I am normally a positive/upbeat person, but we are living in unusual times with buying a home during the COVID-19 Pandemic. So forgive me while I go over the new issues to tackle in regards to protecting the safety of all the people involved in real estate transactions including: buyers, sellers, real estate agents, inspectors, appraisers, escrow officers, lenders, etc. Please read the following information very carefully.
BEFORE WE BEGIN
In order to plan a home tour for you, I will need you to confirm in writing that none of the people touring homes (Buyers) with me, nor people they work with closely, or live with:
Are currently diagnosed with COVID-19.
Are currently under quarantine due to possible COVID-19 infection.
Have had close, unprotected contact in the previous 14 days with someone who is diagnosed with COVID-19. (If you are a healthcare provider, see guidelines below).
Have traveled in the previous 14 days to anywhere designated by the CDC as having widespread ongoing COVID-19 transmission.
Have experienced COVID-19, Cold, or Flu-like symptoms in the previous 14 days.
BTW: I pass all five of these! Rest assured I will not knowingly expose you to COVID-19 and I take proper sanitization and social distancing very seriously.
The reason I bring this up is that I will be emailing you some documents before we go on our first home tour. One of these documents (see example) will be used to obtain appointment confirmations with various home sellers (via their listing agents). In return, I will try to obtain this information from all occupied homes that we may want to tour.
If you do not want to tour a home without the Seller’s Response on these issues (see example) then please let me know.
VIEWING ALL HOMES DURING THE COVID-19 PANDEMIC IS “ENTER AT YOUR OWN RISK”
Please alert me if you are a Medium or High risk in Exposure Category according to CDC’s guidelines.
There are some known issues with buying a home during the COVID-19 Pandemic, including:
Longer time needed to set up appointments for home tours, because of the new forms that are to be submitted confirming neither side is potentially infected with COVID-19. Some Sellers my not allow showings.
Longer time frames needed for typical deadlines such as inspections, Option periods, loan approval time frame, appraisals, etc.
Problems with lender appraisers who will only view the exterior of the home or do a drive-by appraisal. (I have no control over this so please discuss with your lender.)
Problems with low, under value appraisals that are not necessarily based on current market data. PLEASE TELL LENDER TO ORDER APPRAISAL DURING OPTION PERIOD. (I have no control over this but we can use an Addendum to protect you, by giving you the option to cancel the deal, if the appraisal comes in too low. Otherwise, if a home appraises below the sales price, a lender may require you to come up with the difference between sales price and appraised price, in addition to your down payment and Closing costs.)
Delays and problems with loan processing and funding during the pandemic. MAKE SURE YOU DISCUSS THESE POTENTIAL ISSUES WITH YOUR LENDER!
As always, I am here to protect you to the best of my ability, but I have limited control over viruses, sellers, listing agents, lenders, appraisers, inspectors, etc. So the best I know to do is to warn you in advance of these potential issues so that you can be prepared for them. 🙂
EXPECTATIONS REGARDING HOME TOURS WITH ME
I don’t like setting “requirements” for touring homes with me, but for both your safety and mine, I would like to set proper expectations regarding what we all agree to in order to go on a home tour:
Everyone must wear a face mask at all times during the home tours and maintain 6-feet apart as much as possible. That includes time outside of the homes when we are on the front porch, back yard, back patio garage, etc.
Buyers travel in their own car, not my car (social distancing).
Buyer clients will be prepared for it to take longer for me to “clean up” after a showing, and before I get into my car. (I will probably wear gloves since I have to handle un-disinfected keys, doorknobs, etc. I plan to properly dispose of gloves after each showing, before I get into my car.)
Buyers will bring their own hand sanitizer and use it between each showing.
Only the parties to the transaction are allowed on showings: no children or other friends or family members.
Please send me your pre-approval letter, not just a pre-qualification letter (learn the difference), because many Sellers will not approve appointments without one (see below). We will need a pre-approval letter to make an offer anyway.
OTHER THINGS TO KNOW
A few other things to expect when buying a home during COVID-19 Pandemic and upcoming months…
To minimize unnecessary exposure:
I may not be allowed to attend home inspections or Closings. Most real estate agents don’t attend these appointments anyway, so there should be no issue with me not attending them during this pandemic. (Agent attendance at these appointment is generally a “courtesy” only.)
Instead of meeting in person, we may have to do more phone or online conferences.
All paperwork will be handled via DotLoop for signatures and email when appropriate. (This is the norm anyway.)
Earnest money (1 percent of sales price) will be delivered to the title company by you in person (personal check) OR via a Wire Transfer (your choice). You will be responsible for doing this within 3 days after the contract is Executed by all parties. I will give you exact instructions when it’s time. TIME IS OF THE ESSENCE!
Beware of Wire Fraud! NEVER Wire funds unless you have called the title company and verbally verified the account number in the emailed instructions. Don’t just wire money based on an email, even if it looks like it came from me or the title company.
Option fee ($200-400 usually) will be delivered by you to the Seller’s Broker’s office. Or, if possible, we will see if you can deliver it directly to the Seller via PayPal, Venmo, or some other service you like to use. You will be responsible for doing this within 3 days after the contract is Executed by all parties. I will give you exact instructions when it’s time. TIME IS OF THE ESSENCE!
ONE LAST THING
Since this is a challenging time for getting permission from sellers to tour homes, I would like to minimize unnecessary viewings as much as possible. As best you can, please view the Virtual Tours for potential homes to weed out floorplans and homes that won’t work for you. 🙂
The red arrow (below) points at where you can access the Map and Virtual Tour tools on your custom home search that I set up for you.
Also use the Map tool to view a Satellite map of potential homes and Zoom In to see if there are any potential defects. Lots of buyers don’t want a home that backs up to utility poles, commercial properties, busy streets, etc. You can see what’s around a home by viewing the Satellite map and Zooming In.
I hope this helps you in understanding the new issues we will face. I am happy to help you find a great home!
We just have to “jump through a few hoops” to achieve our goals during the pandemic. 😀
Are you worried about whether home buying is a good INVESTMENT?
Buying a first home can be an intimidating process. But the first step is making those first decisions: I want to own my own home; I can afford to own my own home; owning my own home makes sense for me financially and emotionally. If you are still struggling with those first decisions, here are some facts that might help you make that first step towards becoming a homeowner.
You Can’t Afford NOT to Buy a Home!
Over the last ten years, the cost of rental housing in the U.S. has increased an average of 3 percent per year. That means that an apartment or home renting for $750 per month will cost more than $978 a month in ten years. If you rent the same home for ten years, the total amount you would pay for rent will equal $103,000!
Tax Advantages of Owning a Home Result in Savings
None of that $103,175 is returned to you, either through savings or as an investment. Homeownership, on the other hand, has tax advantages over renting a home, and those advantages can help you save money. Unlike your monthly rent, part of your monthly mortgage payment “comes back to you” in tax savings. Here’s an example:
You purchase a home that costs $110,000 (plus closing costs – expenses incurred to actually process the transaction). You finance the balance with a 30-year fixed rate mortgage at 6.5 percent interest. Your monthly payments (not including utilities, maintenance, insurance, etc.) are:
You actually save $195 a month by owning your own home. On a yearly basis, the savings is even more dramatic:
Homeownership is a Good Investment
For the majority of Americans, their home is their largest financial asset and a major player in their investment portfolio. It’s a good thing, too, since stock market value has declined since 1998, while home price appreciation has increased. The NATIONAL ASSOCIATION OF REALTORS® estimates that home value rises, on average, by 4.5 percent a year. That’s a steady return on investment; one’s own home is a much less volatile asset than stocks, bonds or mutual funds.
As an example, let’s look again at that $110,000 home. Unlike your rental unit, your home should appreciate over time. Assuming a 4.5 percent appreciation rate, your home will be worth $114,950 in the second year of ownership, $120,123 in the third year of your owning it, etc. After ten years, your $110,000 home will be worth $163,470. Not only do you earn a rate of return on your original purchase price, but you also get a return on any subsequent appreciation.
Homeownership Builds Wealth for Households
The Federal Tax Reserve Board estimates that homeowners have a net worth almost 36 times more than that of renters. In 2001, the median net worth for homeowners was $171,700 compared to $4,800 for renters. How do you build up your net worth? Through those “appreciating returns” on your home.
We’ve already seen how your $110,000 home is worth $163,470 in ten years. In addition, you are paying down the principal on your mortgage. Remember that $100,000 you borrowed at 6.5 percent over 30 years – that debt amount is decreasing every month and every year.
After the first year, you now only owe $98,786 on a home that is worth $114,950. You have “netted” a $4,950 increase in the value of your home, plus $1,116 a year that previously you owed as part of your mortgage debt. As your debt decreases and the home value increases, you accumulate wealth from the value of your home. In addition, over this ten-year period, you will have a significantly lower after-tax payment for housing. Each year as your home appreciates and you continue to pay down your mortgage debt, you increase your own net worth.
Homeownership – It’s NOT Just About Money
The “numbers tell the story” should ease your mind about the financial aspects of becoming a homeowner. But there are other, less monetary, benefits to homeownership. Several research studies indicate homeownership adds to the value of communities, has positive effects on children, and even contributes to increased voter participation rates.
One question that I get a lot is, “What’s recommended: buying new vs resale home?” A new home is one that has never been lived in while an existing home has been lived in by a previous owner. There are Pros and Cons either way that you should consider. Here are my home buying tips for buying a new vs resale home.
PROs for Purchasing a New Home May Include:
Lower maintenance costs during the first years of owning the home.
Lower energy costs because new homes are built with better energy saving materials and equipment than older homes.
More functional home designs and floorplans as well as up-to-date home fixtures.
Latest technology features such as pre-wired for a home computer network.
Possibly the ability to choose paint colors, floor types and colors, exterior colors, and other optional home features.
NOTE: There is typically a substantial markup on these items.
Builder incentives to lower the initial cost to purchase.
Easier to get to know neighbors because everyone is “new.”
PROs for Purchasing an Existing (Resale) Home May Include:
Lower price per square foot than newly built homes.
Better locations and shorter commute times.
Mature landscaping in both the yard and throughout the neighborhood.
Proven track record of home values in the neighborhood.
Lower tax rates since more neighborhood features have already been paid for by home owners.
Sales contracts that are fair to both parties…not one-sided in favor of the builder.
Lower move-in costs (possibly) since home already has window coverings, landscaping, garage door openers, and other items that you will have to buy for a brand new home.
Easier for home inspector to find home defects because more time has passed since the home was constructed. NOTE: New homes may have hidden defects that are impossible for a home inspector to find.
More established school zone boundaries than for new neighborhoods.
Established community activities and events.
Quicker move-in date compared with building a home from scratch in a new neighborhood.
If you decide to buy a new home, make sure that you check out the builder first: http://houston.bbb.org/consumers/. Also make sure that you hire an inspector (read http://www.best2inspect.com/buyersguide.html for more information). And don’t forget to bring your Realtor along when you view new home models! Remember: A Realtor’s job is not “just” helping you find a house to buy…there are over 100 tasks that Realtors may perform for you during the home purchase process! Your Realtor should be on your side because she is your agent. The salesperson at the builder’s model home office is not on your side…as an employee of the builder, he or she is looking out for the builder’s best interest.
I don’t want to discourage you from buying a new home…Houston has some really great new home builders. But it’s my job to make sure that you have all the information that you need to make a wise buying decision.
NOTE: The Following rankings are from JD Powers 2010. I’m not aware of a more current list.
This list is not comprehensive. There are a lot of steps that your REALTOR® takes care of behind-the-scenes.
Call Sheila Cox for help at 832-779-2890
Buying a home is a serious legal commitment with important deadlines and possibly large financial losses if you do not meet your contractual deadlines (as established in the contracts that you sign). Always make sure you read the docs you are signing. Discuss deadlines with your real estate agent and put them on your calendar.
Print this checklist and use it to keep track of your transaction.
Contact three or four lenders to determine how much house you can afford. Determine how much money you will need to purchase a new home. Do you have enough? If not, create a budget and start saving now.
Get approved for a loan. Don’t forget to get an preapproval letter! We will need to submit it with an offer to buy a house.
Hire a real estate agent to help you with your purchase. You need a professional looking out for your best interest. Send your Preapproval letter or “Proof of Funds” to your agent (see video).
Do you need to sell your current home? Your agent will help with that too. Get it on the market!
View “Dream Home Alerts” (see video) for homes when they “hit” the market.
Tour homes (see video) until you find the one that meets your specific needs.
Sign the legal paperwork and make an offer to buy the house that you chose. Be prepared to write check for Earnest Money (see video). Be prepared for some back-and-forth negotiations.
Deliver the Earnest Money and Option fee to the title company. TIME IS OF THE ESSENCE! If you don’t deliver the Option fee on time, then you have NO Termination Option.
NOTE: Learn about Option Periods in Texas (see video).
Once the title company “receipts” your Earnest Money and Option Fee, then send the executed and receipted contract to your lender and start the approval process with him/her.
After the sales contract is executed, hire home inspectors to inspect the home as needed (learn more). This will cost $300 to $700 or more, depending on the number and type of inspectors you hire. Depending on the home, you should think about the following inspections:
Discuss insurability with insurance company and get a CLUE report from insurance agent.
Verify the following if they are important issues to you:
· Square footage of home
· Schools zoned to home (but those may change with rezoning in future)
· Property taxes
· Crime in area (contact police department)
· HOA covenants and restrictions (usually online at HOA website)
Negotiate repairs to home as needed. Be realistic…small miscellaneous items should be expected because no home is perfect. Negotiate big-ticket repairs (if any) or walk-away.
Now that you have exact address, compare mortgages and lenders (at least three is recommended). Choose a lender and mortgage and apply for a loan if you haven’t already. Remember, you have a deadline to meet in the sales contract. Be prepared to pay an application fee (approximately $300) and an appraisal fee (approximately $300-400).
Submit items for your loan application (W2s, tax returns, pay stubs, bank statements, etc) as requested by your lender. Time is of the essence! According to the contract, your deadline for Individual Approval and Notice to a Seller (from lender) is à
If you do not get loan approval, then notify your real estate agent immediately.
Check your Title Commitment (learn more) in a timely manner when you receive it. You have only a few days to “object in writing.” Make sure your real estate agent receives a copy.
Review the Lender’s appraisal in a timely manner. You have only a few days to “object in writing.” Make sure your real estate agent receives a copy.
Review the survey in a timely manner. You have only a few days to “object in writing.” Make sure your real estate agent receives a copy.
Re-inspect home, if you choose, based on agreed repairs.
Obtain home owner’s hazard insurance. Make sure you get at least three quotes. Notify your real estate agent which policy you choose. Don’t forget Flood Insurance!
Select your residential service contract (“home warranty”) if applicable and notify your real estate agent (learn more). The title company will order and pay for the home warranty.
Plan your move (get detailed list) and order your utilities to be turned on the day you Close. Always allow a week or more overlap to move out of current home and into new home. Do not plan to Close and move on the same day!
Ask your lender for the amount of money you need to Close. Make sure your funds for Closing are available at local bank. Transferring money from investment accounts can take time…work with your lender and bank and prepare in advance.
Your property MUST reach Lender Approval at least 4 days before Closing otherwise you may not be able to obtain a refund of your earnest money due to default on Closing. If there is a delay in getting the loan, notify your real estate agent immediately.
Make sure your Closing is scheduled. You will need photo IDs, checkbook, and a cashier’s check or wiring instructions from your bank.
You must sign your Closing Disclosures (from lender) at least 3 days before your Closing date or you will not be able to Close on time. If you do not sign the CD in a timely manner, this may put you in default and there could be serious financial consequences.
Get your cashier’s check for funds needed to Close the day before Closing.
Do your final walk-through.
Go to the Closing and bring your funds to Close, a checkbook, and a photo ID for each person (husband and wife). Plan on a 2-3 hour process.
Move into your new home and enjoy!
Make sure you receive a copy of your Deed (from the Title company) within a couple of weeks after Closing. Be prepared for mail “scams” offering to file legal docs for a fee.
Apply for your property tax exemptions as applicable in your state.
Contact three or four lenders to determine how much house you can afford. Determine how much money you will need to purchase a new home. Do you have enough? If not, create a budget and start saving now.
Get approved for a loan. Don’t forget to get an preapproval letter! We will need to submit it with an offer to buy a house.
When you sign up as my client, I will provide this checklist and more in my 30-page Home Buying Tips & Checklists guide.
The bottom line: No one knows an area better than a local, experienced real estate agent. Don’t gamble your biggest investment on automated Internet data.
It’s Not All About the ZIP Code…Or Shouldn’t Be
I love the Internet and I’m an information junkie, but I am constantly amazed at how WRONG the real estate info presented on the internet is for my area: Katy TX. Katy is a large city (population 250,000+) located in in Fort Bend County, just west of Houston TX. Like all cities of its size…some parts are very different than other parts…it is not completely homogeneous. Furthermore, it consists of multiple ZIP Codes: 77450, 77494, 77493, and 77449. And, Katy is adjacent to Houston, Fulshear, and Richmond as well. So you can live in the Katy area but technically have a Houston address.
What really “bugs” me about the data available on the Internet is that most websites use ZIP Codes to determine demographics and “city data.” But you can’t do that accurately in Katy since it has multiple ZIP Codes. And to complicate matters, Katy is divided into multiple master planned neighborhoods and each of those may be split into multiple subdivisions. For example, Cinco Ranch consists of over 50 subdivisions. So you can have multiple neighborhoods and subdivisions within the same ZIP Code, but let me assure you that the demographics and average income for homes in Avalon Seven Meadows is drastically different than those in Falcon Landing (two subdivisions in the same ZIP Code).
Here are some examples that “bug” me. I’m using information for the nearby Sugar Land TX area, but you get the idea…
At the time the above data was posted on the Internet, I checked the Multiple Listing Service (MLS) database which reported a median list price at $329,000…not $349,440 (as shown above). And besides that…I assure you that we have many subdivisions in Katy where you can purchase a home for much less than that price! Or much more! So what’s the point of this information? And the “median” for 77478 is probably not accurate for a specific home in a specific subdivision.
NOTE: Home prices are a constantly moving target…even within the same subdivision. The averages, medians, and such change monthly…depending on current market activity. You have to evaluate the value of a home at the time you are making a purchase. (Which is one of the main services that a real estate agent should provide.) Home appraisals are professional opinions only and are typically only considered accurate for six months.
Neighborhoods Need to Be Properly Defined
At least NeighborhoodScout is trying to look at the neighborhood level (see below)…but they fail miserably. The sections they have segmented are not actual Sugar Land neighborhoods…some sections contain multiple neighborhoods…so the data can’t be applicable for a specific home or subdivision. For example, if you click the area that is supposed to be for Telfair, you will see it includes part of First Colony and those subdivisions are zoned to different schools than Telfair. (And trust me when I tell you that schools are one of the most important variables in determining home values in our area!)
Inaccurate Data Misleads People
Here’s my least favorite source of data (city-data)…notice they report only 9 registered sex offenders in all of 77479. We wish!
FamilyWatchDog reports and maps 64 (unfortunately)!
I REALLY don’t like most of the info on city-data because it reports information from any unknowledgeable “joe” who wants to put it up there. For example, I searched for “telfair sugar land demographics” on Google and the top entry was a city-data thread. In it, various and misleading demographics were reported…
Not accurate at all!
FBISD also consists of Houston addresses…not at all accurate stats for Sugar Land.
I think the City of Sugar Land has the best info on actual demographics for the city…they are getting it from the census data.
Each Neighborhood and Subdivision is Unique
The hard fact is that you can’t really get accurate census type data at the neighborhood or subdivision level. Relying on the data for an entire ZIP Code in our area may be very misleading when it comes to the neighbors you will eventually live next to. The best alternative is to look at the demographics for the Katy schools to which a home is zoned.
Only an Experienced Local Real Estate Agent Can Narrow and Focus Your Search
So if you are a home buyer in the Katy area, you really need the guided expertise of a local real estate agent you can trust to help you buy a home in the RIGHT neighborhood at the RIGHT price. No online searches available to the general public–including HAR.com, Trulia, Zillow, Homes.com–none of them will allow you to do the complicated and focused searches that a real estate agent can perform. Today (March 1, 2018) there are approximately 1291 active listings in Katy reported on the MLS. Do you want to sort through all of them or do you want to focus on the top 50 that most closely match your requirements?
Most Online Real Estate Pricing Data is Not Entirely Accurate and Should Not Be Relied Upon
Let me add that Texas is one of the few non-disclose states. That means that real estate data is not public information…so the online companies like Zillow and Trulia don’t have access to real data. They use tax appraisal values which are usually lower than actual home values. So don’t rely on them! And since online companies can’t get the real MLS data, they report erroneous information. Here’s an example…
Here’s the data reported on Redfin on October 15, 2013…which says it is for the last 90 days and focused on one of our most popular neighborhoods: Telfair.
I ran the sales history on the MLS for the last 90 days, and got the following data.
The top box is for Active Listings and the bottom box is for Sold properties.
So let’s look at the differences…
Median List Price
Median $/Sq Ft
List = $143.68 but
Sold = $133.28!
Avg # Offers
No way to know!
Avg Down Payment
No way to know!
# Sold Homes
My first complaint is that two reported variables are almost impossible to determine: Avg # Offers and Avg Down Payment.Agents do not report the number of offers on a home. They only have to report an offer when it is accepted and goes “Option Pending” or “Pending” (and sometimes they don’t even do that.) So that variable is completely unreliable and shouldn’t be reported at all.
The Avg Down Payment bothers me too. Agents are supposed to report that number at Closing (when a house sells), but you would have to look at every single transaction (54 over the past 90 days) to record those numbers. I don’t see how Redfin could automate that for every neighborhood…so I don’t trust that number either.
Notice the Median List Price is off by $4,500 and the # Sold Homes is off by 12.5 percent. Also, they report the Median $/SqFt for List Price only…but notice that the SOLD SalesPrice$/SqFt is $10.40 less! So if a buyer used the number Redfin reported to price a 3000sf home, that could have led to the buyer overpaying by $31,200!
NOTE: It really doesn’t matter what the median list price is for a neighborhood…only the sales price should be used to price a home you want to purchase.
And then that gets me into a price discussion which is too complicated to address here. But let me point out that this the median SalesPrice/SqFt and the house you may want to buy could be an above-average home or a below-average home. Do you want to pay the average price for a below-average home? Do you think a seller will accept an average price for an above-average home? The best way to get an accurate view of the value of a specific home at a certain time is to hire a professional appraiser or to engage a really good real estate agent. Not all real estate agents are good at pricing homes…you need a PRO!
Even Zillow Admits They Are Not That Accurate in the Houston Area
It’s one thing to want to own your own home…it’s another to be able to afford one. Here is a run-down of estimated costs to buy a home in Texas you must consider…
Understanding Down Payments and PMI
PMI – Private Mortgage Insurance
“PMI is a type of mortgage insurance that buyers are typically required to pay for a conventional loan when they make a down payment that is less than 20% of the home’s purchase price. Many lenders offer low down payment programs, allowing you to put down as little as 3%. The cost of that flexibility is PMI, which protects the lender’s investment in case you fail to repay your mortgage, known as default. In other words, PMI insures the lender, not you.
PMI helps lenders recoup more of their money in a default. The reason lenders require the coverage for down payments below 20% of the purchase price is because you own a smaller stake in your home. Mortgagers are lending you more money up front and, therefore, stand to lose more if you default in the initial years of ownership. Loans insured by the Federal Housing Administration, or FHA loans, also require mortgage insurance, but the guidelines are different than those for conventional loans (we’ll cover that later).”
The following example is for a $360,000 home with a 3.5% interest rate conventional 30-year mortgage. Includes $8000 property taxes and $2000 annual home owners insurance (both are estimates…amounts vary depending on home).
Please note these are estimates only and will change based on the area where your home is located, price of home, lender requirements, negotiated terms on sales contract, etc.
The following estimated example is for a $360,000 home with 5% down payment with a 3.5% interest rate conventional 30-year mortgage. Includes $8000 property taxes and $2000 annual home owners insurance (both are estimates…amounts vary depending on home).
Down Payment (5%)
TO MAKE AN OFFER & INSPECT HOME
**Earnest Money (typically 1% of purchase price)
**Option Fee (negotiable)
Termite/Pest Inspection (required by lender)
Pool Inspection (if home has pool)
HVAC Inspection (usually recommended on older homes)
Total to Get Started
Prorated Home Owners Insurance
Title Insurance (calculate) sometimes paid by the Seller
You may be able to negotiate for the Seller to pay part of the Closing Costs up to a certain percentage (read more), depending on the loan. This could reduce your total amount to buy a home by a few thousand dollars. However, in a HOT real estate market, most Sellers will not agree to this.
Applying for a home loan these days is not for the “weak at heart”! It is a pain-in-the-neck process no matter how much money you have or which lender you choose. So mentally prepare yourself for a hassle, and you won’t be disappointed. ;-D
There is a lot of paperwork required in order to obtain a home loan. Plus, you will have to provide much of the paperwork multiple times throughout the loan process because of new lending standards (Dodd-Frank Wall Street Reform and Consumer Protection Act legislation and the Patriot Act).
Lenders are now required to verify certain items several times through the process…so please don’t get offended or frustrated when they ask you for something that you have already provided them.
Here’s what you will probably need to apply for a home loan (aka, mortgage):
Proof of identity for borrowers including driver’s license and Social Security number.
Address history for three years.
Copy of tax returns for past 2 years.
Banks names and numbers for all checking and savings accounts.
Bank statements for the past 3 months.
Documentation of all income including pay stubs for past 2 months.
Proof of bonuses for 2 years if applicable.
W-2 forms showing income for past 2 years.
Job history for past 2 years.
Net worth sheet with list of all assets and liabilities including account numbers.
Most recent 401K statements and other retirement accounts.
Copy of gift letter if applicable.
If self-employed, copy of balance sheet.
Divorce decrees if divorced in the past 2 years.
Proof of residency, if applicable.
College transcript if you were a student in the past 2 years.
Bankruptcy discharge papers, if applicable.
What Not To Do
Maybe you’ve just gotten married. Maybe you got a raise … or maybe you’re just plain sick of renting. Whatever the case, you’ve decided that it’s time to buy a house. You’ll be given all kinds of advice and pointers about what you should do and how you should do it, but there are things you shouldn’t do that are equally important.
Don’t be deceptive or dishonest when you’re filling out your loan application. Even if you get away with fudging the numbers a little to secure a higher loan (which is loan fraud), what’s the payoff you’re looking for? A monthly payment that you can’t truly afford?
Avoid moving your money around. To eliminate potential fraud and provide a degree of quality control, a lender will review the source of funds for your down payment and closing costs. Most likely, you will be asked to provide recent statements for any of your liquid assets. This includes checking accounts, savings accounts, money market funds, certificates of deposit, stocks, mutual funds, and even your 401K and retirement accounts. If you have been moving money between accounts during that time, there may be large deposits and withdrawals in some of them, which could make it more difficult for the lender to document properly.
Once you’ve been approved for a certain amount, resist the temptation to make any big purchases that could affect your ability to service the loan. Examples might be a new car, a boat, or expensive furnishings.
Sure you may be able to afford the mortgage and a car payment, but what if an unexpected expense comes along that causes your monthly budget to become unbalanced—you’ve got a shiny new car, but you may have trouble affording that and gasoline, and the mortgage, and the utilities. You’re caught in a situation where you’ve over-extended yourself. Even if you’re able to make it work on a month-to-month basis, you may have trouble putting money to your savings account.
Sometimes, knowing what not to do is just as important as knowing what to do.
Big Bank vs. Local Lender
At the risk of offending anyone who works for a big bank…
Many people think that using their current “big bank” as the mortgage lender will speed up the process because “everything is in one place.” That is not true; it is a myth. My understanding is that all lenders have access to the same databases and such. I have been told that using your bank will not change the process or make it easier.
A “big bank” is Chase, Bank of America, Wells Fargo, etc. They may be great banks but, that doesn’t necessarily mean they are great mortgage lenders.
Please understand that you can use whichever lender you want. I highly recommend that you shop around and talk to multiple local lenders and your local credit union (if you have one). Always keep in mind that, to a big bank, you are only one customer in a million. They don’t really have to care that much about you, because you won’t really impact their business. In contrast, to a small, local lender or credit union, you are one in a hundred (or thousand), and very important to their business. Plus, local lenders know the local laws and procedures. Big national banks don’t necessarily know how things work in Texas.
Another thing is experience. I highly recommend that you use a very experienced loan officer (aka, lender), which you can get at a local mortgage company. At a big bank, you may end up with a very inexperienced loan officer, in another state, who makes the process challenging, because he/she doesn’t know what they’re doing.
Plus, real estate agents don’t like big banks as lenders, because of delayed Closings. In a multi-offer situation, if you have a big bank as your lender, and another buyer has a local lender, the seller’s agent may highly recommend the other buyer. I’ve had listing agents tell me they won’t accept an offer from a buyer using a big bank! (This has happened multiple times.) So always remember that the lender you use, is part of your competitive advantage.
When you have deadlines to meet, and your movers are scheduled to pick up your belongings, and you will have no place to live if you don’t Close on time, then the stress of a delayed Closing is very real. Big banks are notorious for delayed Closings. If you miss your Closing date, you could lose your 1% earnest money, but there are no consequences for the lender.
I’ve had several clients over the years, who didn’t listen to me, used their big bank, and had horrible experiences. I’ve had multiple clients call me crying, the week before Closing, due to all the issues with their big bank lender and a delayed Closing. I had a horrible experience once, when a Wells Fargo loan officer demanded that my client leave her mother’s deathbed to perform a task, and the bank STILL didn’t Close the deal…and my client’s mother died while she was away. (I closed my Wells Fargo account over that! Absolutely horrible experience.) Unfortunately, there’s nothing that I can do to help, the week before Closing, if you used a big bank lender. So I try to warn my clients in advance, to try to prevent these sad and stressful scenarios.
To be fair, I have seen a handful of deals, with big bank lenders, that went very well. However, several of them were for employees of the bank…who had the inside advantage.
Lenders to Consider
Lenders (loan officers) that my clients have used in the past:
___ Did your agent provide all the other necessary disclosures, notices, and the Buyer’s Representation Agreement to you before showing you houses? Be careful! You don’t want to find out after-the-fact that your agent actually represents the Seller.
___ Does your agent provide a detailed 18+ page house report on a home (see my sample), before you make the offer, to ensure that you know what you are buying before you make the purchase? This report should include information on the home’s price history, comparable sales numbers, school ratings, flood plain, tax info, environmental hazards (if any), near-by sex offenders (if any) at a minimum.
___ Can your agent effectively explain the HOA maintenance fees, MUD and LID taxes, compliance certificate requirements, amenities, property tax rates, school performance ratings, and other important information for the neighborhoods you are looking at?
___ Does your agent know how to provide you with an accurate CMA (price analysis) on a home before you make an offer? Is he or she committed to helping you get the right price or does the agent just want you to buy the highest priced home you can afford? (See “How to Price a Home Correctly“)
___ Does your agent point out possible defects of homes when you tour them or does your agent always seem to overlook the obvious problems of a home and try to convince you that they don’t matter? (Check my client satisfaction rating.)
___ Does your agent actually show you homes or does he or she expect you to drive the neighborhood on your own and then contact the listing agent directly to let you see the house? A dedicated agent wants to be with you every step of the way.
___ Has your agent set up a customized automatic home search for you that is pulled directly form the local MLS? Or are you still trying to find homes on your own using the limited online search Websites available in your area? These programs (such as Realtor.com, Zillow, Trulia, and Homes.com) can be outdated very quickly showing contract-pending homes as “active.”
___ Does your agent use an online paperwork system where you can e-sign documents instead of having to fax and scan them (which is sometimes challenging and time-consuming)? What if your spouse is still back home in another state or country? You need to be able to e-sign!
___ Does your agent work to negotiate a residential service contract (aka, home warranty) in the deal or provide one for you to protect you from too many future home repairs?
___ Does your agent have at least a 4.5 star client satisfaction rating with the local board of area Realtors? What’s your agent’s YELP rating, Homes.com endorsements, Angie’s List reviews, and so on?
___ Does your agent have 20 years experience? (Trick question.) IT DOESN’T NECESSARILY MATTER! There are terrible agents with 30+ years of experience who even have a broker’s license. And there are outstanding agents with only a couple of years experience. Time does not equal quality in this business. Time cannot guarantee attitude, dedication, integrity, intelligence, or commitment to customer service. Check their satisfaction rating...this is a free service for all members of the Houston Association of Realtors (HAR). If your agent hasn’t signed up, maybe they have something to hide.
If you are buying a home in Texas, then you need to learn about the home buying process, which may be different than other states. One thing to consider is that before you even begin the process of searching for a home, you must:
Determine how much house you can afford. A lender is the best place to get that information…it is part of the pre-qualification process.
Determine if you will actually qualify for a loan. Some good people don’t, under today’s stricter lending guidelines. You will need a pre-approval letter from a lender to submit with an offer on a home in Sugar Land….Seller’s almost always require one these days!
I like to break the home buying process down into seven phases.
Search Phase: Find the Home You Want
This is where my Automated Updates comes in handy. Never miss out on another great home! My customized home search will check all MLS listings (including distressed properties) daily and inform you when a house that meets your criteria hits the market. This is the most accurate and up-to-date house search available! And it’s great for out-of-town buyers who need to search for homes online.
Touring the Neighborhood With a Local Expert
When you are ready to take a look at houses, then let me know and I will set up the appointments with the sellers, create a map, print out the brochures, and drive you around to see those homes. As we go from house to house, I will point out special points of interest in Sugar Land to get you familiar with the area. It’s very helpful to have a local expert show you around the area…especially if you are new to Sugar Land or Fort Bend County.
But what if you or your spouse are located out of reach of a local tour? I am also able to video tape a walk-through of homes when need be.
Sometimes buyers have difficulty choosing between two or three houses. I have a fantastic Buyer Decision Analysis spreadsheet that helps you to score houses and compare them to make it easier for you to make a wise decision. (See sample below)
Offer Phase: Analyze the Property and Make An Offer
When you find the house that you want to buy, then you move into the Offer Phase. But before you make an offer, you need to know what you’re buying before you buy. That’s part of my Unknown Hazards Protection. I will research your home of choice and create an 18+ page house report so you will know everything there is to know about a house before you make an offer. This report includes tax data, school details with demographics, possible environmental hazards, possible sex offenders on that street, flood data, and more! Where else can you get this level of service?!
Fair warning! There is a lot of paperwork involved in buying a home in Texas. Why hassle with fax machines and scanners? My brokerage, Keller Williams, has the most innovative online paperwork solution available. So you can eSign your paperwork easily online…and so can your seller! This is especially useful for all those buyers who live out of the area and are relocating here. Or, if you have a spouse that hasn’t moved here yet, this is the perfect way to make it easy for him or her to sign the necessary documents.
Option Phase: Thoroughly Inspect the Property and Negotiate Repairs
In Texas, you can buy an “option period” (usually 10 days) from the seller for $200-$300 that gives you the irrevocable privilege to back out of the sales contract for any reason, and still receive your 1 percent earnest money back. This gives you time to have the home thoroughly inspected and find any defects that you cannot live with. It also allows time to negotiate repairs with the Seller. At the end of the Option Period (and the timing is very strict) you can do one of the following:
If you “exercise” your option, you lose your option fee, but you get your earnest money back.
If you do not exercise your option, then the option fee is usually applied toward your closing costs.
Please know that a home inspection is one of the most important parts of buying a home. But it can be overwhelming trying to find a reputable inspector who you can trust. I provide all my buyer clients with a list of licensed home inspectors in the area to make this process easier for you. Plus, I will negotiate necessary repairs for you with the selling agent…before you close on the home.
In addition, we have many great homes in the Sugar Land area, but some of them may need your personal touch. It’s difficult to estimate these costs ahead of time or to know who to hire. I can help by estimating costs and by recommending local contractors who provide good quality service at reasonable prices. Plus, since I have remodeled many homes myself, I can help answer questions that you may have and get you going in the right direction.
Pending Phase: Satisfy the Lender and Title Company Requirements
If you go past the Option Period and continue the buying process, then you move into the Pending Phase where the focus is on the lender and the title company. This is when you will need to diligently pursue getting your loan, providing all the documentation that the lender requires in a timely manner. This is not for the “weak at heart”! Not only is the loan process much more difficult than it was before 2008, there are also strict time guidelines in the purchase contract regarding the loan application process, and if you do not follow them, you can lose your 1 percent earnest money (and the house).
NOTE: In Texas, title companies are neutral, third-party companies who handle the closing and lending documents to purchase a home. We do not close in attorney offices.
During this phase you will also:
Select your home owner’s “hazard” insurance (get three quotes to get the best price).
Select your residential service contract company.
This is where my Repair Protection kicks in. Since I believe that all buyers need a residential service contract (a.k.a. home warranty) on a newly purchased home to help off-set future repair costs, I will either negotiate the Seller to pay for one, or else I will pay for it myself up to $500.
Closing Phase: Sign On The Dotted Line
As previously stated, in Texas, title companies are neutral, third-party companies who handle the closing and lending documents to purchase a home. We do not close in attorney offices.
About a week in advance, I will schedule the closing with you and the title company. We will meet at the title company on the day of closing, sit in a conference room with an escrow officer (who is also a notary), and you will sign the legal documents to purchase the home.
You will need to bring two forms of ID with you to the closing.
Follow-up Phase: Enjoying and Maintaining the Home
After you “Close and Fund” you will receive the keys to your new home! If you would like, I will wait a few weeks to let you move in, and then I will photograph your home after you are settled and create a “Just Moved” video that you can email to all your loved ones. This is a wonderful way for you to show your new home to friends and family who don’t live close-by.
And, after the sale, I stay in touch by sending you a Monthly Home Maintenance list and other items of value that will help you as a home owner. I usually become friends with my clients, and I enjoy keeping in touch with them.
The Agent Showing You Houses May Not Be Your Agent
Many people think that if a real estate agent is showing them houses, that means the agent is their agent and looking out for their best interests. This is not the case in Texas, which is why the Texas Real Estate Commission requires that real estate agents go over the Information About Brokerage Servicesbefore they start showing you houses. That document explains that there is a difference between the various roles that different types of agents perform in the home buying/selling process.
Click to see entire document
This is one way you can know that you are working with a PRO! If an agent is showing you houses and has never discussed the legally requiredInformation About Brokerage Services and buyer’s representation, then you are working with an Amateur…not a Pro! Is that what you want when dealing with one of your largest financial investments? What else will they refrain from telling you?
Many people misunderstand the purpose of the Multiple Listing Service (MLS). They think it is just a home search tool. It’s true that the MLS is the tool real estate agents use to list homes for sale. It is also the tool that buyer’s agents use to find houses to show to buyers. And it is the source of information for home search websites like Har.com, Realtor.com, Zillow, etc. (The MLS gets those listings first, because it’s the source database for those listings. After a home is listed in the MLS, then the data is sent –sooner or later–to other home search websites. This is why you may find a house for sale on Zillow and then your real estate agent tells you it is no longer available. Zillow doesn’t update as frequently as the MLS.)
What most people do not understand is that the purpose of the MLS is for licensed real estate agents to advertise homes for sale and offer to share their sales commission with member agents who help them obtain a buyer for their listing. It’s the way that member real estate agents get other agents to help them sell a house. That’s why you have to be a paid member with a state license in order to use the MLS. (It is illegal in Texas to pay real estate sales commissions to unlicensed people.)
So when a listing agent puts a house for sale on the MLS, the agent is agreeing up-front to pay other agents a set commission…which may vary depending on whether the agent is a “Buyer’s Agent” or “Subagent.” This is all predetermined before a buyer ever sees a listing through the MLS…and before the first offer for the house is written.
Here’s another thing that most consumers do not know, while we’re talking about sales commissions…
Real estate agents are not (usually) paid employees of the brokerage where they work…they are “straight commission.” They do not receive an hourly or salary paycheck from their brokerage for showing houses to people just for fun. Almost all real estate agents are Independent Contractors who only earn a living by receiving sales commissions for selling homes. Plus, they pay all their own expenses. This is why professional agents are careful with their time and only show houses to clients who are ready, willing, and able to purchase a home. If they waste time showing houses to people who just want to look at houses for fun, then they are not earning their living.
Buyer’s Agent vs Subagent
So by default, a real estate agent who is a member of the MLS is always representing the seller as a Subagent, unless they have a signed Buyer’s Representation Agreementwith the buyer to become the Buyer’s Agent.
There are different rules for how a Buyer’s Agent can work with a home buyer vs. how a Subagent can work with a home buyer.
Let me illustrate. In the MLS, there are two versions of a listing’s printout…one that is specifically for buyers:
And one that gives more details to the agent:
In this example, a Subagent would be required to say the listing Days on Market was 228 (which is true for that listing)…but the Buyer’s Agent would be free to say the cumulative days on market for the house was actually 302 days. Plus, the Buyer’s Agent can show their clients the full price history…a Subagent is not allowed to lie, but also cannot volunteer information that damages the seller’s position (because the seller is their client…you will want the same protection when you are a seller).
Notice above that the listing says the Original Price was $499,000, but if you look at the price history, the Buyer’s Agent could show that there was another listing for this house, with another brokerage, which started at $519,000 in April 2018.
Also…look what a Buyer’s Agent could reveal right away regarding “Previous Flooding onto the Property”…
A Subagent does not have to volunteer this information unless specifically asked by the Buyer. So the Buyer could waste time making an offer on the house and then get this information on the Seller’s Disclosure after the fact. But a great Buyer’s Agent should be looking out for you without asking. They have a Fiduciary Duty to look out for your best interests.
Furthermore, a Subagent cannot do a CMA and tell you that the home is overpriced…but as your Buyer’s Agent, I will! I will do everything I can to make sure you know all the pricing details on a home when you decide to make an offer. This is to help prevent you from overpaying for the home.
Please know that Texas is a non-disclose state and only members of the MLS have actual sales data. Tax appraised values are not accurate for market value in Texas! And even Zillow only gives themselves 1-star on their Zestimate’s accuracy (see here). There is a method for doing a proper Comparative Market Analysis for a home that is similar to how a lender’s appraiser is going to determine a home’s value. Hire an experienced agent who knows what they are doing!
As you can see, if you want all the pertinent information available to make the best buying decisions, then it is important that you obtain your own representation with a Buyer’s Agent. Having a Buyer’s Representation Agreement benefits you by:
Protecting your confidentiality
Allowing me to provide you with all the information at my disposal, including advice on the price
Allowing me to negotiate based on your best interests
Giving you a partner who is loyal to you
And the Seller stills pays the real estate commission, even when you have a dedicated real estate agent. They agree to do that when they agree to let their home be listed on the MLS (see graphic above). So it does not cost you extra to have your own buyer’s representation.
Sheila’s Release Clause
The Buyer’s Representation Agreement is for your protection; it is not meant to “tie” you to me…it’s meant to “tie” me to you. To prove this, and because I’m confident that you will enjoy working with me as your real estate agent, I put a release clause in Para. 17 stating that you can cancel the agreement at any time for any reason. I do not want you to worry about being “stuck” with me! I’m a Five-Star award-winning real estate agent, but if you are not happy with me, then you are free to cancel our agreement.
I only work with Buyers with whom I have a Buyer’s Representation Agreement. This just simplifies things because then I don’t have to worry about whether I’m giving you too much information (or properly representing the Seller). As my client, I can give you my full professional opinion at all times and answer any and all questions that you have.
Once you have a Buyer’s Representation Agreement in place, you should always state that up front to other real estate agents (at open houses) and builder’s sales reps (if touring new home models) because, by law, they need to know that you have representation.
Your Agent Helps Protect You
Remember: My job is not “just” helping you find a house to buy…I’m helping you buy a house. There are over 100 tasks that I perform for you during the purchasing process! I’m looking out for you every step of the way and keeping my eye on the listing agent, the seller or the builder (if applicable), the lender, the inspector, the title company, and so on. I’m on your side because I’m your agent. I consider myself more of a real estate consultant and project manager…not a salesperson. Not only do I help you find a house, I help with price analysis and negotiation, legal paperwork, inspections, repair negotiations, home warranties, compliance inspections, hazard insurance, surveys, appraisals, title commitment, and so on. Buying a home has serious legal consequences! And it is a complicated process that needs an experienced project manager (like me) managing it for you.
Take a look at a sample House Report that I do for my clients. No other agent in the world does this!
Check out p. 27 for the Flood Map info I provide. I’ve got your back!
But I’m Buying From a Home Builder – So I Don’t Need An Agent
A home builder is a seller…so you still need your own representation! Believe me when I tell you, that sales rep sitting at the builder’s model home may be a super-nice guy or gal, but he/she is paid to look out for the builder’s best interest, not yours.
The builder’s sales agent is not going to tell you that there is a landfill or prison a half-mile away from the neighborhood or that the specific schools zoned to the neighborhood are low-performing (notice how they talk about the school district?), or that the neighborhood is struggling to sell homes (and home values are falling). The builder’s agent will not tell you that the last three buyers who bought the same floorplan that you want, paid $30,000 less than the price he or she is showing you now…but I will! What’s more, the sales agent will show you that the house originally listed for $100K more than current list price to make it sound like a great deal. That’s a builder’s “trick.”
Did you know that most home builders require their sales agents to “hang up” their real estate license (go Inactive) to work for the builder? This is so the sales agent doesn’t have to abide by the same rules and ethics that a licensed REALTOR® has to abide by.
And please know that you are not going to save money by not having your own agent. Just like regular home sellers, builders pay the buyer’s agent’s sales commission and they build that cost into their sales price. If you don’t have your own agent, that just means the builder makes more money…it doesn’t mean you get a better price.
And always remember that you still need a home inspector when you buy a new-construction home. The builder’s inspection process is not for your protection…it is just part of their system. In my experience, new homes typically have longer inspection reports (more stuff to fix) than good-condition resale homes because the “kinks” haven’t been worked out yet…by the first owner.
Once you have a Buyer’s Representation Agreement in place, you should always state that up front to builder’s sales agents (if touring new home models) because, by law, they need to know that you have representation.
But I Want To Save Money Working Directly With a Listing Agent
Some inexperienced buyers think they will save money if they skip their own representation and just work directly with the listing agent. Congratulations! You just let the seller pay the listing agent double for NOT representing you.
Before a listing agent can put a home for sale on the MLS, he or she must have a signed listing agreement where the seller has already agreed to pay a set sales commission. As I showed at the beginning of this article, when the listing agent puts the home on MLS, they already agree to pay buyer’s agent’s sales commission. This is the purpose of the MLS!
If you buy without your own agent, then the listing agent gets to keep the entire sales commission…it’s already in the “contract” (listing agreement) between them and the seller. Sales commissions are NOT negotiated when an offer is made on the house…they are agreed to in advance. So don’t make this amateur mistake.
Does My Real Estate Agent Represent Me or the Seller?
When I bought my first house in the mid 1990s, Texas was kind of a “Buyer Beware” state. In fact, a home Buyer could spend weeks looking for a home with a real estate agent, telling her secret information (like how much you were willing to pay for a house), not knowing that everything you told that real estate agent would be told to the Seller because the real estate agent was actually representing the Seller–not you (the Buyer)!
Here’s what you need to know…
Unless you have a written agreement with a real estate agent, all Texas agents are always representing the Seller–typically known as the “subagent.” That is how agency works in Texas. This can be confusing for home Buyers, so the Texas Real Estate Commission wants you to know about brokerage services, who represents whom, and intermediary agency, BEFORE you start working with an agent...not only is it the law, it’s also for your protection! (Read TREC’s Information About Brokerage Services.)
NOTE Finding out “your agent” is actually representing the Seller after you’ve found the house you want to buy is NOT a good thing! If an agent doesn’t give you the Information About Brokerage Services form UP FRONT (before showing you houses), then you are dealing with someone who is unprofessional and not following the law.
Another fact that you need to know is that Texas is a dual-agency state…meaning that a real estate broker (such as Keller Williams Southwest) can represent both the Buyer (you) and the Seller (them) in a the same transaction. This is called “intermediary agency.” These visual aids will help you to understand…
In this case, you are represented by Keller Williams Southwest (KWSW) while buying a house listed by another broker, such as a RE/MAX or a Coldwell Banker. This is not an intermediary agency since KWSW is only representing you.
In this case, KWSW is representing both you and the Seller…because the house that you are buying is listed with KWSW but with a different agent. However, you have an appointed agent (Sheila Cox) and the Seller has an appointed agent (Unknown) and both agents have to maintain their duty of confidentiality. So I am not allowed to share your private information with the other agent. This situation may occur frequently with large brokerages who have lots of listings, such as KWSW.
This situation may only occur if both the Seller and the Buyer agree to it in writing. In this situation, you are buying a house that I have listed for one of my other clients. I would be representing both you and the Seller, so my fiduciary responsibilities would be limited. Frankly, I don’t work these types of deals. If you wanted to buy one of my listings, then I would step back and find another real estate agent to be your appointed agent…so you would still have full representation.
Now you need to understand two more important things:
“That’s what I used to think! In fact, before I became a licensed real estate agent, I did several FSBO (For Sale By Owner) sales and THOUGHT I knew what I was doing. But if I had known then what I know now…I never would have risked it. Here’s what I’ve learned…” –Sheila Cox
Yes…You Need a Partner During the Home Buying Process!
Your home is probably your largest single financial investment. Most homes in my area (Katy and Sugar Land TX) cost over $200,000. If you had a $200K legal problem would you try to handle it yourself or would you high a quality attorney to help you?
Of course, not all attorneys are equal in skills, knowledge, integrity, experience–and neither are all real estate agents. In fact, most people have had at least one bad experience with a low-quality real estate agent. I know I have! As in any industry, please consider that it is possible the 80-20 rule applies to real estate agents…maybe 20 percent are not very highly qualified, but that would leave another 80 percent who are! (Just like in your line of work…do all your peers provide the same quality of expertise?) Always keep in mind that having a bad experience with one agent, doesn’t mean that all real estate agents are bad. The trick is finding and hiring the right, high-quality agent. Here are some things to consider…
Real Estate Laws Vary From State to State
Not all states have the same real estate laws. In fact, Texas real estate laws and practices are highly unique in comparison to other states. Just because you have bought or sold a home in another state, does not necessarily make you qualified to do so in Texas. (I know, I know…we Texans think everything is bigger and better here!) But the fact is, Texas real estate is so complicated, that agents are required to have many more hours of education to get a license here than any other state…about three times more hours of education than average across other states!
Your Legal Exposure in a Real Estate Transaction Can Be Very High
A very common type of real estate lawsuit involves Deceptive Trade Practices in which a home buyer accuses the home seller for not properly disclosing the actual condition of the property. In these cases,treble damages (three times the actual cost) can be awarded. This can really add up! And the cost for hiring a real estate attorney to defend yourself can cost well over $10,000! It doesn’t always matter that you did nothing wrong. Without a licensed real estate agent there to watch out for your interests and to make sure that you comply with all of the Texas real estate code and statutes, you can end up with a real nightmare on your hands.
Likewise, home owners can sue home buyers for non-performance or can keep large amounts of earnest money if a contract doesn’t Close. This is when you want a professional agent looking out for your best interest to (hopefully) prevent you from breaching a contract and losing your earnest money. And if a lawsuit is not prevented, isn’t it best to have a large, reputable real estate brokerage (and their legal team) behind you when you need it?
Real Estate Data Is Not a Matter of Public Record In Texas
Texas is one of 14 non-disclose or partially-disclose states in the U.S. That means that real estate sales prices are not a matter of public record in Texas. So Internet-based companies like Zillow and Trulia do not have the real data to accurately “Zestimate” what a house is worth in our state. Property tax records are what these companies use in order to estimate a home’s value. But everyone in Texas knows that tax appraisal values do not usually reflect the actual value of a home…they are typically lower than actual value. (Which helps to keep the costs of our already too-high property taxes down.)
The only people in Texas who have accurate sales records are members of the Multiple Listing Service (MLS) including real estate agents and home appraisers. So if you want an accurate sales price analysis on a home (so that you don’t pay too much for it) you will need to hire one of these professionals.
CAUTION: Not all real estate agents are equally good at sales price analysis. Hire an agent who knows how to put together a valid comparative market analysis (CMA).
Do You Really Want (or Have the Time) To Learn Everything You Need To Know About Real Estate?
Yes, you can read up on real estate and I encourage you to do so. But no amount of book-learning is going to make up for the actual real-world experience a high-quality real estate agent offers. Real estate laws change yearly and vary from state-to-state. So most books are out-of-date by the time they go to print or are too generic to meet your specific state’s requirements.
And please don’t believe all the real estate advice that you can read on the Internet. I recently read an Internet article about how to sell a home without a real estate agent and most of the advice offered was not accurate according to Texas real estate laws…which could get you into some costly legal trouble. Even the advice from real estate agents on one of my favorite online resources, ActiveRain, is not always accurate for Texas.
Besides all this…aren’t you busy enough with just deciding on a home, getting your lender all the necessary paperwork, planning the move, changing utilities, registering at new schools, packing, training for the new job, and so forth?
It’s Complicated! Are You Qualified to Manage the Entire Transaction?
A high-quality real estate agent wears many hats: local area expert, state real estate rules expert, amateur remodeler, price analyzer and mathematician, home decorator/stager, professional photographer and videographer, marketing expert, chauffer and tour guide, psychologist, marriage counselor, sales negotiator, amateur home inspector, administrative assistant, project/transaction manager, communications expert, and tech writer. Very few professions require skills in so many different areas! I don’t think the average person realizes how much they expect their real estate agent to handle.
(Read a great article by non-agent: “How many hats does a Realtor wear?”)
And then there are the home buyers who think real estate agents just help them find a home to buy and once the contract is accepted, their job is over; but that’s just the “end of the beginning” for an agent! Likewise, a great listing agent doesn’t just take a few photos, put a sign in the yard, and wait for the offers. A great real estate agent is looking out for you every step of the way and keeping their eye on the other agent, the other party (buyer, seller, builder), the lender, the inspector, and the title company.
Here are more examples of what a real estate agent does for you:
Helping you maneuver the Option Period, including getting the right inspections and, if necessary, repair estimates. Do you know how to “exercise your option” properly if needed? Do you know how to minimize the impact of the OP when marketing a home as a seller? How do you deal with lender-required repairs?
Negotiating necessary repairs with the Seller so you don’t get stuck with them after Closing. Can you get repair estimates in a timely manner? Do you know how to effectively overcome common repair objections? Do you have the knowledge needed to accurately estimate a remodeling project?
Helping you meet your contractual obligations (such as appraisals, surveys, deed restrictions, HOA compliance certificates, legally required disclosures, title commitments, hazard insurance, and more) in a timely manner so you don’t find yourself in breach of contract. How many days do you have to get the survey? If there is an existing survey, what other legal document is required? What do you do if encumbrances are found in the title search? What do you do if your financing falls through after the deadline in your contract?
Dealing with home inspectors, appraisers, lenders, and title companies to get them to do their jobs in a timely manner so you can move when you plan to. There are many moving parts in a real estate transaction! What do you do if the lender doesn’t get the paperwork to the title company on time? How do you know if the fees on the HUD1 are accurate? Did you remember to get hazard insurance and order the residential service contract? Did you negotiate a temporary lease so you can move out after Closing? What do you do if the Closing falls through?
Do You Know the Area As Well As You Need To?
If you are moving to a new area, there is no substitute for getting the opinions and advice of a local real estate expert. Even if you know someone who lives in the area that you are moving to…they only see that area from their individual, and probably limited, perspective. You really need a professional who has the BIG picture and the “inside information” that only a local real estate expert can provide. Someone who will listen to your specific needs and find the right neighborhood and right home for you.
And watch out for online companies offering you price reports and other types of statistics based on ZIP Codes. Sugar Land consists of multiple ZIP Codes and let me assure you that a price analysis for a home in Sweetwater in 77479 is not going to accurately reflect the price of a home located in Woodstream which is in the same ZIP Code.
Home prices vary not only from neighborhood to neighborhood, but even within the same neighborhood. For example, a home in New Territory that has a water view is going to be valued higher than a home right down the street that does not have a water view. And a 2000-2600sf home probably has a different average sales price/sf than a 3500-4100sf home…even on the same street. AND those same values can change from month to month (depending on the actual figures for recently closed home sales). Do you have the real sales data and price analysis expertise to ensure that you don’t pay too much for a home or list it at an unrealistic price?
Sometimes You Need An Objective Partner When Choosing the Right Home
Let’s face it…even the most level-headed, objective, analytical engineer-type can get emotional (and become unobjective) about a home. Trust me on this observation! Everyone gets emotional on some level about the house they are going to live-in for the next several years. And if you have raised four kids, two dogs, and three cats in a home for the past 23 years…forget about it. You may not see the worn-out carpet and outdated wallpaper for the good memories.
Sometimes it is just like “love at first sight” when buying a home. And that emotional response to a home may cause you to do something you will regret later. You need an unattached, neutral, third-party (such as a dedicated real estate agent) to help keep you focused on the facts and the big picture. I’m not saying all agents do this. I agree that some agents are just out to close the deal no matter what, and don’t really care if you are going to end up with a poor investment that you will regret when resale time comes along.
But I once talked a client out of a $650,000 home because, when I was researching the home and looked at the bird’s eye view, I found a hidden dump where you could see railroad cars deteriorating and rusting into the local water supply! You never would have seen this driving around the neighborhood because it was hidden behind fences and shrubbery. But when I showed my clients what they would be living next to, even though they were disappointed because they loved the house, they were thankful that I found the problem and objectively pointed it out to them before they purchased that potentially costly mistake. I ended up selling them a $525K home they loved and we are very good friends to this date because they know I am trustworthy and not just looking out for the highest sales commission I can get.
So let’s recap. Since…
…real estate laws vary from state to state and change every year,
…your legal exposure in a real estate transaction can be very high,
…real estate data is not a matter of public record in Texas, so you don’t really know what a specific house is really worth,
…you probably don’t have the time to learn everything you need to know about real estate
…it’s complicated and you may not be qualified to manage the entire transaction,
…you may not know the area as well as you need to know it, and
…you probably want an objective partner to help you choose the right home…
You should definitely hire a real estate agent to help you with your next real estate transaction!