It’s easy to forgive people for not being sophisticated when it comes to housing and real estate. The average person only sells a home once every five to seven years. A lot can happen in an industry in seven years. For most people buying a home is a confusing and overwhelming process that comes at you like water out of a fire hose.
Owner-occupied homes are a commodity business but, due to all the emotion involved in choosing a home, the marketplace doesn’t feel that way. Agents get paid on commission so they have every incentive to get you to buy more home than you really need and to pay the highest price possible. Housing gets skewed because it’s a commodity market that thinks it’s a luxury market. Here’s what your agent isn’t telling you about that market.
"Your House Will Never Sell for What You’re Asking"
There are two types of home sellers in real estate: those who are asking too much and those who are asking too much and refuse to budge. Even a rookie agent can look at the “comps” (comparable sales) for a particular neighborhood and give you a pretty good ballpark figure for a house after a quick look. Many times your agent will take the listing at a higher price knowing they can work you down to a more reasonable price after your house languishes on the market a few months.
"I Won’t Show You Some Awesome Properties"
In every housing market there are cute houses that are priced well below the luxury end of the market but you’ll never see them because your agent is under no obligation to show them to you. The first thing your agent will show you is some fabulous house that’s just beyond your price range. That raises the attractiveness of the more moderately priced houses he or she will show you next, which will be homes at the upper end of your budget. Your agent will focus on the payment, not the price. That payment they toss around will probably not include private mortgage insurance (PMI), taxes or insurance, all of which will raise that monthly number.
"The House is All Right, But the Neighborhood is a Nightmare!"
When buying a home you should investigate the neighborhood as much as you do the house. Visit during odd times, like Friday and Saturday night after 10 pm and holiday weekends. On some visits you’re not looking so much as listening. You need to hear the typical sounds of the neighborhood including traffic, barking dogs, loud music and, in some extreme cases, gunshots. When you drive through the neighborhood roll your windows down and be on the lookout for basketball hoops. There’s nothing like the THUMP-THUMP-THUMP of kids playing pickup ball in the neighbor’s driveway to ruin a weekend morning. How some people sleep through the noise of their own kids just amazes me.
"Commissions Aren't Fixed"
Other reasons you may not see a particular house: If the seller isn’t paying an agent commission, or the buyer agent’s split is lower. Some real estate brokers are always trying to push the margins and, sometimes, that means stiffing other agents. Agents and offices will also get into tiffs with one another, and even fail to show properties because they have a beef with that seller’s agent. Furthermore, getting you to buy one of your agent’s own listings, called dual agency, is the holy grail of real estate sales, because then the agent keeps both sides of the commission. That’s why agents will always show you their own listings. So don't rely on your agent to bring you everything; actively go out and look in your desired neighborhood.
"Don’t Trust My Home Inspector"
Hire your own home inspector and, even if it’s your brother-in-law, back check him. When I was buying a home I trusted an agent-referred inspector who managed to miss warped siding that was under a class action recall and yet noticed a small problem with the central A/C unit that could be fixed with electrical tape. In fact, don’t trust anyone your agent recommends, whether it’s the closing attorney, mortgage broker or insurance agent. Shop around, find your own people and compare prices.
Our housing market in America is completely dysfunctional and colonial in its approach to technology. There’s absolutely no reason that buying a home should be any more difficult than buying a car, other than the fact that the real estate industry likes the complexity of the market as it is. That complexity, and your resulting reliance on your agent, serves them well. But just as you wouldn't buy a car without doing research, asking questions, shopping around, and even bringing in your own experts, you shouldn't rely on others to tell you how to buy the biggest investment of your life.