Common First Time Homebuyer Mistakes to Avoid – Part 2
In part 2 of this article, Realtor© and U.S. military veteran Ed Kunkel shares his experience working with first time homebuyers and how you can avoid these common mistakes. See part 1 here.
Sometimes we take what we consider to be ‘basic understandings’ for granted, and assume others comprehend the same reasoning that we do. When dealing with Real Estate, a small misunderstanding can have huge consequences.
To better understand what happened to a client of mine, let’s look at two ways people buy cars – and real estate. When we’re in the market for a car, for some of us, it will be a cash transaction. While others may take the time to set up a car loan through their bank or credit union first before beginning to shop for a car. In either case, many of us want the dealer to know when we’re negotiating that we’re not concerned about a low payment. We have the financing ready to go, and want the best price.
Now, take that logical practice and apply it to being a buyer of Real Estate. If you are subject to financing (as most consumers are) when purchasing a home, it’s NOT a good idea to keep that little nugget under your hat.
It was several years ago that I represented a buyer that made an offer on a home, and indicated that he will be buying with ‘cash.’ His interpretation of ‘cash’ meant that he got a loan approval through his bank, and they were going to fund the loan when he was ready to buy. He neglected to tell me how he was obtaining his cash. As his agent, I assumed that he had ‘cash’ saved in the bank, and recommended that we get a note from his bank showing proof of funds for the seller’s concerns. This would help secure his offer.
While we were waiting for the bank to honor our request, we still managed to secure the offer without the note. Needless to say, I was surprised to see a conventional loan pre-approval letter from his bank when we received it.
The buyer was bound by a contract signed and agreed to by both parties regardless of the misunderstanding.
There are a number of things that could have gone wrong in this scenario since the offer was subject to cash, not financing. But, in order for the buyer to buy the home, he had to get the loan – he didn’t have actual cash.
The loan was also subject to an appraisal. This means the appraiser could have called out needed adjustments to the home, and the lender would require these adjustments to be done before it issued the home loan. But, there was no protection for the buyer in that event, because the seller would not have had to entertain any corrections required by the lender. According to the contract, there was not lender. It was a cash offer.
There are other problems that could have come up that luckily didn’t. The moral of the story is that clear communication is vitally important. If the purchase agreement included a financing contingency, it would have offered the buyer a better degree of protection and leverage for his interests.
Why do it all yourself, when someone with experience is available to help (at no additional cost)?
It’s a common story – I meet someone at an open house that is in the market to buy a home. They ask me for advice, guidance, search criteria, etc. I provide it, but the buyers do not use me as their buyers agent, but go it alone.
Then they call me over the weekend to let me know that they showed up at an open house, loved it, and bought it on the spot. They’re excited, and they can’t wait to share the news with the nice Realtor® that helped them along.
And all I can say is, congratulations! My intention with the advice and guidance that I offered was to earn your trust and to have the privilege of representing you in the purchase of your home – this is how I earn my living. That being said, it’s my hope that you are being represented well by someone, even if it’s not with me.
I can certainly respect the independent streak many of us have. But consider this: whether or not you have a buyers’ agent to help you with the process, you are paying for one with your purchase. You might as well find a great buyer’s agent to represent you.
The commission a seller pays averages between 5-7 percent of the sale price of the home. That percentage is commonly split in half – one half is distributed to the listing agency (the brokerage that lists/sells the property), and the other half goes to the procuring cause of sale agency (the brokerage that finds/brings the buyer to the property). If the listing agent brings a buyer to the seller, then that agent collects both sides of the commission. It’s a practice called dual agency, and it most commonly benefits the seller more than it does the buyer.
What makes this scenario even more painful is when I get a call from the buyers a few weeks later, asking me for advice on how to deal with certain problems with their offer or how to deal with the listing agent they’re working with. Since I’m not their agent, there’s really nothing I can do for them at that point, other than refer them to an attorney for review of their contract.
So, if you walk into an open house, and the agent inside wants to be your buyer’s agent and the listing agent on the same home, call me or call another reputable agent to represent you instead. You’ll be glad you did.
Ed Kunkel, Jr. is a Managing Broker/Realtor® at Keller Williams Realty in Olympia, Washington. Visit Ed here. Ed’s Military History: Veteran – U.S. Army and Air Force Reserve; Highest rank, E5; 11 years combined military service.