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Common Misconceptions About Buying and Selling Real Estate
One of the tasks associated with my business is educating clients who have various misconceptions about real estate.
Most believe information a friend has provided them is accurate without investigating themselves.
Here then are some of the most common misconceptions about buying and selling real estate my customers have presented me…
Foreclosures are the best deal
Many who purchase real estate either for investment or as their primary home are under the impression that foreclosures are the best deals.
While there are certainly some very good deals when purchasing foreclosures, often times making an offer on a property not in foreclosure is a better deal.
If a home or property has been foreclosed on, there is a high probability that the owner neglected maintenance due in part to financial implications. When this is the case, the property may require a significant financial investment to return the property to a "livable" condition.
When purchasing a foreclosure it is highly recommended that a full and thorough inspection be made of the property to ensure everything works and all significant features of the property are in good condition.
Look first get a loan second
First time home buyers as well as those who have not purchased a home recently are often misled into believing they should look at homes before obtaining proper financing.
While this may have been somewhat true during the boom years, many sellers no longer entertain offers on their property that are not accompanied by a letter of approval from a lender.
In addition, when searching for a home it is imperative that your real estate agent know not only your wants and needs, but also the price range of which you can afford.
Think for a moment about looking at several homes before obtaining pre-approval. An agent shows you several and you fall in love with one that costs $250,000. You make a full purchase offer with an earnest money deposit of $2,500 which is accepted, the sellers agent takes the property off the market so no other offers can be received.
You contact your lender for approval, who responds that you are qualified for a loan up to $200,000.
Not only have you found out you're not qualified to purchase this home, but it may also be difficult to get your earnest money deposit returned to you. This can be a significant disappointment to you during your search for a new home. In addition, you've wasted the time of all parties concerned including yourself.
Therefore, it is highly recommended before you start looking at homes, you get a pre-approval letter from your lender. At least then you know how much house you can actually afford to purchase.
I must see all properties in my price range before deciding
Many buyers believe looking at every available property for sale will give them more options before making an offer.
Unfortunately the truth is actually the reverse – Looking at many properties tends to blur one into the next. When buyers view too many properties, they tend to forget or blend one properties prominent feature with another.
Also, it takes quite a bit of time to view every single property on the market and may cause you to miss that special property that meets your needs by not making an offer before someone else.
A preferred method of deciding which properties to view is to make a list of your wants and needs, discuss them with your real estate agent and together prioritize them.
Your real estate agent will be able to print out the properties that best match your criteria and show these to you so you can make a quick, informed purchase offer.
Real estate agents make too much money
This misconception is quite interesting – It is often expressed mostly by sellers wanting to haggle over a commission amount.
Did you know that the real estate agent actually only receives a small amount of the total commission?
First off there is the split with the office broker so now the real estate agent only gets half. But wait; there are two sides to every transaction so there is another split with the selling agent and their broker.
So actually, the listing real estate agent only gets ¼ of the total of commission out of which their bills must be paid such as advertising, signs, MLS fees etc.
While some agents do make a very good living, it is not because of the amount of commission but instead because they treat their clients well, are well educated and have good business sense and ethics.
Buyers have to pay a real estate agent
This misconception is quite common in today’s market. Many buyers believe when they work with a real estate agent, it will cost them money.
Actually, in many areas real estate agents work with buyers for free. The agents fee is paid by the seller when the property is sold and closed.
So buyers go ahead and call a real estate agent and ask them – it’s the best decision you will make prior to purchasing your next property.
Going directly to the listing agent will save money
Often, a buyer will want to go directly to the listing agent in the hopes of saving money by negotiating or asking them to lower their commission.
Lowering a commission however, helps the seller and hurts the agent and most agents are understandably unwilling to do so.
Many buyers are not experienced negotiators, and may not be aware of what items may be negotiable besides the price of the property.
Having your own buyer’s agent represent you helps when purchasing a property by having an experienced negotiator guide you on what items are negotiable, price and other ways to save you money.
Working with more than 1 agent is ok
This extremely common misconception is one of the most wasteful of all.
When working with an agent as your representative, it is vital that you work with just that one agent.
Most real estate agents such as me work very hard for their clients. Their expenses tend to be quite high just getting clients: website fees, administrative fees etc are just a few of the costs real estate agents incur in their business.
There are many acceptable reasons a real estate agent may be unavailable to show you a property: personal illness, prior engagement with another customer, family matter etc.
These are not reasons to contact another agent and ask them to show you properties.
However, there are also many unacceptable reasons agents may be unavailable: they went on vacation without letting their clients know or they failed to provide another agent as backup to assist their clients, perhaps the agent does not work the hours clients are available to view homes or perhaps the agent doesn’t work weekends or holidays and many others.
The latter two are unacceptable for the mere fact that most potential buyers work during the day and are only available to view homes after work hours and on weekends.
If your agent is unavailable for any unacceptable reason, rather than contact another agent to show you a few homes, perhaps instead you should be contacting an agent who will work for you when you need them.
Listing with a friend/relative will save me money
This misconception can be quite damaging to a relationship. First off, if the agent is a friend and have agreed to reduce their commission, are you certain they are still able to market your property correctly?
Also, an interesting issue that often arises when working with friends or relatives – if your property does not sell and you believe you are not being represented appropriately, will you be able to fire them and hire an agent who will?
Working with a friend or relative may place a strain on this relationship and I highly recommend you hire a competent 3rd party to represent you.
You can always ask your licensed friend to help you find an agent so they can receive a referral fee.
As you can see there are many misconceptions about buying and selling real estate, working with an agent as well as the procedures involved.
When you’re looking to purchase or sell a property, get as many facts and information from licensed sources. This will ensure you not only have accurate information, but also can make an educated decision on your next property purchase.
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