THINGS OUR A G E N T S S AY “...like it’s really my second family...”
“Why I continue to stay is that it has only grown stronger in the years since they began, and I’m really grateful to be a part of such an awesome brokerage that fosters the very highest standards for their clients. And the agents are always so supported. I feel like it’s really my second family and I’m really grateful to be a Brix agent.” — LIBBY HOLLENKAMP
“The support staff at BRIX is fantastic.”
“The support staff at BRIX is fantastic. I worked a lot with Dawn and Renee, and I’m very impressed with these people. The parties that BRIX puts on to bring my clients to impress them, the lovely touches that the brokers have done, for example, at the beginning of the quarantine, they brought every one of their agents a takeout meal from a wonderful restaurant, and we were all just very touched by that.” — SUSAN FEEHAN
“So I’m really happy I switched.”
“So I’m really happy I switched. It’s been almost two years now and it’s just such a great group of people that really help each other and help you succeed in your business.” — BEN GREILANGER
M O R E AT J O I N . B R I X T W I N C I T I E S . C O M
MORE THINGS O U R A G E N T S S AY “A motto at Brix is: It’s not how many closings you have, it’s how you close them. Not production volume. Not treating people like they are numbers. There are no sales volume awards here. Taking care of the customer is number one at BRIX. You’ll see it in how we do business from getting the highest price per square foot on our listings to giving our buyers better data for good decisions on a purchase. When I put the client first, my production follows. I’ve seen my volume up 50% by conducting business this way at BRIX.”
“Taking care of the customer is number one at BRIX.”
— DAVID THEOBALD
“I joined BRIX in 2018 after starting my career with a much larger brokerage. I decided to make the move after revisiting my goals and business plans with the brokers at BRIX. It was important to me to not be in a “cookie cutter” brokerage and to differentiate my business and marketing from other realtors. BRIX offers me the independence to run my business as I want, but also the “behind the scenes” support and professional guidance to ensure I am providing the highest levels of service to my clients. The team at BRIX encourages collaboration at every level, ensuring the client is always the priority, not just the sale. Working for a broker that cares about its people over profits will win every time. Glad to be part of the BRIX Real Estate Team!”
“Working for a broker that cares about its people over profits will win every time.”
— J E N N I F E R O L S TA D M O R E AT J O I N . B R I X T W I N C I T I E S . C O M
W H AT Y O U N E E D T O K N O W
JOINING BRIX You’re a good Realtor. You’ve developed your own style, your way of doing things, but you feel trapped by the Big Brokerage Real Estate Factory. Come escape with us. We’re a boutique brokerage that gives you what you need and so much more. Our rates are good, our platform is solid, and our culture is fantastic. We give you the resources and the outline, and encourage you to put your personal touch on it. Home Buying Guide
We’re not for everyone. But if the fit is right, you won’t be able to imagine being with anyone else. Annual Magazine on Twin Cities Life & Real Estate
- BRIX Real Estate
Winner of 2019 Inman Innovator Award
Personal Market Updates Video
Instant Offer Program
Midyear Market Report
L E T ’ S G E T D O W N T O B R A S S TA C K S
THE NITTY GRITTY
NO TECH FEES
NO PRINT FEES
90/10 SPLIT
NO SIGN INSTALL FEES
NO DESK FEES
How do you stay connected with old clients—without turning all sales-y?
Connection, without pressure. The BRIX Report is a high-quality, annual magazine on the life, culture, and real estate of the Twin Cities. The magazine features local establishments, areas of interest, and a comprehensive market update and forecast. The magazine helps streamline one of the more difficult issues agents face: staying connected with old clients, without sounding sales-y. Some agents mail a short RPR report specific to their client’s home along with the magazine. Others send handwritten notes. They’re great for first meetings, too. Bring a BRIX Report and a copy of The Smart Seller or The Smart Buyer and you’re light-years ahead of the competition. In each issue of The BRIX Report, we also highlight our Client Appreciation Parties. These events give agents another non-salesy opportunity to connect with past clients. There is no cost to our agents for these events. Learn more about us: join.brixtwincities.com
The Smart Seller A guide through the sale process & to maximizing value
Table of Contents 2. The Two Ways to Sell a Home 3. Don’t be in a Rush 4. Where You Should Start 5. Calculating the Value of an Agent 7. Commissions 9. The Fry Effect 10. Preparing Your Home for Sale 14. What is my Home Worth? 16. Buying a Home with a Home to Sell 19. Timing the Market 21. The Dangers of Overpricing 22. Showing Expectations and Days on Market
23. What is Market Ready? 25. What Should a Listing Agent do to Get Showings? A Marketing Plan! 28. Don’t Oversell It 29. The Importance of Feedback 30. Is a Lowball Offer a Bad Offer? 31. Handling Multiple Offers 33. Who Pays the Closing Costs 35. Navigating an Inspection Contingency 37. Post-Offer Timeline 39. The Stats 40. Frequently Asked Questions
Appendices 42. How Buyers Found Their Home 43. Instant or Guaranteed Offers 44. Agency Disclosures
A collection of experience & knowledge from the many great agents at BRIX Real Estate. Special thanks to Kirk & Adam Duckwall.
According to a Zillow Group study, the top five reasons that sellers find the home sale process stressful are: 1. Not knowing when their home would sell. 2. Being uncertain what price their home would sell for. 3. Knowing what improvements should be made in preparation for their sale. 4. Concern that an offer may fall through on their home. 5. Timing the sale of their current home with the purchase of a new home.
1
This book will address all of these concerns. We’ll give you the knowledge to limit these stresses and move through the home sale process with confidence.
THE SMART SELLER
The Two Ways to Sell a Home There are two ways to sell a home: the Shotgun Approach and the Surgical Approach. Shotgun Approach A lot of people accidentally find themselves in this position. A common way to end up here is to start looking at houses before thinking about the sale process of your current home. You then find yourself falling in love with a home and wanting to make an offer. But that means you have to rush to get your current home on the market, ultimately creating a loss of control, and putting yourself in the position of making one of the top five home-selling mistakes (which we will discuss further on the next page).
Surgical Approach This is where a seller plans out their process, step by step. They start with an analysis of their home and what may need to be done to get it market-ready. They also take time to understand their own personal timelines, seasonal market trends, and—if a new home purchase is involved—carefully strategize the purchase of the new home with the sale of the current home. In addition, they formulate a plan for moving out their belongings. The Surgical Approach alleviates much of the stress, anxiety, and unknowns created by the Shotgun Approach.
2
Don’t be in a Rush Being rushed will create unneeded stress and anxiety. It’s setting the stage for making one, if not more, of the top five home-selling mistakes. Often, one who is rushed through this process will find themselves taking longer to sell their home and selling for less money. Here is a list of the top five home-selling mistakes:
3
1. Not having time to get your home ready for sale. 2. Putting focus on the wrong tasks to make your home sale-ready. 3. Being rushed to accept an offer with less than optimal terms or price. 4. Being forced to make an unwanted temporary move due to poor planning or negotiation. 5. Having to pay more for the home you are buying, or potentially losing out on your dream home due to being in a weakened negotiating position as a result of an unsatisfied sale contingency.
THE SMART SELLER
Where You Should Start Start with a realtor. Many potential home sellers feel that they should get their home ready for sale before even reaching out to a realtor. This is often due to concerns regarding value or embarrassment about cleanliness, organization or condition of the home. An experienced real estate professional will look past those items and provide you with valuable insight at the beginning of the process as to the best use of time and resources to streamline your sale process and maximize your value.
If you are planning to purchase a home at the same time or soon after selling your existing home, an experienced agent will be able to help you understand your options, as well as anticipate any hurdles you may need to navigate. They will also give you insight into specific market considerations to achieve a precise outcome on both your sale and purchase. More to follow regarding this in “Buying a Home with a Home to Sell� on page 19.
4
Calculating the Value of an Agent You should never calculate the value of an agent based on how low a commission they charge. A high quality agent over a low quality agent can net you as much as fourteen percent more based on the practices they use. It is a common myth that choosing an agent from a large or well known brokerage will result in working with a high-quality agent. Both high and low quality agents can be found side-by-side in many brokerages. Most agents are independent contractors. How do you separate the good from the bad?
5
1. Look for an agent that utilizes market data to give you a price opinion. Be wary of an agent that gives you a price they “feel” your home is worth, but doesn’t use factual data to support their pricing. 2. Look for an agent who has resources; a network including staging consultants to contractors, cleaners, or anyone else needed to help the home preparation and sale process go smoothly. 3. Find an agent that has a comprehensive marketing plan (not just involve putting it on the MLS and hosting an open house). 4. Don’t go immediately to an agent who gives you the highest estimate of value without first seeing the data that supports that as the correct value. 5. Shows good service and timely communication.
THE SMART SELLER
An agent’s job is not just to sell your home. Anyone can sell a home. If you price a Ferrari at five hundred dollars, you will have plenty of buyers. But is that the best price?
Then, once a bonafide purchase agreement is achieved, the agent is responsible for carefully managing all elements of the transaction to ensure a successful closing.
An agent’s job, first and foremost, is to listen to you. Additionally, your agent’s job entails: • understanding your priorities • educating you on the sales process and market conditions • sharing needed home preparation • providing resources as needed • understanding your expectations • marketing your property • driving a maximum amount of quality showings • negotiating on your behalf to achieve the best price and terms
6
Commissions As mentioned previously, the quality of the agent you choose could affect your sales price of up to fourteen percent. When comparing the results of discount agents versus high-quality full-service agents, the difference can clearly be seen and felt in the average price per square foot received at sale. From a pure business standpoint, the amount that an agent will net from your sale is proportional to the budget (both in time and dollars) that an agent can dedicate towards your sale. It’s a hard truth, but it just makes sense.
7
Furthermore, understand that the commission which you and your agent agree upon is split between your agent/ broker and the buyer’s agent/broker. Therefore, any reduction in commission will likely reduce the buyer’s agent’s commission as well, potentially affecting the number of showings you receive. A quality agent will provide the resources and expertise to reduce your upfront costs, as well as negotiate to secure a higher price and better terms. If paying one to two percent more in your listing fee nets you as much as five to fourteen percent more in your sales price, is that a service worth paying for? You don’t want to be jumping over dollars to save pennies.
THE SMART SELLER
Discount approach, no sale after ninety days
Same home, staged and high quality marketing, sold right away.
8
The Fry Effect Imagine test driving a new car. It’s freshly washed, has that new car smell, handles like a dream, and the price is right. Would you buy it?
In the next section “Preparing your Home for Sale,” we will show you how to avoid the fry effect.
Now, imagine you’re getting into that same exact perfect car. This time, though, there’s a sack of french fries spilled over the passenger seat and a half-empty cup of pop in the cup holder. The new car smell is replaced by the smell of stale fries; the pristine look of the new car is tarnished. How would you feel about your experience now? Would you still pay the same price? Would you even want to buy it anymore?
9
THE SMART SELLER
Preparing Your Home For Sale We typically recommend the below action items when preparing your home for sale. Addressing these issues can result in an increased sales price of fifteen to twenty percent.
INTERIOR 1. Hardwood floors should have a minimal amount of scratches, wear, unfinished or pet-stained areas. 2. Carpet should be well-maintained, showing no heavy traffic on the carpet or pad. If your carpet is in good condition, you should have it professionally cleaned several days prior to putting your home on the market. If you’re wondering if you should replace the carpet because of the obvious stain that you can’t get out, the answer is YES. If you are asking yourself if the stain is obvious, the answer is also YES.
3. If you have managed to maintain your 1960s-70s vinyl kitchen flooring: congratulations! Let everyone know that you were right all along; it is now back in style! However, if it is torn, worn, stained or scratched, it should be replaced. 4. If you have broken floor tiles or missing grout, you should replace the missing tiles with matching ones and regrout the floor. Hopefully, there is a box of extra tiles sitting in your garage, basement or attic. If you can’t find matching replacements for your missing tiles, you may need to replace that flooring.
10
5. Fresh paint or like-new condition on the walls, trim and ceilings is recommended. Scratched, damaged, and missing finish on trim is one of the greatest eyesores for buyers. 6. Have the furnace or boiler cleaned, tuned and safety-checked. A home inspector will be less likely to recommend a replacement or safety check if they see a recent inspection sticker from a licensed HVAC technician on the unit. 7. Remove any fixtures or appliances you intend to keep and replace with a tasteful option. If you do not, don’t be surprised if a buyer wants to keep them.
11
New paint, carpet, and a cleaning can go a long way.
THE SMART SELLER
EXTERIOR 1. Remove any chipping and peeling paint and repaint the affected areas with a matching exterior paint. If your home was built prior to 1978, this will be a must if you want your home to be eligible for Federal Housing Authority (FHA) qualified buyers. 2. Pull weeds and remove excess brush. If applicable, put down fresh mulch, and edge the sidewalks and driveway. Be sure to also clean gutters, trim overgrown bushes and trees, especially if they are blocking windows or come into contact with the home or roof.
3. If the roof on your home or garage has fewer than two years of life remaining, this will almost certainly come up in the home buyer’s inspection, as well as the lender’s appraisal. If this concern is not addressed, the buyer’s lender will not lend on the property. It is typically less expensive to fix this ahead of time than mid-transaction as you will be able to choose the contractor and roofing material. You will also be able to market your home with a new roof, which may likely increase the price of the offer(s) you receive.
The outside matters, too!
12
A Note about Repair Allowances Offering an allowance for repairs is ineffective for a couple of reasons. A buyer (especially a first-time buyer) will often believe that a repair will cost two to four times the actual cost. Therefore, the credit that a buyer will expect and accept will be far more costly to the seller than a simple repair. Since buyers are typically emotionally driven, they tend to make their offer based upon what they actually see and how they feel in the property. So if you offer a credit, you will still be receiving an offer based upon the current condition of the home. You’ll then be expected to make the repair credit concession as well. This can end up costing the seller at least twice as much as doing the repair prior to listing.
IN CONCLUSION, it is best practice to consult an experienced real estate agent as soon as you start to consider selling your home. Even if selling your home is years away, it is never too early to engage professional advice and create a timeline for preparation. A real estate agent will provide the objective third-party opinions needed for your sale. Remember, you are not preparing your home for your own purchase; rather, you are preparing it for today or tomorrow’s most likely buyer. Anticipating the correct buyer demographics for your home is an important part of the skillset of an experienced real estate professional.
Another Note If someone has been smoking inside the property you will most likely need to replace all carpets, wash all woodwork, paint all walls and ceilings.
13
THE SMART SELLER
What is My Home Worth? Some people may think that getting an appraisal will help calculate the value of their home. However, appraisals are meant to calculate risk tolerance to a bank and not market value. Others may use automated valuation tools found on many real estate websites. Although these may be interesting data points, these methods use past sales in order to ascertain current market value. This can often be misleading.
when estimating a single property’s value due to variations in a homes construction quality, maintenance, updating, age, style and presentation. The prefered method for calculation of a property’s market value is to use a comparative sales approach to establish the value range of the property.
Furthermore, these online tools are blunt instruments compared to the precision of a Comparative Market Analysis. Some people will look at the average price per square foot and apply that to their own home when trying to estimate their home’s value. Although price per square foot is a useful tool for analysis of real estate trends, it is a wildly inaccurate tool
14
WHAT IS A COMPARATIVE SALE? A comparative sale (commonly referred to as a “Comp”) is most likely not the house next door or across the street from your own that has recently sold. Just as you would not compare a pickup truck to a sedan just because they’re on the same car lot, you do not want to compare a rambler to a split-level or two-story home even if it is on your block. A “Comp” is a recent “Comparable Sale” of similar size, style, condition and age.
15
A Comparative Market Analysis will typically include recent sales, pending/ contingent sales, and possibly active listings. This approach provides a comprehensive survey of the recent sales history, market trends, and the current competition in your immediate area. It is unlikely that your agent will find a recent sale or active listing that is exactly the same as your own home. Therefore, your agent should make adjustments between your home and the comparable properties/sales to account for differences in size, amenities, and condition; thus establishing the estimated range within which your home should sell.
THE SMART SELLER
Buying a Home with a Home to Sell Attempting to purchase a home while owning a home is something that can cause sellers anxiety. However, there are a few options to help a seller avoid this particular stressor. The most commonly known option is referred to as a “contingent offer,” meaning purchasing the new home is contingent on the sale of one’s existing property. This makes a lot of buyers more comfortable as it eliminates the possibility of owning two homes at once. There are significant downsides to this approach, though, which should be fully understood.
1. Due to the fact that your offer on the new home is contingent upon receiving an offer and the successful closing of your existing home, this type of offer is inherently weaker than other types of offers. Due to this weakness, the chances of getting your offer accepted are lower. This usually means that a contingent offer will need to be higher in purchase price than other offers in order to be accepted. 2. Someone purchasing a home with a contingent offer often feels pressured to accept a lower offer on their existing home than they might otherwise. This is because a contingent offer can be “bumped” by the other seller at any time prior to receiving an executed purchase agreement for their existing home.
16
The second way to purchase a home while having a home to sell is to purchase “non-contingent.” There are two ways to do this: 1. Have a low enough debt-to-income ratio where you can qualify for the payments on both homes. 2. Utilize a “bridge loan” or “equity loan.” Either of which provides temporary financing for the down payment of the new home until the existing home has sold. There are a few benefits to making a noncontingent offer. 1. You are able to make a far more attractive and possibly more conservative offer since your offer does not rely on a contingency of sale for your existing home. This will increase your chances of acceptance by upwards of seventy percent (depending on the price point) over a contingent offer.
17
2. If you have kids or pets, you will be able to close on your new home and move in. Next you’ll put your current home on the market, thereby relieving stress on your family and pets. This can also allow you and your agent to create the perfect showing environment at any time for potential buyers. On average, a well-staged, easy-to-show home will sell faster and for four to six percent more than an unstaged home. 3. You will remain in control of the sale process for your existing home since you are not operating under the constraints of a contingent purchase. This will allow you to better prepare your home for sale, as mentioned above, and also time the listing of your sale to optimize for market conditions (as discussed in the next section.)
THE SMART SELLER
The last approach is to sell your existing home prior to finding or making an offer to purchase your new home. Although this is a fiscally conservative approach, it can be logistically precarious in the event that you don’t find a new home prior to closing on your existing home. However, you can eliminate the possibility of being homeless by creating a “dropdead” date. This means that if you have not found and secured a purchase agreement for your new home, you will then sign a lease for a temporary rental (either month-to-month or a short-term). In this scenario, you will find that the added expenses of your “double move” will be overshadowed by the flexibility and purchasing power that you have now gained by becoming a non-contingent buyer on a flexible timeline. Although it may add logistical stress, this option can be far more cost-effective than utilizing a contingent offer. Selling your home first doesn’t always mean you should be prepared for a “double move.” Another option is to sell your current home contingent upon your ability to find and purchase a home within
a prescribed timeline. This timeline is typically fifteen to thirty days. If you are unable to find and purchase a home, then the sale would be automatically cancelled. This may sound like the best option of all; however, there is one significant drawback. Many buyers aren’t willing to purchase without knowing it will be a sure thing. As a result, this will mean fewer potential buyers and possibly a lower sales price for your home. Note: The “double move” isn’t what it used to be. With flexible moving options such as pods, you can take just what you need on a temporary basis to your rental while keeping the rest of your belongings in storage for convenient delivery when you are ready to move into your permanent home. As you can see, there are different options that you will want to consider when purchasing a home while also having a home to sell. It is best to discuss these with your family, your realtor, and your loan officer before choosing how to move forward.
18
Timing the Market Timing is less about putting your home on the market during the “best time of year to sell” and more about knowing the nuances around timing that may have a significant impact on your showing activity and sale price. The two slower times of year tend to be late summer or early winter. However, with proper preparation, you will minimize any seasonal impact to your showing activity if you follow steps three through five.
19
1. The Spring Market starts in January. Yes, you read that correctly—it starts in January. The largest jump in showing activity all year happens just after the New Year. Activity will double in just a few days at that point. 2. The spring market usually peaks during the last few weeks of March or the first few weeks of April. We usually say, “if you wait to list until it is green, you will miss out on some green.” 3. Don’t list or make price changes right before a holiday. If a home lists and there is no one to see it, did it really come on to the market? 4. Watch the weather. If it looks like there will be a big snow storm right before or the day you were planning on listing wait until the roads are clear. 5. Listing Wednesday through Friday will typically get you forty percent more showing activity in the first week than listing Saturday through Tuesday.
THE SMART SELLER
Make sure you have seasonally appropriate photos to prevent your listing from appearing old.
20
The Dangers of Overpricing A home will usually sell within a plus or minus five percent range of an appropriately evaluated home (see “What is My Home Worth?”, pg. 17). This we call the “Market Value Range,” as not every buyer will be willing to pay the exact same price. Usually a majority of them will be close to the asking price. Surpassing the market value range when pricing your home will usually cause a multitude of problems. Such as: 1. Buyers look at your home’s location and the square footage. They think it is overpriced and decide against seeing the house. 2. The lower showing activity means the home will spend more time on the market in comparison to other homes. 3. The additional days on market have buyers wonder what is wrong with it. 4. The more time on market you spend, even if you followed our advice on “timing the market”, pg. 22), the more
21
likely it is that you may end up passing those best times of opportunity. You got it: all of that adds up to you receiving less for your listing. Maybe you’re thinking you’ll try the higher price for a little bit and then drop it back down, just to see what happens. Here’s the problem: once buyers think there is something wrong with the house (due to the high days on market), they will pay even less for it than one that was priced correctly at the beginning. If you want to play with pricing, try “prelisting” with your agent either on the MLS or other sites that offer that option. The best time to do this is while you are getting your home market ready (see “What is Market Ready”, pg. 26). This will let you see what potential interest there is in your home without the pressure of showings or accumulating days on market.
THE SMART SELLER
Showing Expectations and Days on Market Everyone knows someone who sold their home in just a couple of days. Did you ever think that maybe it was priced as a “fire sale?” Maybe even unintentionally? As mentioned previously, anyone or any agent can sell a home. The key to getting the best price and terms you want out of your sale is to understand the market trends for your area, the price point, and type of property you’re selling. Your agent should be going over the average number of showings prior to an accepted offer along with average days to expect.
Track average days on the market.
You want to give your home the right amount of time to find the right offer. That may be in the first few days on the market or it may be on day ten or after. You and your agent want to analyze the market together before making that decision.
Track average number of showings to expect.
22
What is Market Ready?
23
Market ready is when the stage is set for the buyer to have the best experience we can provide them during a viewing of your home. Your agent will arrange for many of these items below, hopefully alleviating your stress.
*Special note: If you have pets, it is best to have them out for showings. Many people have pet allergies and pets in the home can take away from those buyer’s experiences. If having them out is not possible, try to use a kennel during the showing times.
1. Complete any city inspections if required. 2. Declutter. If you are still living in the home, this is an easy one. If you are moving anyway, think of it as packing early. 3. Staging. Pare back your furniture and wall hangings. This is more for photos to show how much space is in a given room (see example photos). Your garage, closets, or basement storage area are perfectly acceptable spaces to store the items or packed boxes you do not need at this point. 4. Professional real estate photography has been completed. If your agent is taking their own photos you may want to reconsider agents.
5. Neutralize smells. This is especially important if you have pets or like to cook a lot. It is best to let the home air out if temperatures allow. However, if that is not possible try a neutral plug-in air freshener. 6. Temperature. Again don’t be jumping over dollars to save pennies. Keep your home warm for winter showings, 72, or cool for summer showings, 68. If a buyer is not comfortable in your home they will leave. This can cost you days on the market and, most likely, thousands of dollars.
THE SMART SELLER
These rooms are not market ready.
These rooms are market ready.
24
What should a Listing Agent have to get Showings? A Marketing Plan! Anyone can just put a home on the MLS. That is not marketing and that will not get you top dollar. If there is just one job of a listing agent, it is to provide you with highquality marketing and a marketing plan. This will get you not only the most buyers, but the right buyers into your home. Here’s a start:
25
1. Prelist marketing. Not only is this a great way to test prices, as mentioned before, it is also perfect for getting the snowball of interest going on your property. 2. Utilizing national real estate search engines. It sounds basic, but some agents never post their listings on these sites. Many agents also never verify the accuracy of the information listed. Make sure your home shows up and specs out correctly. Keep in mind these sites can take a few days to update past information. 3. If your price range allows, bracket pricing may get you 1.5 to 2 times the amount of buyers viewing your property. The old days of listing at 299,900 are over. 300k on the button will get you all buyers looking up to 300k and all buyers looking 300k and above, due to how most search tools work. List your home at 299k and miss out on those who are looking at 300k and over. This not only applies at the
THE SMART SELLER
100k marks, but also the 50 and 25k marks. It may be worth it to bump or drop your price a bit for the added activity. Sometimes this can be the difference in achieving multiple offers driving the sale price even higher. 4. Using social media is at least ten times more effective than print and is where most of the marketing money should be spent on your listing, outside of photography and staging. This is hands down the most effective way to target your most likely buyers. 5. Your agent networking is one of the early forms of marketing, and is still very effective in spreading the word and getting more buyers in to see your listing.
6. Open houses. It is not to likely that a buyer will come to the open house and decide to make an offer. However, what is more likely is that a neighbor, parent, friend, or coworker comes to the open house and tells a potential buyer that they might like it and to set up a showing. Those nosy neighbors can now be your friends when it is time to sell. In fact, up to ten percent of home sales can be directly or indirectly tied to open houses. 7. An extended marketing plan. If you do not have an accepted offer after the first couple weeks of hype have passed, it is good to know your agent has some additional marketing contingencies in place, other than just asking for a price reduction. Sometimes a simple photo order change, exterior photo reshoot, or relisting under a new MLS number can assist in generating additional activity.
26
The BRIX Real Estate Marketing Plan
HOW WE SELL YOUR HOME PRESALE
Preparation Walkthrough
Staging & Photography
Zillow Coming Soon
Agent to Agent Networking
Pre-MLS Facebook Ads
ON MLS
IDX
BEYOND MLS
Homespotter, Social Media Ads, Open Houses, Mailers, & Reverse Prospecting
27
SOLD
THE SMART SELLER
Don’t Oversell It! Setting and meeting a buyer’s expectations is one of the most important things when trying to get someone excited about your house. Imagine you’re a buyer, reading listing remarks that describe a master bath, a fourth bedroom, a fantastic guestroom, and a lower level three-quarter bath. Then imagine that the photos to the right are what you see when you go in for a showing. Would you feel excited or disappointed? Although the examples here are extreme, it can sometimes be better to say nothing about the non-traditional spaces in your home. Whether it is a finished basement with painted foundation walls and flooring or that extra room with low ceilings upstairs, it is best to let the buyer find those extra spaces themselves and see the potential.
28
The Importance of Feedback Only thirty to fifty percent of buyer’s agents will submit feedback. Most agents that plan to submit an offer will never share feedback. It makes sense. Would you want to show your hand and let the seller know how you really feel about the home and how it is priced in feedback or just say nothing while you put together your plan for your offer? Some agents even say the only real feedback is an offer.
Where we think feedback to be most valuable is in helping identify fixable issues: offensive smells, cosmetic repairs/ updates, or just priced too high for the current market conditions. If you are hearing the same thing regarding a fixable issue from three or more buyers, take the feedback very seriously.
That said, there is value to feedback. However, it is not something you want to stress over on the individual basis. We have seen listings that are advertised as 600 square feet and the feedback says, “the buyer did not like the home because it was too small and it is overpriced.” In that instance, either the buyer did not take the time to look at the specs or the agent did not listen to the buyer’s needs. So is that buyer feedback really useful?
29
THE SMART SELLER
Is a Lowball Offer a Bad Offer? All offers are good offers. You just need to decide how you are going to respond to or leverage an offer. The first thing to understand is that often the reason for a buyer’s lowball offer has to do with their own emotional attachment. They see and love your house, but also start seeing the repairs and improvements they would like to make. Then, they start slashing those estimated costs off your listing price. Here’s the thing: they love your house. With recognition and minimal concessions, whether it is on the closing timeline, earnest money, closing costs or price, you may see drastic movement on the buyers behalf. Ninety percent or more of the time, the first offer you receive after counteroffers to their highest point, will be the best offer you see during your active time on the market.
So what if you have pretty high activity on your listing but you get a lowball offer? Whatever you do, don’t ignore it, leverage it! To properly leverage a lowball offer, buy yourself some time. Have your agent let the buyer’s agent know that due to high activity, you want to think about it over the next day or so before countering. During this time, you want to let any showings booked go through over the next day or so, and let new potential buyers know that there’s already an offer on the house after their viewing. Then, let any potential buyer’s agents know you have another offer you’re planning on countering soon. You are now using the first offer as “bait” to get other bigger offers. If no bigger or better offers come, then counter that first offer you received.
30
Handling Multiple Offers With the right pricing, market conditions, and marketing, you may find yourself with multiple offers. However, don’t drag your feet and try to force multiples and potentially lose a good offer. You may have heard the old saying, “bird in the hand is better than two in the bush.” You never want to risk losing a good offer only for the purpose to try to get another offer.
31
If you have multiple offers, or it looks like you are going to have multiple offers, be decisive and set deadlines. Let any standing offers know you are calling for “highest and best offers” within twenty-four to fortyeight hours. Only let showings know about the other offers after they have viewed the home. If you notify them prior to showing, there is a high likelihood they might cancel their showing to avoid a bidding war. Give them an opportunity to fall in love with your home first.
THE SMART SELLER
Multiple offer situations are not actually bidding wars. It is very rare that any of the offers know what the other offers are.
Sometimes, the best offer isn’t just about pricing. Some questions you may ask about each offer:
Usually each buyer will have an opportunity to put forth their “highest and best offer” and the seller will choose one to work with. Sometimes you may counter a “best offer” to get it to be “highest and best.”
• • • •
Does the closing timeline work for you? What type of financing are they using? Is the buyer’s lender reputable? Are there any concerns that the home might not appraise at the offer price? If that is a concern are the buyers willing to give an appraisal guarantee? • Has the buyer owned a home before? Your agent should talk through each offer so they can be vetted properly, allowing you to choose the one that works the best for you.
32
Who Pays the Closing Costs? Closing costs are one of the most confusing concepts of the sale process for both buyers and sellers. This is completely understandable, because most real estate agents and loan officers do not effectively communicate what the closing costs are, who pays them, and what the net effect is. The first thing to understand is what the closing costs are for both the buyer and seller. Seller’s closing costs are composed of the following: • Realtor commissions for both the buyer’s agent and seller’s agent • Broker administrative fee • Title fees • State deed tax
33
Buyer’s closing costs are composed of the following: • Property tax escrow • Homeowner’s insurance escrow • Loan fees, including rate buydown if applicable • Broker administrative fee • Title settlement charges • Lender’s and buyer’s title insurance Another thing to understand is that if the buyer is asking the seller to pay the closing costs in the offer—known as seller paid contribution to buyer’s closing costs—the seller never actually pays the closing costs. See the next page for an example that will hopefully clarify closing costs.
THE SMART SELLER
A buyer goes to make an offer on a onebedroom condo. The list price of this condo is $105,000. The buyer and their agent determine that the condo is valued at $97,000.
B) OUT OF POCKET The buyer decides to pay their closing costs out of pocket thus increasing their cash required at closing by $3,000. They offer the seller $97,000.
Here are the different ways the buyer can cover their closing costs:
These examples have the same net effect on the seller. The only difference is the loan amount is higher for the buyer in the first example.
A) FINANCED CLOSING COSTS The buyer decides that they would like to finance the closing costs into the loan. Therefore, they will offer the seller $100,000 and request $3,000 in “seller paid contribution to buyer’s closing costs.” This is what is known as financed closing costs. This is essentially offering the seller a net offer of $97,000. The benefit to the buyer is that they have reduced their cash out of pocket at closing by $3,000.
The buyer’s cash out of pocket is greater in the second example and the seller never actually paid the closing costs. This is simply a vehicle to allow buyers to finance their closing costs by artificially inflating the value of the home. So at the end of the day, the buyer always pays their closing costs in one form or another and the seller pays their own closing costs.
34
Navigating an Inspection Contingency It is understandable to not want to be nickeled and dimed by a buyer. Keep in mind that it may be worth a few nickels if they’ve offered you a whole bunch of dimes over your asking price. That being said, how do you keep an average buyer from doing this? This goes all the way back to the “preparing your home for sale” section (pg 13). There can be little things like getting your furnace checked ahead of time that can save you a whole bunch of money later. Every home will still have lots of little things show up in inspection you may have missed when getting your home ready. That is okay; every home has them!
35
To maximize your sale price, you will need to be okay with fixing life safety items such as: electrical, plumbing, gas, and structural issues. Almost any buyer will request these items to be fixed if they come up during inspection. The other items you will want to be willing to take care of are items not common for a home’s age such as: nonoperational windows, doors, garage doors, fireplaces and appliances, just to name a few. You also want your agent to communicate to the buyers agent at the time you are accepting the offer that you are okay with taking care of those items, if they arise. However, state that you are not interested in fixing non-safety related items such as cosmetic repairs or upgrades the buyer would like.
THE SMART SELLER
If some real issues come up, your agent should be able to get you in contact with or arrange for affordable options to take care of any items that you agree to correct. You could offer a price concession instead of the work completion. That does tend to be the more costly route, however. Another option you may consider is to offer the buyer a home warranty if they have concerns due to mechanical systems’ or appliances’ age. This is a third-party product you can purchase which will cover any repairs that may come up over the first year of ownership.
Taking these steps should minimize the cost to you. If you come across an unreasonable buyer, be cautious before canceling their offer due to requests they have made. Depending on their requests, it may be worth accepting it even if unreasonable to avoid the cost of cancelation. Buyers that see a home come back on the market wonder immediately what’s wrong with it. Typically a home that has come back on to the market after failing a buyer’s inspection will sell for about 10k less than whatever the previous offer was for. If you can, avoid canceling unless the request costs are too much or if you have a good backup offer in hand.
36
Post Offer Timeline Once the offer is received the first thing that takes place is the inspection. This is typically within the first ten days after acceptance. Once the inspection contingency is cleared, or an inspection amendment agreement is made, there is a ninety-five percent chance or more that you will make it to closing with that buyer. This is usually followed by the appraisal. No news is usually good news when it comes to the appraisal. Only if there is an appraisal issue with the value or condition will you hear from the buyer’s side regarding it. You are usually in the clear if you do not hear from them within three to four days after the appraisal.
37
A closing day is set in the purchase agreement, but usually an exact time is not set until a few weeks out from closing. This is normal. You may also not see final numbers versus estimates until just a few days to a week or so before closing. This is also normal. The reason is that there are many people from both the buyers and sellers title companies that need to work together to come up with and verify the prorated numbers. They do not want to do this work until it looks like everything is going to clear the loan underwriters in time to make that closing date.
THE SMART SELLER
The closing date is a goal. With over thirty people involved in every real estate transaction from the buyers and sellers to the agents, brokers, title company personnel, inspectors, lenders, processors, appraisers, underwriters, and more, sometimes unintentional delays happen. It can take one person calling in sick to potentially throw a closing day off. That said, the odds are pretty good to hit your closing date. Typically eighty percent or more of homes close on the originally scheduled closing date.
If you are scheduling movers, try to find ones that are flexible just in case. Wait until a few days out from closing to transfer utilities so you don’t have to do it twice. *Special note: If you are selling a condo, townhome or any property with an association, make sure you order a copy of all association documents for the buyers review. This is a requirement and includes, but is not limited to, association bylaws, rules and regulations, financials and resale disclosure certificate.
38
The Stats Congratulations, Smart Seller! If you follow the steps in this book, you will have not just accomplished selling your home, but you will have most likely received the best price or terms or both that the market conditions in your area will allow. How can you know this for sure? Below is a list of the resources used for the market stats mentioned in this book. The Northstar MLS Quality of marketing sale price stats, days on market, commission differential, staged versus not-staged sale prices. Showingtime Days on market stats, feedback rate, days of the week to list stats. Infosparks Time of year market conditions.
39
BRIX Real Estate Open house stats, offer closing rate, closing date stats.
THE SMART SELLER
Frequently Asked Questions How are showings scheduled? When your listing goes live, you will receive access to a mobile app that will allow you to review, approve or decline showing requests. Alternatively, you can confirm showing requests via text or email. If there is any difficulty with this, you can always communicate with your agent and she/he can approve or decline a showing for you. Should a seller allow overlapping showings? Yes, this creates a sense of urgency with any buyers that are viewing the property at the same time as others. Should a seller be present for showings or the inspection? No, it is best to practice to leave the property for showings and inspections as this is the buyer’s opportunity to experience the property for themselves with their chosen representatives.
Will the listing agent be attending buyer showings? It is typically not advised to have the listing agent at a showing as this is a time for the buyer to discuss the property with their trusted agent. There are some exceptions to this for very unique properties. If this is a concern, please discuss this with your agent. Who hosts an open house? An open house can be hosted by either the listing agent or an associate from the listing agent’s brokerage. An agent who is not the listing agent adds a degree of separation between the seller and buyer and can better facilitate the openness and questions that can lead to offers.
40
Should a seller be present for the lender appraisal? It is not necessary to be home during an appraisal. If it is inconvenient to leave, it is typically okay to be home during the appraisal as a buyer is rarely in attendance. How clean should the house be at the time of closing? All personal property and pets which were not negotiated to transfer should be removed as well as any trash. Carpets should be vacuumed, floors swept, refrigerator/freezer cleaned and countertops/cupboards wiped clean.
41
What should a seller bring to closing? The title company will usually have all the documentation needed regarding the mortgage and title/deed. However, if they don’t, they will reach out regarding document requests. Most of the time, all you will need is government-issued ID. Who arranges to pay off the seller’s mortgage when the property closes? The title company will arrange to satisfy any mortgages/equity loans or other liens at closing.
THE SMART SELLER
A P PE N D I X A : H OW B U Y E R S F O U N D T H E I R H O M E
The National Association of Realtors did a recent study of how buyers found out about the home they purchased. Here are those results: Internet: 50% Recommendation from their real estate agent: 28% Yard sign or open house: 7% Friend, relative or neighbor: 7% Through a home builder: 5% Directly from sellers/knew the sellers: 2% Print advertisement: 1%
42
A P PE N D I X B : I N S TA N T O R G UA R A N T E E D O F F E R S
The instant offer or guaranteed offer has been around for a long time. Traditionally, these have been offered by local real estate investors and usually target estate sale properties. They would have tag lines such as “sell your house for cash now” or “sell as-is.” Only recently have larger national corporations taken on these endeavors. These types of sales can make sense for a seller in the right situation. However, these companies completely understand that this is only about one percent of homeowners. It typically makes the most sense for a seller who does not have time to deal with the property and doesn’t care about the money that may be lost.
As mentioned in the section of this book “Preparing your home for sale” (pg 13), you could lose up to fifteen to twenty percent by not putting in the effort to get your house ready to sell or selling it as-is. It should be no surprise then that these companies on average offer between eighteen to twenty percent under the after repair value or market value (ARV). That being said, it does not usually hurt anything to get an estimated offer from one of these companies. However, do not take it as a best value of your property without getting a second opinion from a professional.
A P PE N D I X C : AG E N C Y D I S C LO S U R E S
When you start meeting with real estate agents they are required by their governing rules to present to you a form called Agency Relationships in a Real Estate Transaction. 43
We have included a copy of this form on the next page so you are prepared when the time is right.
THE SMART SELLER
AGENCY RELATIONSHIPS IN REAL ESTATE TRANSACTIONS 1. Page 1 2. 3. 4. 5. 6. 7. 8.
MINNESOTA LAW REQUIRES that early in any relationship, real estate brokers or salespersons discuss with consumers what type of agency representation or relationship they desire.(1) The available options are listed below. This is not a contract. This is an agency disclosure form only. If you desire representation you must enter into a written contract, according to state law (a listing contract or a buyer/tenant representation contract). Until such time as you choose to enter into a written contract for representation, you will be treated as a customer and will not receive any representation from the broker or salesperson. The broker or salesperson will be acting as a Facilitator (see paragraph IV on page two (2)), unless the broker or salesperson is representing another party, as described below.
9. 10. 11.
ACKNOWLEDGMENT: I/We acknowledge that I/we have been presented with the below-described options. I/We understand that until I/we have signed a representation contract, I/we am/are not represented by the broker/salesperson. I/We understand that written consent is required for a dual agency relationship.
12.
THIS IS A DISCLOSURE ONLY, NOT A CONTRACT FOR REPRESENTATION.
13. (Signature)
(Date)
(Signature)
(Date)
Seller’s/Landlord’s Broker: A broker who lists a property, or a salesperson who is licensed to the listing broker, represents the Seller/Landlord and acts on behalf of the Seller/Landlord. A Seller’s/Landlord’s broker owes to the Seller/Landlord the fiduciary duties described on page two (2).(2) The broker must also disclose to the Buyer material facts as defined in MN Statute 82.68, Subd. 3, of which the broker is aware that could adversely and significantly affect the Buyer’s use or enjoyment of the property. (MN Statute 82.68, Subd. 3 does not apply to rental/lease transactions.) If a broker or salesperson working with a Buyer/Tenant as a customer is representing the Seller/Landlord, he or she must act in the Seller’s/Landlord’s best interest and must tell the Seller/Landlord any information disclosed to him or her, except confidential information acquired in a facilitator relationship (see paragraph IV on page two (2)). In that case, the Buyer/Tenant will not be represented and will not receive advice and counsel from the broker or salesperson.
14. 15. 16. 17. 18. 19. 20. 21. 22. 23.
I.
24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34.
II. Buyer’s/Tenant’s Broker: A Buyer/Tenant may enter into an agreement for the broker or salesperson to represent and act on behalf of the Buyer/Tenant. The broker may represent the Buyer/Tenant only, and not the Seller/Landlord, even if he or she is being paid in whole or in part by the Seller/Landlord. A Buyer’s/Tenant’s broker owes to the Buyer/Tenant the fiduciary duties described on page two (2).(2) The broker must disclose to the Buyer material facts as defined in MN Statute 82.68, Subd. 3, of which the broker is aware that could adversely and significantly affect the Buyer’s use or enjoyment of the property. (MN Statute 82.68, Subd. 3 does not apply to rental/lease transactions.) If a broker or salesperson working with a Seller/Landlord as a customer is representing the Buyer/Tenant, he or she must act in the Buyer’s/Tenant’s best interest and must tell the Buyer/Tenant any information disclosed to him or her, except confidential information acquired in a facilitator relationship (see paragraph IV on page two (2)). In that case, the Seller/Landlord will not be represented and will not receive advice and counsel from the broker or salesperson.
35. 36. 37. 38. 39. 40. 41. 42. 43.
III. Dual Agency - Broker Representing both Seller/Landlord and Buyer/Tenant: Dual agency occurs when one broker or salesperson represents both parties to a transaction, or when two salespersons licensed to the same broker each represent a party to the transaction. Dual agency requires the informed consent of all parties, and means that the broker and salesperson owe the same duties to the Seller/Landlord and the Buyer/Tenant. This role limits the level of representation the broker and salesperson can provide, and prohibits them from acting exclusively for either party. In a dual agency, confidential information about price, terms and motivation for pursuing a transaction will be kept confidential unless one party instructs the broker or salesperson in writing to disclose specific information about him or her. Other information will be shared. Dual agents may not advocate for one party to the detriment of the other.(3)
44. 45. 46. 47.
Within the limitations described above, dual agents owe to both Seller/Landlord and Buyer/Tenant the fiduciary duties described below.(2) Dual agents must disclose to Buyers material facts as defined in MN Statute 82.68, Subd. 3, of which the broker is aware that could adversely and significantly affect the Buyer’s use or enjoyment of the property. (MN Statute 82.68, Subd. 3 does not apply to rental/lease transactions.)
I have had the opportunity to review the “Notice Regarding Predatory Offender Information” on
48. (initial)
(initial)
49.
page two. (2)
MN:AGCYDICS-1 (8/14)
44
AGENCY RELATIONSHIPS IN REAL ESTATE TRANSACTIONS 50. Page 2 51. 52. 53. 54. 55. 56. 57. 58. 59. 60. 61. 62.
IV. Facilitator: A broker or salesperson who performs services for a Buyer/Tenant, a Seller/Landlord or both but does not represent either in a fiduciary capacity as a Buyer’s/Tenant’s Broker, Seller’s/Landlord’s Broker or Dual Agent. THE FACILITATOR BROKER OR SALESPERSON DOES NOT OWE ANY PARTY ANY OF THE FIDUCIARY DUTIES LISTED BELOW, EXCEPT CONFIDENTIALITY, UNLESS THOSE DUTIES ARE INCLUDED IN A WRITTEN FACILITATOR SERVICES AGREEMENT. The facilitator broker or salesperson owes the duty of confidentiality to the party but owes no other duty to the party except those duties required by law or contained in a written facilitator services agreement, if any. In the event a facilitator broker or salesperson working with a Buyer/ Tenant shows a property listed by the facilitator broker or salesperson, then the facilitator broker or salesperson must act as a Seller’s/Landlord’s Broker (see paragraph I on page one (1)). In the event a facilitator broker or salesperson, working with a Seller/Landlord, accepts a showing of the property by a Buyer/Tenant being represented by the facilitator broker or salesperson, then the facilitator broker or salesperson must act as a Buyer’s/Tenant’s Broker (see paragraph III on page one (1)).
63. 64.
(1)
This disclosure is required by law in any transaction involving property occupied or intended to be occupied by one to four families as their residence.
65. 66. 67. 68. 69. 70. 71. 72. 73.
(2)
The fiduciary duties mentioned above are listed below and have the following meanings: Loyalty - broker/salesperson will act only in client(s)’ best interest. Obedience - broker/salesperson will carry out all client(s)’ lawful instructions. Disclosure - broker/salesperson will disclose to client(s) all material facts of which broker/salesperson has knowledge which might reasonably affect the client(s)’ use and enjoyment of the property. Confidentiality - broker/salesperson will keep client(s)’ confidences unless required by law to disclose specific information (such as disclosure of material facts to Buyers). Reasonable Care - broker/salesperson will use reasonable care in performing duties as an agent. Accounting - broker/salesperson will account to client(s) for all client(s)’ money and property received as agent.
74. 75. 76. 77.
(3)
If Seller(s)/Landlord(s) elect(s) not to agree to a dual agency relationship, Seller(s)/Landlord(s) may give up the opportunity to sell/lease the property to Buyer(s)/Tenant(s) represented by the broker/salesperson. If Buyer(s)/ Tenant(s) elect(s) not to agree to a dual agency relationship, Buyer(s)/Tenant(s) may give up the opportunity to purchase/lease properties listed by the broker.
78. 79. 80. 81. 82.
NOTICE REGARDING PREDATORY OFFENDER INFORMATION: Information regarding the predatory offender registry and persons registered with the predatory offender registry under MN Statute 243.166 may be obtained by contacting the local law enforcement offices in the community where the property is located, or the Minnesota Department of Corrections at (651) 361-7200, or from the Department of Corrections Web site at www.corr.state.mn.us.
MN:AGCYDISC-2 (8/14)
BRIX Real Estate is a boutique brokerage operating in the Twin Cities that puts clients first in every respect. By celebrating and refining the craft of real estate, participating in the betterment of our local community and taking great pride in the relationships we build, we work tirelessly to provide exceptional service and an elegant, streamlined approach to every aspect of our service.
BRIX St. Paul 1390 7th Street West St. Paul, MN 55102
BRIX Burnsville 201 W Burnsville Parkway, Suite 150 Burnsville, MN 55337
BRIX Minneapolis 748 N 3rd Street, #100 Minneapolis, MN 55401
BRIX Maple Grove 6885 Sycamore Ln N, Suite 105 Maple Grove, MN 55369 (612) 927-2749 ¡ brixtwincities.com
The Right Tools & Techniques Selling your home is likely one of the largest financial transactions you will make. This is a concise, yet comprehensive guide to the home selling process, from selecting a real estate agent to understanding closing costs. As a smart seller, you will have the right tools and techniques to give you an edge in today’s real estate market.
The Smart Home Buyer A guide through one of your biggest financial decisions and on how to leverage the market to your advantage.
The Right Tools & Techniques According to a Zillow group study, there are five things many buyers wish they would have done differently: 1. 2. 3. 4. 5.
2
Started the learning process earlier Decided to buy versus rent sooner Chosen a different home Chosen a different location Used different or more online searching and researching tools
This book is designed to help you avoid the regrets that many buyers have faced in the past. The information contained in this book should put you in the driver’s seat with the right tools and knowledge to be the Smart Home Buyer.
THE SMART HOME BUYER
Table of Contents 1. The Two Ways to Buy a Home 2. Set Yourself Up for Success 3. Who Should You See First? 4. Who Represents You? 5. You’re Not Ready Until You’re Pre-Approved 7. What Loan Works for You? 9. Mortgage Shopping 11. Understanding Closing Costs 13. Home Priority Checklist 14. Finding the Right Floor Plan / Layouts 17. Use the Right Tools 19. Research the Home
21. Finding the Best Deals 23. Setting Up Showings 24. At the Home 25. Making an Offer 27. How to Deal with Multiple Offers 29. The Home Buyer Inspection 31. Accepted Offer Timeline & Closing Day 34. Your New Home 35. Home Walk Though Checklist 37. Townhouse & Condo Buying Tips 37. Cost of Saving 38. Agency Relationships
A collection of experience & knowledge from the many great agents at BRIX Real Estate. Special thanks to Kirk Duckwall, Chad Vandelogt, & Myra Jensen 3
The Two Ways to Buy a Home There are two ways to buy a home: the shotgun approach and the surgical approach. Shotgun Approach This approach will end with frustration in one of three ways: 1. You view over 30 homes in-person, feel like there is nothing out there that you love, and you stop your search after months of looking. 2. You felt pressured into buying a house and aren’t confident that it’s the right house for you. 3. You found a house, but feel your agent or lender did not have your best interests in mind. You aren’t sure if you could have gotten a better price or better terms for the home.
1
Surgical Approach This approach will usually end in one way: finding a home that you are confident is the right one for you. You’ll know this home fits within your priority checklist. You will have experienced your agent and lender working directly with you to secure the best price and terms. In this book, we will focus on the surgical approach.
THE SMART HOME BUYER
Set yourself up for success. Don’t be in a rush. The top five homebuyer mistakes are made when people rush into buying a home. These are as follows: 1. Not using the right home searching and researching tools 2. Not doing a homebuyer priority checklist 3. Not knowing what home style will work best for you 4. Not having financing or the right financing set up at the time you find the home you want to make an offer on. 5. Overpaying for a home
However, the first thing to avoid is putting yourself into a rushed position. Don’t play the lease roulette game. If you are in a lease, start your search as early as you can. Don’t have much time left on your lease? Then get on a monthto-month lease. We understand that a month-to-month lease is more expensive. However, it is not as expensive as buying the wrong home because you don’t have enough time to find the right one. If you are always relying on when your year-long lease is up you may be severely limiting the homes you have to choose from.
We’ll describe how to avoid these mistakes later in this book.
2
Who Should You See First? Should you start with a real estate agent or a loan officer? It is best to see a real estate agent first or start with both at the same time. A real estate agent can help you establish the property type that works for you by going out on a few showings to get your feet wet. The best loan for you can be dependent on the property type, location or condition. Starting with a loan officer first can get you pre-approved for the wrong type of loan. For instance, a loan officer may preapprove a client for an FHA loan without knowing that the buyer is looking for a home that they might want to fix up a bit. Many fixer-uppers are not approved for FHA financing due to conditional restrictions. It can also be common for a buyer to get pre-approved for a loan that will not work in the area they are
3
looking to buy in or for a loan that could eliminate many condos and townhomes. This can ultimately cause you to lose your dream home to another buyer that has pre-approval for the appropriate financing. Once you figure out with your agent what property type, areas and condition you are interested in, you’ll want to start the home loan application process right away. An early loan application can do nothing but help you in the process. The application process will help you figure out what loans and programs may be available to you. It may also give you an idea if there is anything you can do with your credit rating to help reduce your interest rate. Finally, it is the only way to get the approval letter you will need when you find the home you want.
THE SMART HOME BUYER
Who Represents You? Most people choose to have a buyer’s agent working for them due to the size and importance of this transaction. An experienced full-time agent can be even more valuable. An experienced buyer is considered to have only purchased 3 or 4 homes in their life, whereas an experienced agent may have helped people with that many homes in just one month. A buyer’s agent provides information on individual markets, researches properties, gives advice about the process, and applies their negotiation expertise to get you the best price and terms. A valuable buyer’s agent will do more than point out all of the positives. You probably don’t need help noticing the pretty stuff. The true value comes in when they point out uncommon red flags and other less noticeable resale
objections. The best part is that they do all of this at little or no cost to you. You do not want to choose your realtor out of obligation (for example, a realtor who also happens to be a friend or relative). Also be wary of making a choice just based on ease of access (the listing agent, for example). Be cautious of agents who try to show their value through using a gimmick like a commission rebate. This is one of your biggest financial decisions. You want to choose an agent with a wealth of knowledge who can be your guide, your representative, and a problem solver. This should be someone you want to work with and talk to—not just another real estate agent.
4
You’re Not Ready Until You’re Pre-approved First and foremost, apply right away! Some people will say they are not “ready” to apply for a loan yet or they know they will be good when they are “ready.” Hands down, you are not “ready” to be starting your home search until you apply for a loan. There are some unfounded fears about applying for a mortgage and having it wreck your credit. Don’t worry, this will not happen. This is an urban legend, most likely coming from a person who applied for multiple types of credit multiple times all at once thus dropping their score drastically. Applying for a mortgage is not a negative. You can shop with multiple mortgage providers in a short period of time and not have it be treated any differently than if you just applied with one provider.
5
You have nothing to lose and everything to gain by applying early. Such as learning how you might improve your credit score (thus potentially getting you a better interest rate and saving you lots of money). You may also learn that if you pay off a specific small debt that you have, you might increase your purchasing power by thousands of dollars. This is far better than waiting until the last minute to find out you have a higher rate than expected or that you do not meet the debt to income ratio to qualify for the home you fell in love with. Companies that say “click now, get mortgage” are just click bait. The pre-qualification letters they issue are worthless. You want a real pre-approval to be taken seriously as a buyer by a potential seller and their agents. If a listing agent
THE SMART HOME BUYER
does accept one of these pre-qualification letters by chance, you are in for a big surprise. Not only will you now have to provide all those documents you thought you might not need to, but your closing may also be delayed because this was not handled at the time you applied. A delay in closing may cost you extra fees or hassles from movers/friends and potentially a premium cost or per-diem fee to extend the purchase contract. When your documents go through processing, you will find out what your real rate/ pricing will be vs the “click bait” price. This is typically not a happy moment. Many people feel stuck at this point because time may be running out to change lenders. So they’ll just decide to move forward with the “click bait” rates.
Usually all this trouble is for nothing. A quality local lender will surpass any of these “click” lenders in not only fees and rates, but in service as well. Do yourself a favor and get pre-approved with a reputable lender early so you are truly “ready!”
6
What Loan Works For You? Many loan officers will often try to push consumers into one of two types of loans to improve their profits or for their own convenience—not taking into consideration what might be right for you. A good loan officer should be asking a lot of questions and requesting certain documentation upfront. They do this to not only avoid hiccups later in the process, but to also figure out what loan types might be best for you—not just what is best for them. There are many different loan options out there. Here are just a few options, along with some criteria and considerations:
7
CONVENTIONAL The down payment can range from as low as 3% to above 20% if you like. Usually this loan is a good option for people with credit scores in the area of 680 or higher. This type of loan has the least amount of restrictions in regards to what types of properties you can purchase (i.e. condos, townhomes, and fixer-uppers). Many of these loans have the option to remove the mortgage insurance once there is 20% or higher equity in the home. This will lower the monthly payment once it is removed. FHA FHA (Federal Housing Administration) loans are not just for first-time homebuyers. These can be particularly beneficial to people with credit scores that fall in between 600-680. This type of loan is also attractive due to its 3.5% minimum down payment. Families with higher monthly debt payments may also benefit from this type of loan. Unlike conventional loans, the mortgage insurance is collected for the life of the loan.
THE SMART HOME BUYER
VA This is a veteran exclusive loan that is truly 0% down and has no mortgage insurance. VA loans usually have the best loan pricing. Therefore, it is the “go-to” loan for those who are eligible and looking for a single family home. However, it can be difficult to find condos that have associations approved for VA financing.
P O RT F O L I O These loans are for buyers or properties that don’t conform to FHA or conventional guidelines. Portfolio loans may be a good option if you are looking for a fixer-upper or if you are selfemployed. They typically require a higher down payment of 20% or more and may have a slightly higher interest rate.
M H FA , U S D A RU R A L D E V E LO P M E N T, H O M E R E A D Y, & H O M E P O S S I B L E These programs have minimum down payments ranging from 0% to 3% of the sale price. They also may have income limitations based on the area. These are low down payment programs. However, they may not have the best interest rates or payments depending on a person’s financial situation.
8
Mortgage Shopping Advertising tells us that the interest rate is the most important factor when shopping for mortgages. This is just not true. You should start by searching for an experienced local loan officer. Make sure they offer a large variety of products and are knowledgeable about the products that they offer. If they don’t seem confident describing the pros and cons of each product offered based on your financial situation, then it is probably time to talk to another loan officer. Here are the most important things to consider once you have found the best loan for you, in order of importance:
9
1 ) D OW N PAY M E N T The amount of your down payment combined with the loan program will affect your rate. Contrary to popular belief, a higher down payment does not mean you will get a lower rate. Depending on the loan program, you may find lower rates with a lower down payment than someone with 5 to 20% down. So make sure you talk with your trusted loan officer to go over what make the most sense for you. 2 ) T E R M ( L E N G T H O F LOA N ) Reducing the term of the loan by a minimum of five years can effectively save you tens of, if not hundreds of, thousands of dollars in interest over the life of the loan. Reducing the term may also drop your interest rate.
THE SMART HOME BUYER
3 ) M O RTG AG E I N S U R A N C E There is almost always mortgage insurance for loans with less than 20% down. This can make up over a hundred dollars of your total monthly mortgage payment, thus totaling thousands of dollars over the time period that it is applied. Depending on the loan type, you may be able to eliminate the mortgage insurance by doing what is referred to as a single premium within the closing costs of the loan. You could also look into lender-paid mortgage insurance. This could raise the interest rate, but lower the overall monthly payment. 4 ) C LO S I N G C O S T S Within closing costs, there may be a portion dedicated to discount points (buying down the interest rate). There is usually a point where it makes financial sense to buy down the rate slightly. This again is dependent on the loan type.
5 ) I N T E R E S T R AT E As you can see, there are many factors that need to be considered prior to looking at the interest rate. Keep in mind interest rates are borrower specific. The rates advertisers put out for lenders are just ads and not specific to you. Interest rates are adjusted based on the property type, down payment amount, your credit score and potentially your debt-to-income ratio. There may be a slight differential from lender to lender that you may want to consider. However, they usually tend to be very close once all factors are decided. That is why it is vitally important to do apples-to-apples comparisons on all terms and services versus just rate shopping.
10
Understanding Closing Costs Closing costs (seller-paid contributions to buyer’s closing costs) are one of the most confusing concepts of the offer process for buyers and sellers. This is completely understandable because most real estate agents and loan officers do not effectively communicate the net effect to the buyer and seller. Buyers must understand what makes up the closing costs. Buyer’s closing costs are composed of the following:
Here is an example for clarification: A buyer goes to make an offer on a 1 BR condo.The list price of this condo is $105,000. The buyer and their agent determine that the condo is valued at $97,000.
• Property tax escrow • Homeowner’s insurance escrow • Loan fees including rate buy down, if applicable • Broker admin fee • Title settlement charges • Lender’s and buyer’s title insurance The second thing to understand about seller-paid contribution to buyer’s closing costs is the seller never actually pays the closing costs. They are either financed into the loan or paid out of pocket.
11
THE SMART HOME BUYER
So, what are the different ways the buyer can cover their closing costs? A) FINANCED CLOSING COSTS The buyer decides that they would like to finance the closing costs into the loan. Therefore, they will offer the seller $100,000 and request $3,000 in “sellerpaid contribution to buyer’s closing costs.” This is what is actually known as financed closing costs. This is essentially offering the seller a net offer of $97,000. The benefit to the buyer is that they have reduced their cash out of pocket at closing by $3,000.
B) OUT OF POCKET The buyer decides to pay their closing cost out of pocket thus increasing their cash required at closing by $3,000. They offer the seller $97,000. These examples have the same net effect on the seller. The only difference is the loan amount is higher for the buyer in the first example. The buyer’s cash out of pocket is greater in the second example and the seller never actually paid the closing costs. This is simply a vehicle to allow buyers to finance their closing costs by artificially inflating the value of the home.
12
Home Priority Checklist
If this is your first home, remember back to when you were buying your first car— you never thought it was your forever car! Approach buying your first home the same way. Buy a home for what you think you will need for the next five years. The average person stays in their first home for between 3 to 5 years. Setting your sights too high can put you back in another lease or experiencing the “Cost of Saving” (see Appendix C, pg 37). Compromises will be made in every home purchase. This is true for both new construction and existing homes. It is also true for those on a tight budget or very large budget. Buyers should ask themselves some questions: Where do I want my home to be located? How much space do I need and why? Would I be interested in a fixer-upper? Would I be interested in a condo or townhome? Would I be interested in new construction? What features and amenities do I want? What do I really need? 13
The search process will likely take an exhausting amount of time if you do not have a clear understanding of your priorities. There are five main decisions that need to be prioritized, listed below. Order them one through five. If you are shopping for a home with a significant other, we apologize in advance. We call this list the “fight starter.” However, it is vitally important that you come to an agreement as to the order—you can only have one list per couple. Unless, of course, you do not want to find a home. The key is to be honest with yourself. • • • •
Price range Size (floor plan/layout) Condition (updates and amenities) Location (suburb, city, distance from work) • Neighborhood (surrounding homes, parks, schools) Try not to compromise on your top two priorities. This will prevent you from the frustration of looking at the wrong homes while the right ones are selling right in front of your eyes. Some of these priorities you may not know yet and that is ok. If you find yourself saying, “I’m not picky” or “I am open,” it may be beneficial to do an exploratory set of showings with your agent. Check out different layouts, sizes, areas, and so forth. This will help you determine what is truly important and what to steer clear of. THE SMART HOME BUYER
Finding the Right Floor Plan / Layouts Just like most pickup trucks have a lot in common from one manufacturer to another, layouts of specific styles of homes will not vary much from builder to builder. This is equally true for townhomes as well. You should focus on property styles that fit your specific wants and needs. You may come to realize that your desired floor plan/layout may not exist in the location or neighborhood that you were initially looking in. Therefore, you may have to reconsider location if floor plan is a higher priority. The metro area is kind of like the rings of a wedding cake. You will find primarily Victorian-era homes within that first ring. It is next to impossible to find a modified two-story with an open layout within the city limits. Conversely, you are unlikely to find a charming craftsman-style bungalow in an outer ring suburb. Condo and townhouse
layouts also tend to differ between city and suburbs. You will want to set up a series of showings to explore the cities and layouts in order to find the ones that work the best for your situation. If you find yourself looking at multiples of the same layout but you are saying to yourself “something just doesn’t feel right” over and over, then it is probably time to focus on other layouts. You do not want to be focusing on the wrong homes while the right home is still out there somewhere. On the next page, we have put together just a few different styles of homes and the features that you will find within a majority of them. As you will probably realize, some of these layouts will work better for some people’s situations versus others. There are many more styles out there than we’ve presented. You’ll want to discuss the pros and cons of different styles with your agent.
14
Story & a Half This style usually has two bedrooms on the main level and one on the upper. These quite often will have more limited headroom on the upper level unless bump-outs were added.
Two-Level Split Two-level splits typically have a more open kitchen, dining and living area, as well as two bedrooms on the main level and one or two bedrooms on the lower level.
15
THE SMART HOME BUYER
Mid-Century Rambler Many mid-century ramblers will have three bedrooms on the main level. However, one of the bedrooms is considered a flex room. The flex room can either function as an office or dining room at some point depending on your needs. Commonly these homes will have a narrower galley style kitchen with a pocket door.
Two-Story House / Townhome All primary bedrooms will be located on the upper level of a two-story house or townhome. These houses may have a half-bath on the main floor and can be more segmented due to the need for loadbearing supports.
16
Use the Right Tools If you are looking for a great way to increase your stress level and prolong your searching process, try using third-party marketing-based websites. Many of these national websites make their money by selling advertising space to real estate agents and loan officers. They have no obligation to keep their inventory accurate, up to date, or to show all available listings. Some real estate agents and companies choose not to advertise their listings on these sites. A fair percentage of the homes on these sites do not have accurate status updates and often have accepted offers on them. This is yet another example of how you could be looking at the wrong homes while the right ones are selling.
17
THE SMART HOME BUYER
Focus instead on Multiple Listing Service (MLS) direct sites that have broker reciprocity. This means that you will be seeing all possible listings that are active and available within the MLS. The MLS is the main database that all agents and brokers are required to use to list their properties. These sites are also obligated to be accurate and up-to-date with the listing status.
There are many MLS direct real estate sites available to consumers these days. Some are great for map searches. Some sites offer more options to zero in on the features that you want. Other sites offer searches that draw boundaries based on commute times at different times of the day. Some have great assigned school ratings built right in. Others have maps that show crime levels. Therefore, it is advisable to ask your agent which tools suit your situation the best.
18
Research the Home The first thing to realize when researching homes is that pictures can tell a thousand lies. Photo quality can make a good home look bad or a bad home look good. Therefore, your primary focus should not be on the pictures when finding homes that meet your criteria. The first thing to verify is that the property meets your basic goals of bedrooms, bathrooms, location, and price range. Pull up the satellite view from within the map function. This is where you can look for resale objections you may want to avoid. For example, is the home next to a freeway or near train tracks? Then you will want to check the room locations and sizes in written specs from within the individual listing information. If everything looks good, you should consider taking a closer look unless something is found to be a deal breaker from within the photos. Some of the best information from the photos is actually hidden. Look beyond the room itself. Pay attention to markers
19
like hallways, doors, and windows. This may give away the floorplan. For example, do you see the street from the bedroom window? Is there a back entry door in the kitchen? Do you see the same small window from the photo of the front of the house, as you see in the bathroom? If you are interested in learning the home’s value versus the listing price, the best way is to go view the home in person. Then you and your realtor will do a comparison analysis. It can be tempting to use automated evaluators such as Zestimate when looking at an area. However, even according to Zillow, with off-market properties their values are only accurate 66% of the time with 10% of property values and 44% of the time with 5% of property values. For on-market properties, a service like Zestimate takes into account the listing agent’s list price. Then its accuracy jumps to within 5% of 85% of property values. However, this is roughly the same margin of error an average listing agent will have.
THE SMART HOME BUYER
If you are interested in doing additional research on the location at this point, there are a few other great resources. Communitycrimemap.com has a fabulous crime mapping tool. Mncompass.org has all sorts of data about each area such as number of families, age ranges, and number of rentals vs owner occupied properties in the area. If you are interested in how each city’s real estate market is trending, the Minneapolis Area Association of Realtors website is a great resource. They track all the real estate data for each city around the 13 county metro areas and beyond. You can find average days on market for each city, if the average sale price is tracking up or down, and many other stats. The photo on the top of each example is of a home that sat on the market with zero offers. The bottom photo is of the same home that sold very quickly. No updates were made to either home. All that’s different was the adding or changing of the staging, and using a higher quality of photography. 20
Finding the Best Deals It is easy to overlook good homes when viewing them online. A limited number of pictures, poor quality photos, cluttered or empty rooms, outdated flooring, ugly wallpaper, and poor paint colors are all common reasons people decide not to view a particular home. These issues will result in fewer showings, thus creating opportunity for buyers who know how to see past these easily curable objections. Let’s examine each of these visual objections one by one. LIMITED NUMBER OF PICTURES This is quite often a result of a messy interior. This does not always mean that there are problems with the property. It can often signify that the property is currently rented and not in showing ready condition. This often results in a sale price of 15% less than the same property that has been well prepped for showings. P O O R QUA L I T Y P H OTO S This is often the fault of a listing agent
21
who does not understand the importance of high-quality real estate photography. Poor photos can easily cause the property to sell for 10% less than the same home using high-quality photos and marketing. CLUTTERED OR EMPTY ROOMS This purely is an issue of perception with no real cost associated to fix the issue. Oddly enough, a cluttered room and a vacant room can both seem small in the photos. Clutter will suck up the space and make it feel small. Empty rooms lack size perspective and often look small in photos. These two objections can easily result in a 5% reduction in sale price even if high-quality photography is used. O B J E C T I O N A B L E F LO O R I N G & PA I N T These are some of the lowest cost updates that offer some of the biggest returns. Furthermore, homes built before the 70’s are likely to have hardwood floors that are covered by that ugly carpet. Paint is just paint.
THE SMART HOME BUYER
It is about the cheapest and easiest update. Don’t be discouraged by pink and purple walls. A well-marketed home with these objections will often sell for 5-10% less. K E Y S E A RC H I N G T E R M S Foreclosures: What most people know as foreclosures are actually bank-owned properties. The foreclosure process is completed and now the bank owns the home. Purchasing one of these may involve a little extra paperwork or a slightly different offer process. It is best to just be flexible as each bank does it a little differently. Contrary to popular belief, this process does not usually take much longer than purchasing a traditional sale home. Many bank-owned homes will not qualify for certain types of financing due to conditional restrictions and may accept only offers buying with cash or rehab financing. Short Sales: The first thing you will want to know about these is there is nothing
short about a short sale. The term “short sale” comes from the fact that the seller is trying to sell it short of what they owe on the mortgage. The seller’s lender approval process for this can take a long time. However, the wait can be well worth it for those who have the time. You will want to budget 6 months for this process. Estate Sales: An estate sale usually happens when someone is moving on to assisted living or family members are trying to sell a passed relative’s house. In both situations, there is usually a lot of motivation to sell fast because no one is living at the home and costs are accruing rapidly. Relocation Sales: This usually occurs when someone has been relocated due to a job transfer. Quite often the employer will work with a relocation company that may sell the home for a discount to get it off their books. Many times the employer will take on some, if not all, of the costs of selling the home.
22
Setting Up Showings The buyer’s agent that you chose can show you any home from any website regardless of what company has the sign in the front yard. Brokerages cooperate with each other to get homes sold through what is referred to as broker reciprocity. The first thing that you want to do when setting up showings is to verify the MLS listing status. This is a list of the MLS statuses: A: Active: these are available homes Ai: Active with a contingent offer accepted At: Active with an offer contingent on third party approval TNAS: Temporarily not available for showings P: Pending (accepted offer and contingencies removed)
23
Try to keep your showings in the tightest geographic area possible. This will maximize your time at each property. Additionally, it will give you a better understanding of value for that particular area. Always try to set up at least 2 homes when exploring a new area for comparison purposes. Try not to set up more than 5 because they will start to blend together after that. Make sure to look at your top picks first if you have a long list of homes that you want to see. This goes back to the key point of not looking at the wrong homes while the right home is selling.
THE SMART HOME BUYER
At the Home Fewer things will be overlooked if you have a systematic way of viewing the home while on the property.
personal belongings. These items can strategically distract buyers from truly important aspects or issues in the home.
Do an exterior walk-around and pay close attention to potential red-flags. Please refer to the home walk around and walk thru checklist on page 35 for a comprehensive list of things to pay attention to. Do not be afraid to tell your agent that you are not interested in a home if you discover deal breakers at this point. It is better to spend less time in the homes that you do not like thus allowing you to spend more time in the homes that you do.
Instead, pay attention to the plumbing system. Are the pipes galvanized, copper, or PEX? Is there sufficient water pressure and draining? What is the age of the mechanicals and are they operating as they should? Look at the electrical service. Is the service at least 100 amp? Make sure the branch wiring is not aluminum or knob and tube. Pay close attention to the foundation. Make sure there are no cracks larger than 1/8 inch. Are there signs of water intrusion? Is the water intrusion easily corrected? Sometimes water intrusion in an unfinished basement can be easily corrected. This may present significant opportunity to negotiate.
There are exceptions. Sometimes it can be valuable to continue looking at a home if the goal is to get a perspective of value for the area or understanding of a particular layout. Make your way inside after walking around the home. Try not to be influenced by professional staging or the seller’s
These are only some of the items to evaluate while on a showing. Please see page 35 for a comprehensive list.
24
Making an Offer There is often anxiety around making your first offer. However, it is helpful to remember that an offer is just an offer and not a commitment to buy. An agent that is truly representing your best interests will build in the appropriate contingencies allowing you to do your due diligence once you know the seller will work with your offer. Think of it like making an offer on a used car with the stipulation that you would like your mechanic to look at it first. We highly recommend not paying for an inspection or ordering association documents until you have secured that the seller is willing to work with your offer. You could end up wasting a ton of time and money while completely exposing your interest level in the property therefore giving up leverage on price. The first step in making an offer is to establish the value range of the home. You
25
and your agent should look at comparable sales in the area and make the appropriate price adjustments to the comps for attributes that are different from the subject property. It is also a good idea to use a couple automated evaluations for additional data points. Your agent should have access to these tools. The next step is to plan your negotiation strategy. It is important to understand the current local market conditions and potential interest in the home. This is where you decide the price range that would be an acceptable result for you, thus drawing your line in the sand. You should not have an issue sharing this with your agent if trust has been established. This will allow your agent to structure the offer in a way that gives you the best opportunity to get the home at or below the acceptable price with the best possible terms. Every situation is unique. There is no single strategy that works in every situation. Open and honest
THE SMART HOME BUYER
communication with your agent is the only way to achieve the best result. There is more to keep in mind than just price. Sometimes you can get a better deal by being flexible on other terms. For example, sometimes you can get a vacant property at a cheaper price if you have a quicker close date versus a higher offer that has a longer close date. Other terms to consider include the amount of earnest money, strength of financing, and length of the inspection contingency. The earnest money is basically a deposit to show your interest and commitment to the property. It is usual and customary for this amount to be roughly 1% of the total purchase price of the property. However, a higher amount can be attractive to sellers in competitive situations. The type of financing and amount of down payment may influence a seller’s decision. The biggest hurdle for most sellers to get
past after accepting an offer is to make it through the inspection contingency. Therefore, a shorter contingency period will decrease the amount of time for the seller to realize the certainty of the deal reaching the closing table. If you are using seller-paid closing costs (financed closing costs), this will reduce the seller net as we discussed previously. This must be factored into the offer. Cleaner offers will almost always win in competitive situations. Keep the closing time short, reduce the inspection contingency days, and reduce or eliminate financed closing costs if you truly love the home.
26
How to Deal with Multiple Offers Multiple offers happen in two situations: 1. The listing agent underpriced the home considerably, because he or she did not understand the local values. 2. Limited listing inventory can create a seller’s market and infalate value in the short term. If you are in the first situation, you should have your agent establish the true value of the house. Then you need to decide what the home is truly worth to you. Try not to think of multiple offer situations as bidding wars. You will typically have only one opportunity to put forth your highest and best price in a multiple offer situation. The perfect offer is the one price that makes you happy if you win and feel as though you did your best if your offer is not accepted. Try to visualize your agent giving you the news that your offer was not accepted. If you see yourself saying, “I should have bid $1,000 more,” then now is the time to do it. Don’t let “We should have…” happen to you. 27
If you find yourself in the second situation on a particular house, then it may be best to walk away from that one unless it is your dream home and neighborhood market conditions are favorable for the next three to five years. If you do decide you want to put your best foot forward in a multiple offer situation, there are a few ways to do this without going straight to your maximum comfortable price. The first is what is known as an escalation clause. The purpose of this is to offer above any other offer a preset dollar amount. Many buyers will place a cap on the max amount their willing to place to as well. The wording may sound something like this. “The Buyer’s initial offer is list price with an escalation clause of $1,000 over any other offer up to $5,000 over list price. The seller to provide first and signature page of any offer used to set purchase price.” The benefit is that you are not going $5,000 over list price for no reason. Be careful, though. It might sound like you THE SMART HOME BUYER
should do this every time you’re facing multiple offers, but there are plenty of times you might not want to. For example if you are using a lower down payment and you are possibly going against a cash offer a $1,000 over might not cut it. However the full $5000 over list price might. The next clause that you might want to use is an inspection guarantee. Not only can this help in multiple offers, you may find it helpful when trying to negotiate down in price when you are the only offer. With an inspection guarantee, you convey to the seller that you are not going to nitpick on small, common issues that may come up in a home buyer’s inspection. This can allievate a lot of the stress a seller may have regarding the inspection—and you’ll still be protected if large mechanical or structural issues arise. Many times we’ve seen this clause tip the scales—even beating out higher offers.
your word. You are stating, legally, that you are willing to stand by your offer, even if the appraisal value comes in lower than expected. If you decide to do this, we STRONGLY RECOMMEND that you and your agent are extremely diligent about verifying local comparable values to limit the risk of a low appraisal. If the appraisal comes in low, the buyer will need to bring the difference in additional down payment between the offer price and the appraised value. That said, an appraisal guarantee is hands down the most benefitial option in getting our offer accepted in multiple offers. If you can stomach the risk and the potential extra downpayment.
The last option to make your offer stand out is an appraisal guarantee. This conveys to a seller that you are a buyer of 28
The Home Buyer Inspection Skipping the home inspection is not the smart way to buy a home when considering a single family house. There is a good reason that the U.S. Department of Housing and Urban Development and The Federal Housing Administration created a form titled, “For Your Protection, Get a Home Inspection.” The inspection contingency gives the buyer an opportunity to back out of the deal should a major issue be uncovered. It also provides opportunity to further negotiate as a result of the findings.
29
Who is a qualified home inspector? It is not a relative who is an engineer or contractor or a family member who has flipped a home or two. A qualified home inspector is a trained professional whose primary job is home inspections and completes at least 100 inspections a year. A common saying amongst ethical real estate professionals is, “The cheapest inspection can end up costing you the most.” An experienced Realtor will likely have some recommendations of quality home inspectors. Usually, these are the same people they use and trust when they themselves are purchasing a home.
THE SMART HOME BUYER
A quality inspector is going to find an extensive list of noteworthy, marginal, and potentially hazardous items even in newer homes. Some of the most common issues that we see are ungrounded outlets, negative grading, unvented fixtures, and furnaces that need to be safety checked. The key is to concentrate on the life safety issues or issues that are not common to homes of this age.
Here’s a pro tip! Keep your inspection and use it as a guide for maintenance and repairs after you move in.
Try to limit your requests to no more than six items to increase your chances of coming to agreeable terms with the sellers. Keep in mind that these requests will reopen the negotiations and give the sellers the potential to walk away if agreeable terms are not met. If you are unable to limit yourself to six requests, then you should ask if this is the right home for you.
30
Accepted Offer Timeline & Closing Day After the inspection is completed you will work more with the loan officer and the title company and less with your realtor. The title company is vitally important to this process. They are the glue that holds the transaction together. They are responsible for gathering all of the paperwork from all of the appropriate parties (buyer and seller’s agents, loan officers, county offices, etc.). They are also going to set up any mortgage payoffs, lien payoffs, or lien releases. This helps to ensure that you will be taking a clean title. The closing day was established in the purchase agreement, but the title company will be your point of contact to set up the time and location of the closing. They will also be the ones that tell you what you need to bring to the closing table on that day.
31
A homeowner’s insurance policy will need to be provided to the lender prior to closing. Homeowner’s insurance is often overlooked in the home shopping process, but is a vital part of homeownership. Cheaper is usually not better when it comes to homeowner’s insurance. You want to make sure you have the right coverage for when you may need it. Many insurance agents prey on people just looking for the lowest price. They do this by selling you a policy with inadequate coverage. If needed, you will want the full roof coverage, storm damage or sump pump failure on policy—just to name a few. If you don’t have these coverages, it could cost you thousands, if not tens of thousands, extra out of pocket if you need to file a claim and do not have coverage. Just like it is important to talk about all your loan options with your loan officer, you will want to go over your insurance options with a trusted insurance agent.
THE SMART HOME BUYER
Your lender will typically order the appraisal once the inspection is complete. The appraisal is not a verification of value. It is an analysis of risk on the lender’s behalf to ensure their investment. This is apparent, because the vast majority of the appraisal values come in at exactly the purchase price. You will only see the value come in under the purchase price if the risk is too high. Loan underwriting begins during the appraisal. Your mortgage team will make many requests between the time underwriting begins and receiving a clear to close. This is because you are asking to borrow a few hundred thousand dollars. They will ask for similar documents multiple times during the process. They don’t do this by choice. They are required by federal rules and regulations to verify changes in your accounts throughout the process.
Common requests to expect: • Copy of the earnest money leaving your account • Verification of employment • W2’s • Complete copies of tax returns from previous 2 to 3 years • Tracking of gift funds DO NOT open any new lines of credit or make changes to any of your current credit accounts without talking to your loan officer first. You will likely be anxious to learn the exact amount due at closing. Your loan officer should be able to provide a close estimate. However, a precise amount hardly ever gets calculated until the week of closing. This is because closing dates occasionally get changed. Moving the close date by only one day will change many of the costs.
32
As closing day approaches, you will want to put the utilities in your name starting on the closing date. To find the local utility provider, ask your agent or do an internet search of “city name” + “utilities.” A list of available utility providers for the area are often found on the city website. You will also want to set up a final walkthrough with your agent. It is usually best to do this right before closing. This is because you will be able to verify there are no new issues that may have come up between the inspection and the closing day that you did not already know about. If an issue did arise, or something was not taken care of on your inspection request, you can come up with a solution at closing since all of the parties will usually be there.
33
Be prepared to sign a lot of documents when you get to closing. This process typically takes about 45 minutes to an hour. Almost always, you will receive the keys at closing and take immediate possession of the home. Congratulations, you just bought a house.
THE SMART HOME BUYER
Your New Home Just like you would change the oil and do regular maintenance on your car, you will want to maintain your new home. If you take care of your home, your home value will go up over time. Traditional appreciation of maintained properties tracking back to the late 1800s is at about 4.5% per year. However, heavy wear and tear, deferred maintenance, outdated cosmetics, and broken items will lower your realized appreciation.
Many things in your home are easily maintained or updated. As a new homeowner it will be well worth your time to learn these simple skills. From books to YouTube videos there are many great resources to do this. You will be happy you did these things when it comes time to sell. Remember, your inspection report is a great starting point for recommended maintenance and repairs.
34
A P PE N DI X A : H O M E WA L K T H RO U G H C H E C K L I S T
EXTERIOR Roof 1. Damaged or missing shingles 2. Separating or loss of granules on shingles 3. Missing or damaged soffit and fascia Grading 1. Negative grade towards home Windows and Glazing 1. Single pane versus dual pane 2. Missing storm windows (if required) 3. Fogged window panes 4. Missing or cracked glazing 5. Rotting 6. Peeling paint Siding 1. Damaged or missing 2. Peeling paint 3. Excessively cracked stucco Foundation 1. Cracks that are greater than 1/8th of an inch 2. Displacement 3. Bowing 4. Excessive settling
35
Mechanicals 1. AC over 20 years old Deck 1. Deteriorated or rotted decking 2. Structural deficiencies INTERIOR Ceiling 1. Water Staining 2. Sagging 3. Not level Flooring 1. Settling Walls 1. Large settling cracks 2. Water damage Fireplace 1. Dirty 2. Cracked or rusted burn chamber 3. Chimney debris in bottom of fireplace Electrical 1. No GFCI in kitchens and baths “FHA� 2. Grounded outlets 3. Scorching on outlets
THE SMART HOME BUYER
Above-ground Plumbing 1. Low water pressure on top level 2. Leaks under sinks BASEMENT Foundation Walls 1. Moist or wet walls 2. Water stains 3. Cracks that are greater than 1/8th of an inch 4. Displacement 5. Bowing Basement Floor & Floor Line 1. Heaving 2. Excessive cracking 3. Water stain lines
Plumbing 1. Water heater over 15 years old 2. Galvanized piping 3. Corrosion G A R AG E 1. Large cracks or heaving in slab 2. Damaged garage door or frame 3. Issues with garage door opener
* Items in red are red flags and could be potential walk away issues
Heating System 1. Rusted burn chambers & heat exchanger 2. Dusty or dirty 3. Rust on casing 4. Furnace over 20 years old Electrical 1. Fuses 2. Under 100 AMP
36
A P PE N DI X B : TOW N H O U S E A N D C O N D O B U Y I N G T I P S 1. Buy in a location that will have long-term value. Look for easy freeway access, close to shopping and restaurants, or in a walkable area. 2. Find out if there are rental restrictions. If too many rentals are allowed it may not qualify for certain types of financing and could be hard to sell. On the flipside, if none are allowed it may limit your options if you need to move in a slower market. 3. Do the association dues budget for exterior repairs or is each unit assessed every time repairs are required?
4. Be aware of associations that have dues lower than similar townhomes in the area. Associations that have these may not be budgeting appropriately, increasing the risk of high assessments. 5. Just because it looks like a townhome does not mean it is a townhome. For a townhome to be truly a townhome (versus a condo), it needs to have a lot and block legal description on title. If it does not, it is more than likely a condo and therefore may have a harder time qualifying for certain types of financing such as FHA or VA.
A P PE N DI X C : C O S T O F S AV I N G Many buyers, at one point or another in their searching process, may think about delaying their search so they can save more money to buy the home they really want. More often than not, this is due to buyer fatigue from too many showings or multiple offers being rejected. Sometimes, buyer fatigue comes from lease roulette: when a lease is almost up and a buyer feels like they either don’t have enough time to make a purchase or that the housing inventory is too low during their search. Don’t get us wrong—you should never buy a house until you find the right house for you. 37
That being said, there is no getting around that there is a cost to delaying your search for significant periods of time. In the last 100 years, the real estate market has moved in a negative direction only twice over a twelve month period of time. This was during the Great Recession and the Great Depression. So we can pretty confidently say that most likely the market is moving upwards when you are looking. On average, our market trends up about 4.5% per year. This means if you are buying a home in the median sale price range of around 275k, you will THE SMART HOME BUYER
need to save right around $12,000 just to buying that same home next year. If you do not think this will happen to you, you can verify that more than likely it will by visiting the Minneapolis Area Association of Realtors website. There, you can look at the market trends for all the suburbs and city neighborhoods. You can even view these stats by property type and price range. You may be unpleasantly surprised to find that the appreciation rate tends to be higher than 4.5% in many areas in price ranges below 400k. So how do you continue your search without delaying and throwing away 12k or more?
First, make sure you are focusing your search on what you need in a home over the next 5 years; don’t get stuck in the forever house myth. The home buyer priority check list (pg. 13) should help with this. Second, make sure you can go to a shortterm lease option if needed while searching for the right home. Finally, be patient— certain times of year have lower inventory, increased competition, or both. However, if you follow these steps you will find a home you love. Side note: If you truly want to increase your buying power, talk to your loan officer about what paying off any small debts might do. You can also talk to them about whether or not there are any mortgage insurance reduction options that might help. If you can reduce your monthly debt payments by $100, that will increase your buying power by about $20,000.
A P PE N D I X D : AG E N C Y R E L AT I O N S H I P S When you start meeting with real estate agents they are required by their governing rules to present to you a form called “Agency Relationships in a Real Estate
Transaction.” We have included a copy of this form on the next page so you are prepared when the time is right. 38
AGENCY RELATIONSHIPS IN REAL ESTATE TRANSACTIONS 1. Page 1 2. 3. 4. 5. 6. 7. 8.
MINNESOTA LAW REQUIRES that early in any relationship, real estate brokers or salespersons discuss with consumers what type of agency representation or relationship they desire.(1) The available options are listed below. This is not a contract. This is an agency disclosure form only. If you desire representation you must enter into a written contract, according to state law (a listing contract or a buyer/tenant representation contract). Until such time as you choose to enter into a written contract for representation, you will be treated as a customer and will not receive any representation from the broker or salesperson. The broker or salesperson will be acting as a Facilitator (see paragraph IV on page two (2)), unless the broker or salesperson is representing another party, as described below.
9. 10. 11.
ACKNOWLEDGMENT: I/We acknowledge that I/we have been presented with the below-described options. I/We understand that until I/we have signed a representation contract, I/we am/are not represented by the broker/salesperson. I/We understand that written consent is required for a dual agency relationship.
12.
THIS IS A DISCLOSURE ONLY, NOT A CONTRACT FOR REPRESENTATION.
13. (Signature)
(Date)
(Signature)
(Date)
Seller’s/Landlord’s Broker: A broker who lists a property, or a salesperson who is licensed to the listing broker, represents the Seller/Landlord and acts on behalf of the Seller/Landlord. A Seller’s/Landlord’s broker owes to the Seller/Landlord the fiduciary duties described on page two (2).(2) The broker must also disclose to the Buyer material facts as defined in MN Statute 82.68, Subd. 3, of which the broker is aware that could adversely and significantly affect the Buyer’s use or enjoyment of the property. (MN Statute 82.68, Subd. 3 does not apply to rental/lease transactions.) If a broker or salesperson working with a Buyer/Tenant as a customer is representing the Seller/Landlord, he or she must act in the Seller’s/Landlord’s best interest and must tell the Seller/Landlord any information disclosed to him or her, except confidential information acquired in a facilitator relationship (see paragraph IV on page two (2)). In that case, the Buyer/Tenant will not be represented and will not receive advice and counsel from the broker or salesperson.
14. 15. 16. 17. 18. 19. 20. 21. 22. 23.
I.
24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34.
II. Buyer’s/Tenant’s Broker: A Buyer/Tenant may enter into an agreement for the broker or salesperson to represent and act on behalf of the Buyer/Tenant. The broker may represent the Buyer/Tenant only, and not the Seller/Landlord, even if he or she is being paid in whole or in part by the Seller/Landlord. A Buyer’s/Tenant’s broker owes to the Buyer/Tenant the fiduciary duties described on page two (2).(2) The broker must disclose to the Buyer material facts as defined in MN Statute 82.68, Subd. 3, of which the broker is aware that could adversely and significantly affect the Buyer’s use or enjoyment of the property. (MN Statute 82.68, Subd. 3 does not apply to rental/lease transactions.) If a broker or salesperson working with a Seller/Landlord as a customer is representing the Buyer/Tenant, he or she must act in the Buyer’s/Tenant’s best interest and must tell the Buyer/Tenant any information disclosed to him or her, except confidential information acquired in a facilitator relationship (see paragraph IV on page two (2)). In that case, the Seller/Landlord will not be represented and will not receive advice and counsel from the broker or salesperson.
35. 36. 37. 38. 39. 40. 41. 42. 43.
III. Dual Agency - Broker Representing both Seller/Landlord and Buyer/Tenant: Dual agency occurs when one broker or salesperson represents both parties to a transaction, or when two salespersons licensed to the same broker each represent a party to the transaction. Dual agency requires the informed consent of all parties, and means that the broker and salesperson owe the same duties to the Seller/Landlord and the Buyer/Tenant. This role limits the level of representation the broker and salesperson can provide, and prohibits them from acting exclusively for either party. In a dual agency, confidential information about price, terms and motivation for pursuing a transaction will be kept confidential unless one party instructs the broker or salesperson in writing to disclose specific information about him or her. Other information will be shared. Dual agents may not advocate for one party to the detriment of the other.(3)
44. 45. 46. 47.
Within the limitations described above, dual agents owe to both Seller/Landlord and Buyer/Tenant the fiduciary duties described below.(2) Dual agents must disclose to Buyers material facts as defined in MN Statute 82.68, Subd. 3, of which the broker is aware that could adversely and significantly affect the Buyer’s use or enjoyment of the property. (MN Statute 82.68, Subd. 3 does not apply to rental/lease transactions.)
I have had the opportunity to review the “Notice Regarding Predatory Offender Information” on
48. (initial)
(initial)
49.
page two. (2)
MN:AGCYDICS-1 (8/14)
39
THE SMART HOME BUYER
AGENCY RELATIONSHIPS IN REAL ESTATE TRANSACTIONS 50. Page 2 51. 52. 53. 54. 55. 56. 57. 58. 59. 60. 61. 62.
IV. Facilitator: A broker or salesperson who performs services for a Buyer/Tenant, a Seller/Landlord or both but does not represent either in a fiduciary capacity as a Buyer’s/Tenant’s Broker, Seller’s/Landlord’s Broker or Dual Agent. THE FACILITATOR BROKER OR SALESPERSON DOES NOT OWE ANY PARTY ANY OF THE FIDUCIARY DUTIES LISTED BELOW, EXCEPT CONFIDENTIALITY, UNLESS THOSE DUTIES ARE INCLUDED IN A WRITTEN FACILITATOR SERVICES AGREEMENT. The facilitator broker or salesperson owes the duty of confidentiality to the party but owes no other duty to the party except those duties required by law or contained in a written facilitator services agreement, if any. In the event a facilitator broker or salesperson working with a Buyer/ Tenant shows a property listed by the facilitator broker or salesperson, then the facilitator broker or salesperson must act as a Seller’s/Landlord’s Broker (see paragraph I on page one (1)). In the event a facilitator broker or salesperson, working with a Seller/Landlord, accepts a showing of the property by a Buyer/Tenant being represented by the facilitator broker or salesperson, then the facilitator broker or salesperson must act as a Buyer’s/Tenant’s Broker (see paragraph III on page one (1)).
63. 64.
(1)
This disclosure is required by law in any transaction involving property occupied or intended to be occupied by one to four families as their residence.
65. 66. 67. 68. 69. 70. 71. 72. 73.
(2)
The fiduciary duties mentioned above are listed below and have the following meanings: Loyalty - broker/salesperson will act only in client(s)’ best interest. Obedience - broker/salesperson will carry out all client(s)’ lawful instructions. Disclosure - broker/salesperson will disclose to client(s) all material facts of which broker/salesperson has knowledge which might reasonably affect the client(s)’ use and enjoyment of the property. Confidentiality - broker/salesperson will keep client(s)’ confidences unless required by law to disclose specific information (such as disclosure of material facts to Buyers). Reasonable Care - broker/salesperson will use reasonable care in performing duties as an agent. Accounting - broker/salesperson will account to client(s) for all client(s)’ money and property received as agent.
74. 75. 76. 77.
(3)
If Seller(s)/Landlord(s) elect(s) not to agree to a dual agency relationship, Seller(s)/Landlord(s) may give up the opportunity to sell/lease the property to Buyer(s)/Tenant(s) represented by the broker/salesperson. If Buyer(s)/ Tenant(s) elect(s) not to agree to a dual agency relationship, Buyer(s)/Tenant(s) may give up the opportunity to purchase/lease properties listed by the broker.
78. 79. 80. 81. 82.
NOTICE REGARDING PREDATORY OFFENDER INFORMATION: Information regarding the predatory offender registry and persons registered with the predatory offender registry under MN Statute 243.166 may be obtained by contacting the local law enforcement offices in the community where the property is located, or the Minnesota Department of Corrections at (651) 361-7200, or from the Department of Corrections Web site at www.corr.state.mn.us.
MN:AGCYDISC-2 (8/14)
40
BRIX Real Estate is a boutique brokerage operating in the Twin Cities that puts clients first in every respect. By celebrating and refining the craft of real estate, participating in the betterment of our local community and taking great pride in the relationships we build, we work tirelessly to provide exceptional service and an elegant, streamlined approach to every aspect of our service.
BRIX St. Paul 1390 7th Street West St. Paul, MN 55102
BRIX Burnsville 201 W Burnsville Parkway, Suite 150 Burnsville, MN 55337
BRIX Minneapolis 748 N 3rd Street, #100 Minneapolis, MN 55401
BRIX Maple Grove 6885 Sycamore Ln N, Suite 105 Maple Grove, MN 55369
(612) 927-2749 ¡ brixtwincities.com
ŠBRIX REAL ESTATE 2020 V3
The Right Tools & Techniques Buying a home is likely one of the largest financial transactions you will make. This is a concise, yet comprehensive guide to the home buying process, from searching for homes online to closing day and beyond. As a smart home buyer, you will have the right tools and techniques to give you an edge in today’s real estate market.