Missteps I Have Witnessed in the Real Estate Industry
Things happen when buying and selling Real Estate that even defy reason, and even with our best intentions to succeed in our endeavors, all we can do sometimes is learn what not to do next time. In an effort to avoid making big mistakes in purchasing a home, there are two key words that I can offer – communication and planning. Communication is critical to a better understanding, and that communication should involve everyone (including your spouse, and your agent, etc.).
Planning ahead by having a goal (homeownership) and saving money, gathering resources, asking questions, and keeping track of your progress by writing it all down helps you keep in focus – and ultimately brings you success!
An example of what not to do
One interesting experience I had a few years ago was helping a young married couple that recently moved here after the husband finished his career with the military. They were staying with family at the time, and had a baby daughter with another child on the way in the next few months.
These folks were motivated to get settled in their own home, they didn’t want to continue staying where they were. I met them at an open house that I was hosting, and after visiting the home for about five minutes, the husband informed me that they were ready to write an offer. I thought this was a little peculiar, but instead of immediately putting pen to paper, I took the time to learn more about their needs and background first. After talking with them and figuring out their interests a little more, I began to realize that these folks had no understanding about the process of buying a home.
All they knew is that they could use the husband’s VA benefit, but they didn’t take the time to get pre-approved. Additionally, they didn’t know what was available on the market. The husband’s rationale was that he knew how much house payment they could afford, so he found a mortgage calculator online and did some quick math to determine their overall price range – and then off to find some open houses in Olympia.
The husband seemed insistent that this was the right house for them and wanted to move forward before someone else buys the home, but I managed to convince them that we should go look at other homes on the market first when I finish my open house before they make their final decision.
We saw three other homes in the area that were similar in value to the home I held open, and the husband informed me that they had changed their mind and wanted to buy the third home they toured instead. I advised them that it is in their best interests to be pre-approved first, otherwise the seller is not going to take their offer seriously. Before they left, I gave them three references for local lenders in the area to contact immediately to get pre-approved.
The next day, the husband called me and let me know that they changed their minds and were reverting back to making an offer on the home I was holding open, and they were going to contact my recommended lenders that day. I followed up with them the next day to find out how they are doing, and the husband told me that he and his wife ‘finally communicated’ and decided that they’re not yet ready to buy.
As a professional, my immediate instinct when I meet people that don’t really know what they’re doing is to help and educate them about the process, and guide them towards making good choices. Sometimes for me, that equates to investing time and energy that results in nothing gained.
But, what would have been more tragic in this scenario is seeing this young couple being taken advantage of and being placed in a precarious situation they don’t know how to get out of.
Having the desire to own a home is a good start, but you have to have a goal and a plan to get there. It was clear to me in the beginning that communication and planning were not yet part of the picture for this young couple, and hopefully this experience for them will be a lesson learned before they actually buy a home.
A change in plans, and a shift in focus
Even the best communications and plans sometimes run into unforeseen circumstances. There is a client of mine that spent a lot of time with me looking for the right home that would be best for their family, and after much struggle, they finally found ‘the one’.
It was a lovely home, and suited their taste and needs to a tee. It was almost as if the home was tailor made for what they wanted. They made an offer on the home, and it was accepted.
The home inspection did not turn up any major issues, and the sellers were very accommodating to making some requested repairs. Everything seemed to be well, and then the unexpected – the husband was being relocated in his job to another part of town.
They could no longer justify buying the home, but they were legally committed to it. Their only option was to lose their earnest money and walk away from it. It was tragic to watch it happen, because they truly loved this home.
But as tragic as it was to witness, the bright side to the story was that the buyers were prepared to shift their focus and move on to find another home. The loss of their earnest money was unfortunate, but did not create a financial hardship for them.
They were able to find another home that was ideal for their needs, a better overall value, and in close range to the husband’s place of business. The short-term stumble did not stop them from accomplishing their ultimate goal.
Misunderstanding the basic understandings
If you are subject to financing (most consumers are) when purchasing a home, it’s NOT a good idea to refer to that pre-approval as ‘cash’. It was several years ago that I represented a buyer that made an offer on a home, and indicated that he will be buying with ‘cash’.
His interpretation of ‘cash’ meant, that he got a loan approval through his bank, and they were going to fund the loan when he was ready to buy. He neglected to share with me what his interpretation of ‘cash’ meant. As his agent, I interpreted his meaning of paying with ‘cash’ to mean he was ready with cash in the bank that he owned, and recommended that we get a note from his bank showing proof of funds for the sellers concerns and to secure his offer.
While we were waiting for the bank to honor our request, we still managed to secure the offer without the note. Needless to say, I was surprised to see a conventional loan pre-approval letter from his bank when we received it. The buyer was bound by a contract signed and agreed to by both parties regardless of the misunderstanding that we had.
There are a number of things that could have gone wrong in this scenario since the offer was subject to cash, not financing. But, in order for the buyer to buy the home, he had to get the loan – he didn’t have actual cash. The loan was also subject to an appraisal, and could have potentially been subject to adjustments from an appraisal.
But, there was no protection for the buyer in that event, because the seller would not have to entertain any corrections being noted by an appraiser since the offer was not subject to financing.
There are other problems that could have came up, but the moral of the story is that clear communication is vitally important. If the purchase agreement included a financing contingency, it would have offered the buyer a better degree of protection and leverage for his interests. We still managed to close the sale, thankfully.
Why do it all yourself, when someone with experience is available to help?
It’s a common story – I meet someone at an open house that is in the market to buy a home. They ask me for advice, guidance, search criteria, etc. And then they call me over the weekend to let me know that they showed up at an open house, loved it, and bought it on the spot.
They’re excited, and they can’t wait to share the news with the nice Realtor that helped them along. And all I can say is, congratulations! My intention with the advice and guidance that I offered was to earn your trust and to have the privilege of representing you in the purchase of your home – this is how I earn my living. That being said, it’s my hope that you are being represented well, even if it’s not with me.
I can certainly respect the independent streak many of us have, but consider this – Whether or not you have a buyers’ agent to help you with the process, you just paid for one with your purchase anyway.
The commission a seller pays averages between 5-7 percent of the sale price of the home. That percentage is commonly split in half – one half is distributed to the listing agency, and the other half goes to the procuring cause of sale agency.
If the listing agent brings a buyer to the seller, then that agent collects both sides of the commission. It’s a practice called dual agency, and it most commonly benefits the seller more than it does the buyer.
What makes this scenario even more painful is when I get a call from the buyers a few weeks later, asking me for advice on how to deal with certain problems with their offer or how to deal with the listing agent they’re working with. Since I’m not privy to the contract they signed, there’s really nothing I can do for them at that point, other than refer them to an attorney for review of their contract.
Are you in the market to buy or sell? I have a vast amount of experience to help you avoid common pitfalls and realize success! Please reach out to me when the time is right for you!