Monday, January 16, 2006

Home Buying Basics Part 2

My last blog covered introductory ideas of research to get educated on the housing market. Here the focus is on choosing a real estate agent for buyers. Hopefully, these practical home buying basics will help make the reader more informed.

Real Estate Agents are normal humans with usual human tendencies governed by their psychological makeup and things that motivate them to take certain actions. All this is usually within the tenets of real estate law.

So if you find a real estate agent acting greedily or another behaving very professionally, it is just normal human behavior that they are exhibiting. They are no different from us regular humans. With this in mind, deal with real estate agents with the same level of trust as you would in other circumstances with other individuals or corporations.

The agent is supposed to have passed an examination conducted by the state in which he/she intended to setup a a real estate agency, and secured a licence for the same. About 80% of real estate agents have a salesperson's license while the rest have a broker's license. The salesperson's license allows an agent to work under a broker or a large broker firm. The broker has larger fiduciary responsibilities including exposure to liabilities compared to the sales person.

So typically, the agent you are dealing with is not a broker although they are usually very well versed with trade , portions of the law, and the market. One important thing to remember is that neither the broker nor the salesperson is an attorney and you should not be asking them questions that have to do with legal aspects of real estate, and if you do, they should not be answering these questions but referring you to a real estate attorney.

The agent can be a seller's agent or a buyer's agent. In fact, the same person can be both a seller's agent and a buyer's agent and although this provides an opportunity for conflict of interest, real estate law places fiduciary responsibility on the agent to act impartially. One could say, "Yeah, right!" and I would agree. As a buyer, you have a choice not to enter into such an arrangement if you are not comfortable with the same. Picking a buyers' agent is a bit of research and a bit of legwork.

One of the first things to do is to verify that the agent has a license and this can be done through the department of real estate's website in California and many other states. Second, get a feel of the track record of the agent. If the agent has typically sold million dollar properties in the past, and you are in the market for say, a three hundred thousand house, then it is quite possible that the agent has enough motivation to attend to only higher level details and getting deals done quickly. While talking to the agent, not only are you getting information on the houses on the market but also on what sort of person this agent is. So be attentive to details. Thirdly, ask questions about the buying process to each agent and jot down points. Go back home, think over it and other aspects, and then ask more questions while keeping a record of the questions and responses. This comes in handy while speaking with other agents and is very helpful in selecting the right agent.

The right agent would take a portion of their time dedicated to you in a pre-arranged meeting explaining details ranging from:
  1. How to make an offer ? What does making an offer entail in terms of cash and documentation?
  2. What does the Offer document contain ?
  3. Counter offers and how to deal with them?
  4. Should you overbid, underbid or match asking price.
  5. What are the comps (comparative final sales price of homes in a certain area).
  6. Conditional offers and what can be included in an offer. Impact of making conditional offers. In a sellers' market, seller dictates terms and typically houses are sold as-is, without any repairs/modifications/rectification of visible and potentially dangerous defects in a house. In a neutral/buyers' market, negotiations on these are possible and one can place conditions with expectation of a successful offer.
  7. How does a preapproval from a bank improve your chances?
  8. Once offer is accepted, what is the remainder of the process? Very few brokers explain these to potential buyers.
  9. What role does the title company play? What does an escrow officer do? What is the excrow process?
  10. What role does the mortgage banker play and what process do they employ to fund your requirements?
  11. What are closing costs and who pays them?
  12. When is the key to house handed over?
  13. What is a home appliance warranty ?
  14. What is home insurance policy and what does it cover?
These are very important areas that a buyer should understand in order to be able to make informed decisions on home purchase and manage the logistics when the actual deal takes place and its time for the move.

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