the seller may not come down on the price at all. You may see multiple offers. You may even see bidding wars between multiple buyers. And yes, you may lose that house. On the other hand, in a buyer’s market, you may find sellers coming down more than 10 percent on their price. You may also see sellers offering some very attractive terms, not to mention buyer incentives from agents and brokers as well. Buyer incentives from agents and brokers may include the following:

• free home warranty
• free home inspection
• decorating allowance
• moving allowance
• cash rebate

And finally, some houses may be so overpriced that even if you pay 10 percent less, you’d still be paying too much. It’s very important to have an excellent understanding of house values and the housing market as well. That’s why I recommend that you use your judgment and the expertise and advice of your Agent Right when deciding how much to offer.
04
Agent: They are conditions that you may want to include when buying your home.

Agent Right: Contingencies are conditions that you may include in the purchase agreement when you offer to buy a home. The seller is asked to agree to these conditions before you agree to buy the home. The seller may accept, reject, or negotiate these conditions with the buyer. All contingencies must be agreed upon before the purchase agreement is considered to be accepted.
05
Agent: How much you want to pay, when you want to close, when you want to move in, and maybe a home inspection.

Agent Right: Here are some other contingencies (conditions that protect you) that you may want to consider:

• existing home sale
• loan preapproval
• commitment approval
• termite inspection
• time of sale inspection
• possession date
• assessment proration
• personal property included
• association regulations review
• financial statements review
• closing costs proration
• final walk-through

The home buyer will pay for the inspection as the inspector is working for them. Make sure it’s a complete home inspection—and it’s always good to be present during the entire inspection.
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Agent: The fewer contingencies, the better chance you’ll have of getting the house for the price you want to pay.

Agent Right: Not necessarily. I’ve seen situations where the buyer had a lot of contingencies and the seller accepted the buyer’s price when some of them were removed. So the contingencies were used like bargaining chips. Bottom line is be reasonable, but at the same time, protect yourself against unnecessary problems and expenses. It also depends on the current market. If it’s a seller’s market, they’ll probably go with the offer that has fewer contingencies. Another factor to consider is the condition of the home. If repairs are needed, see what you can do yourself and what you can’t do. Finally, compare the value of the home to other homes that are either for sale or have just been sold. If the home is a great deal as is, then just include the must-have conditions. Otherwise, include all the contingencies that will make this purchase a very good deal for you.
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Agent: The seller will review it with his or her agent, and the agent will let us know if it is accepted, rejected, or if there are any counteroffers.

Agent Right: That’s about what happens, but having the right agent can make a difference in making or breaking the deal. For example, it’s important that your agent present the offer in person and state the terms clearly and tactfully. It’s also a good idea to convey to the seller the buyer’s rationale (e.g., price, terms, and contingencies) where appropriate. Selling a home is a business transaction, but it’s also an emotional experience. Some agents take the time to tell the sellers about the buyers and explain why their home is perfect for them. Some bring pictures of the buyers to make the buy-sell process more personal. After your agent presents the offer, he or she will be asked to wait outside while the sellers and their agent review the offer.
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Agent: It looks like new. I’m sure they took care of this home. But it’s your choice.

Agent Right: Even if it looks like a new home, it is a good idea to have an inspection. When compared to the cost of the home, an inspection is a small price to pay for the assurance of knowing that there is nothing mechanically or structurally wrong with the home. If the inspector finds any problems, big or small, the costs of correcting them (which then become the seller’s responsibility or are negotiated between the buyer and the seller) will usually amount to much more than the cost of the inspection.
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Agent: The inspector usually does a complete home inspection and looks at everything, so you are assured that the house is safe to live in and that it is a good value.

Agent Right: No, that’s not right. A safe place to live with no structural or mechanical problems? Yes. Everything is in good condition and working properly? Yes. A good value for the money? No. The inspector will check the following:

• plumbing
• electrical connections
• heating, ventilation, and air-conditioning
• foundation/walls/attic for moisture and mold
• water heater
• waste disposal
• appliances
• doors, windows, floors, and ceilings
• roof and chimney
• siding
• land terrain and sloping
• possible presence of pests

In addition to checking for problems, an inspector can also give you an idea of estimated cost for repairs that may be needed. It’s important to know that if the home inspector finds any serious potential problems, he or she may suggest that an inspector with specialized expertise be hired to make the determination. For example, a potential problem with the furnace or air conditioner might call for certification by a licensed HVAC inspector. Or the presence of what appears to be mold in the attic or the basement might call for a review by a licensed engineering company that is certified in mold detection and eradication. In these instances, the buyer would usually request that the seller obtain the required certifications and make repairs if required. If the seller will
not agree to obtain the certifications or make the repairs, the buyer may cancel the purchase agreement and get back the earnest money. Or if the buyer feels that the house defects are too serious, the buyer may cancel the purchase agreement as well.
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Agent: Nothing. We’ll wait to see what it is; then we’ll make a decision.

Agent Right: Doing nothing is not the best choice. Now’s the perfect time to be better prepared. We can review the initial CMA and see if the suggested price range needs to be adjusted. Better yet, we can update the initial CMA to factor in current active listings, current sold listings, and current market conditions. This would be very useful in gauging the offer and considering counteroffer strategies as well.
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Agent: It’s the monetary deposit that the buyers include with their purchase agreement.

Agent Right: It is money that the buyers put down to show that they are serious about buying the house. Although it’s stipulated in the purchase agreement, it’s not given to the listing broker until the purchase agreement is accepted. It’s usually a personal check that is made payable to the listing company and deposited in the listing broker’s escrow account. If the buyer backs out of the deal for reasons that are not covered in the purchase agreement, the buyer may have to forfeit the earnest money. Sellers do have the option to request that the earnest money be forfeited if the buyer backs out for any reason.
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Agent: About a $1,000, maybe $2,000. That should be enough.

Agent Right: It depends on the price of the house, the current market conditions, and the geographic location, and it’s usually between 1 and 5 percent of the offered price. The bottom line is to demonstrate good faith and show how serious you are about buying the home. I have seen many buyers put down a substantial amount of earnest money, which made their offer more attractive and more likely to be accepted by the seller. That’s a very good negotiating strategy for buyers. When sellers see more earnest money, they equate that to a more secure and better deal.
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Agent: We’ll keep countering. I’m sure we’ll work it out.

Agent Right: (I want you to remember that phrase “I’m sure we’ll work it out.”) If we are getting closer, but not there yet, we can include a brief letter with our best and final offer and our reasoning for the offer. Sometimes, this personal approach will do the trick. Here’s something else that happens once in a blue moon (or more frequently when everyone is trying to work it out): the agents offer to split the difference and give up some of their commission if the buyer and seller will come to an agreement. Now that would be a win-win resolution for everybody!

Addendums & Amendments

Okay, so you have a pretty good idea of what this purchase agreement is all about. But there are also various forms that may have to be included with the purchase agreement. These forms are called addendums and amendments.

I remember sitting in a real estate class many years ago when I was a real estate rookie. Someone asked the instructor why there were so many forms, and his answer was “Job security. The more forms, the more complex the transaction, and the more they need you.” The class had a good laugh. But the state’s real estate commission and the local municipalities weren’t laughing. They enacted laws and developed forms that would protect the consumer when buying or selling real estate. The local realtor associations weren’t laughing either. They standardized the purchase agreement. They also published forms that added consistency, reduced ambiguity, and lessened liability for their members when preparing real estate contracts.

From state to state, there are typically several forms that the real estate commission, the municipalities, and the local realtor associations require or recommend their members to use. That doesn’t mean that you have to use all of them. But the right agent will use the right forms to protect your interests and to get you the best deal.

Please click on the question to expand the answer.

01
Agent: Just the standard purchase agreement and one or two miscellaneous addendums.

Agent Right: (Don’t you wish it was that simple?) If you are a buyer, include an inspection addendum so that the purchase of the home is contingent on the inspection. You will also need a fi nancing addendum—it is important because it specifi es how you will pay for the home. Be sure to include a preapproval letter with the fi nancing addendum. Do you have a home that you need to sell before you buy? If so, use a contingent upon sale of home addendum. That will make the purchase of your new home contingent upon the sale of your existing home so that you do not get stuck with two homes and two mortgages to pay. If you are a seller, there is a real estate disclosure form that usually has to be completed. That form is used to confi rm that everything in your home is in good working order and that you are unaware of any specifi c defects. Municipalities and lending institutions may require additional forms such as lead-base paint addendum, radon addendum, well disclosure, termite inspection, time-of-sale inspection, and building permits for major modifi cation and remodeling projects.
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Agent: They have different names, but they are both used for making additions or changes to the purchase agreement.

Agent Right: That’s right. However, most addendums are usually preprinted and deal with conditions that have been standardized by local municipalities or realtor associations. On the other hand, amendments are usually blank forms that are used to negotiate other conditions not covered by existing addendums. For example, if the roof was very old, an amendment could be prepared to provide for a new roof.
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Agent: It protects you by assuring you that everything in the house works or will be working before closing.

Agent Right: The scope of protection is much greater than that. In addition to disclosing what works or doesn’t work, the real estate disclosure form requires that the seller disclose any known home defects such as cracked concrete, water intrusion, insect infestation, or anything else that they knew about while they were living there. This disclosure should be carefully reviewed before and during your home inspection.
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Agent: You can use these forms to request that repairs be made or that items be replaced.

Agent Right: In addition to requesting that repairs be made or that items be replaced, these forms will protect you by indicating which contractors will be used for doing these repairs or replacements. Some types of work (e.g., heating, air-conditioning, mold detection and eradication) should be completed by contractors who are certified to do that kind of work. Be sure to indicate who has agreed to pay for these repairs and that if the repairs that the seller agreed to make are not completed by closing, funds will be escrowed from the seller’s proceeds. Addendums and amendments may also be used if the seller has agreed to pay for a home warranty or an appliance maintenance plan. Finally, these purchase agreement-related forms may be used to describe any or all of the following conditions that the seller and buyer have agreed to:

• move-in agreements
• rent back agreements
• appliance or fixture exclusions
• personal property inclusions
• decorating allowances
• closing costs contributions
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Agent: Not really. Once we get the preapproval letter, that should do it.

Agent Right: Folks, that’s the wrong answer. In addition to getting the preapproval letter, you also want to receive a full underwriting commitment no later than thirty days after the date of the finalized purchase agreement. That assures you that the buyer has been approved for this purchase in its entirety. Sometimes, a seller may require that the earnest money be forfeited if, for any reason, the buyer does not buy the house.
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Agent: They can be used to your advantage when you negotiate price and terms.

Agent Right: That is correct. A skillful agent will know how and when to use these forms to your advantage when negotiating price and terms. For example, let’s say the roof is seventeen years old. It doesn’t leak, but it’s getting close to its useful life expectancy (as indicated in the inspection report). This could be made a negotiable item. The buyer could ask the seller to replace the roof, provide a roof allowance, or lower the price of the house. The same rationale could be used for an old furnace, central air conditioner, or appliances.
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Agent: The builder has all the forms that are needed to purchase the home. He or she can take care of it.

Agent Right: (Is the builder representing you? Absolutely not!) Even when you buy a home from the builder, you should still use the addendums and amendments that you and your agent feel are necessary to ensure that all of your concerns are fully satisfied. I strongly recommend using an agent to represent you in new construction. You will be pleasantly surprised by what the right agent can do for you when you’re working with a builder. The right agent can obtain quality upgrades or additional amenities at no
cost to you.

Closing the Deal

Yes! It’s closing time! The deal is complete. The seller gets his money, the buyer gets her house, and everyone goes home happy. Nothing could go wrong. Right? Well, we sure hope so.

But a lot will be happening at the closing, and you have to be mentally alert and fully prepared for it. More importantly, your agent should have been preparing for it all along, making sure everything is in order, communicating with all the concerned parties, and coaching you along the way. And finally, your agent must be present at the closing to make sure that this last and critical step of the selling/buying process goes smoothly and is problem-free.

Please click on the question to expand the answer.

01
Agent: That’s when we all get together to finalize the transaction and transfer the title of the property.

Agent Right: Yep, that’s the day everyone has been waiting for: the title is transferred and the sale becomes official. The closing is also when the real estate companies, title companies, or lawyers get paid. All closing costs will be listed in detail and charged to the seller and buyer. Throughout the real estate industry, specifi c types of closing costs are conventionally recognized as either seller costs or buyer costs, and they are charged accordingly. Alternatively, in the purchase agreement, the sellers and buyers may have
already negotiated and agreed upon who will pay what closing costs.
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Agent: Nothing. We’ll submit all the paperwork and then let the closers do their job.

Agent Right: The right real estate agent can do and will do much more. You need to have a mental picture of the closing process to understand what can be done to prevent problems. Depending upon what state you live in, the closing will be completed by title company employees, attorneys, paralegals, or real estate company staff. These closers do not have firsthand knowledge of your transaction. They may not be as familiar with all the paperwork submissions and specific details as your agent is. Therefore, it is extremely important that your real estate agent submit a closing information sheet along with the purchase agreement, loan approval, and other paperwork. The information sheet is sent to the closers, the mortgage company, the seller, and the buyer. It contains contact and contract information, and it also highlights transaction items that may require special handling. It is this closing information sheet, in conjunction with your real estate agent’s proactive follow-up, that will keep the transaction and closing process on track!
03
Agent: Mainly the commission and some other miscellaneous closing fees.

Agent Right: Don’t ever accept an answer such as this! Ask for and get a seller’s net sheet, which will list all of your closing costs given the selling price of the house and the terms of the purchase agreement. If you agreed to pay any of the buyer’s closing costs, they will also be listed on the net sheet. It’s also important to make sure that there are no liens on the house as they need to be paid or they will be deducted from net proceeds.
04
Agent: Mainly the lender’s fees and the closer’s fees.

Agent Right: Don’t accept an answer such as this either! You should have a good faith estimate from your mortgage lender. All of the known costs will be listed and described in the good faith estimate. If you agreed to any financial commitments for actions required by the mortgage company or local government, such as required repairs or property surveys, they will also be included in your closing costs. You will have to pay for a homeowner’s insurance binder in order to close. This is also called hazard insurance, and it is required by the lender. Sometimes flood insurance for coastal properties is required, and that is usually an additional binder. It is important to note that although these costs will be paid at closing, the binders need to be in place before closing.
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Agent: You’ll get a HUD statement at closing with all the itemized costs.

Agent Right: Yes, you will get a HUD statement. HUD stands for Housing and Urban Development, a federal government agency. The HUD-1 statement is an itemized listing of the funds that are payable at closing. The totals at the bottom of the HUD-1 statement define the seller’s net proceeds and the buyer’s net payment at closing. The HUD-1 statement is also known as the “closing statement” or the “settlement sheet.” It is prepared by the closers. And yes, you do get it at closing, but you and your agent may review it before closing as well. By the way, when you were prequalified by your mortgage lender, you should have received a good faith estimate of your closing costs. Now is the time to compare that sheet with your HUD-1. It should be almost identical. If it is not, your loan officer should be notified.
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Agent: They are already predetermined, fixed percentages costs that are computed based upon the sale price of the house.

Agent Right: The truth is that closing costs can be reduced or reallocated. Again, sellers and buyers may negotiate them in the purchase agreement. Once in a while, a mortgage company and loan officer will offer rebates for some of the closing costs. They do that because they want your business. And believe it or not, sometimes a real estate company, agent, or broker will pay for some of these costs.
09
Agent: The closers. There’s one representing the seller and another representing the buyer.

Agent Right: That’s right. And as previously stated, these closers may be title company employees, attorneys, paralegals, or real estate company staff. Though they conduct the closing, it is the real estate agent’s responsibility to make sure the closers have the purchase agreement, the addendums, the amendments, and any other forms or instructions needed to get the job done.
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Agent: Not a thing. The closing agent will take care of everything.

Agent Right: That’s not correct. Now is the time to be proactive. Make sure that you receive and review a copy of the closing information sheet and all of the paperwork that your agent provided to the closer. If you find any mistakes or you believe that some information has not been provided, let your agent know. Then follow up with your agent to make sure that the closers have the corrected information. Call the closer, introduce yourself, and ask if they need anything else.
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Agent: Oh, we’ll work them out at the closing.

Agent Right: You don’t ever want to be in that position. The closing is not the time to “work them out.” Have your agent or your closer, or both of them, get everything in order before the closing. For example, if the inspection contingency form required that a repair be made and paid for by the seller and the repair cannot be completed until after closing, make sure that the cost of the repair is deducted from the seller’s net proceeds and put in escrow (usually they deduct one and a half times the written estimate for the repair).
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Contact us

Larry Stoller, Real Estate Agent

Larry Stoller

larry@realstatefive.com

843-290-5101

Valerie Shreckengost

Valerie Shreckengost

valerie@realestatefive.com

843-540-3829

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