Buying first home... Advice?

[SteveS]

Excellent advice all around.  I would also suggest having an attorney that specializes in real estate evaluate any proposed deal.  Considering how much you will likely spend, it can be worth the money.  My brother in law ended up hiring one before he bought some land because there were some issues surrounding an easement that the seller was somewhat vague about.  He was glad he did.

[SalukiFan]

I would highly recommend using the "Most Referred Real Estate Agents" website.  The idea with this site is that they asked real estate agents which of their peers they would use if they were buying or selling a house and the realtors with the most votes are put onto the site.  Here's the address: http://www.mostreferred.com/
We picked our buyer's agent from the realtors on this site and were really happy with her.  I didn't know that much about home buying since it was my first home purchase and our agent really worked with us.  She told us the upside AND the downside of the home we purchased.  That's what you need - someone who has looked at hundreds of houses and can tell you how the home you are looking at stacks up.  Good luck!

[DigMe]

I agree with the things Brad Johnson said.  I think he's being straightforward.

One thing that some realtors do though (I read about this in Cialdini's book "Influence" and I realized after I read it that my realtor had done this) is show you one or more totally crappy, just assed up houses so that the ones they show you after that seem better (which usually has a very effective psychological result).  Not saying that ALL realtors do this but it's documented and ours obviously did this in retrospect.  So, perhaps you could politely tell your realtor that you know this is sometimes done and you don't want your time spent doing that.  

Also, don't get in a hurry to buy a house.  Hopefully you won't have your back against the wall and need to make an offer soon.  Take your time and don't feel rushed.  Find exactly what you want.  We had to pull out of our initial deal after coming to some realizations about the house we'd signed the contract on (realizations that were made when going back and visiting the house on our own time as someone else suggested here) and by the time we did that we had our backs against the wall because my wife was about to go overseas and we needed to have a contract signed before then.  Not that we hate our house but it wasn't exactly what we wanted and we might have held out for something else.  It wasn't so big of a deal though because we'll probably be in this house for, at the most, 5 years.

brad cook

[Brad Johnson]

I'd be careful using the Most Referred site. They require your contact information so they can turn around and sell it.

Brad

[Brad Johnson]

One thing that some realtors do though (I read about this in Cialdini's book "Influence" and I realized after I read it that my realtor had done this) is show you one or more totally crappy, just assed up houses so that the ones they show you after that seem better (which usually has a very effective psychological result).  Not saying that ALL realtors do this but it's documented and ours obviously did this in retrospect.  So, perhaps you could politely tell your realtor that you know this is sometimes done and you don't want your time spent doing that.

That's why you want to join your agent at their office and go through the database together. And make sure they start from scratch on the software - beginning with price information, number of bedrms/bathrms/garage, etc and work up the search criteria. Then, you can go through the list together and pare it back to the best six or seven that you KNOW are good candidates.

Be an active part of the process. If the agent is worth their salt they will welcome your participation because it makes their job soooooo much easier. A good agent welcomes this opportunity because it usually means you will be more satisfied in the end, and you will recommend them to others. It's basic, sound, long-term business strategy - a happy client is the single best advertising in the world. And it's free.

Brad

[The Rabbi]

...and 99% of the buyers I work with are wishy-washy, uncommitted, and generally need their heads examined for trying to waste my time looking at houses they A) can't afford, or B) don't intend to buy anyway, they just want to "see it for fun" on MY time and gas.

If you are getting stuck consistently playing tour guide to buyers then that isnt the buyers' fault.  That's your fault.  You need to re-examine your business practices.  I have met many more poor-terrible realtors than I have poor buyers.

As far as interest-only loans or adjustable rate: there is no way anyone can give you a blanket statement to take one or not to take one.  Everyone's situation is different and what will work for some people wont work for others.  People who get the majority of their income in a few months in the year (like realtors) will tend to do better with interest-only loans because they can pay down the princicple on their own schedule.  Airline pilots are in the same situation btw.  Historically people do better with floating-rate loans and that has been my personal experience.  I dont know I'd recommend one now in general just because rates are low but rising.

[Brad Johnson]

If you are getting stuck consistently playing tour guide to buyers then that isnt the buyers' fault.  That's your fault.  You need to re-examine your business practices.  I have met many more poor-terrible realtors than I have poor buyers.

Get in real estate for several years, average more than 50 transactions a year, and do so with a 98% client satisfaction rating. Then you can advise me on re-examining my business practices.

Whether you believe it or not, I see it every day. People think realtors are in some other plane of existence where money appears out of thin air, and that we enjoy listening to an endless string of BS and argumentative disbelief based on popular myth, old wive's tales, and junk information from "Uncle Bob" and "my neighbor Frank who bought a house in 1953". They will take the advice of "Bill down at the sewage treatment plant" before they will listen to someone who does real estate for a living. And then proceed to argue with you about it!

Let's face it, when it comes to money, people get stupid. Even very business-oriented clients have a bad habit of losing their objectivity. And when I say lose it, I mean THEY LOSE THEIR FREAKIN' MINDS! Want to hear the story about the guy who lost the sale of a $500,000 house arguing over a light fixture that cost less than the "power brunch" he had that morning? Or I might tell you about the young couple who cost themselves $3000 in loan costs and an extra point in interest because her parents were absolutely certain that "all realtors are crooks" (sound familiar?) and flatly refused to interview a local lender I suggested. Or I'll give you almost endless examples of sellers who try to fudge facts on their disclosure and then expect me to just "play along because I'm getting a good commission out of it".  Screw you, buddy, it's not worth the loss of my livelyhood to help you cover up the fact that you put some JB-Weld on your furnace to keep from having to pay a legitmate $50 repair bill to correct a carbon monoxide leak!

That's what I deal with. Every day.

As far as interest-only loans or adjustable rate: there is no way anyone can give you a blanket statement to take one or not to take one.  Everyone's situation is different and what will work for some people wont work for others.  People who get the majority of their income in a few months in the year (like realtors) will tend to do better with interest-only loans because they can pay down the princicple on their own schedule.  Airline pilots are in the same situation btw.  Historically people do better with floating-rate loans and that has been my personal experience.  I dont know I'd recommend one now in general just because rates are low but rising.

You are correct, interest only loads are a way for people to buy a house that could otherwise not afford it. Problem is, purchasing a house with an interest only loan isn't really "purchasing". By definition, interest only means you are buying ZERO equite (ownership) in the home. It's all the negatives of renting combined with all the liabilities of home ownership. Whoopee.

Call me old school, but  I think if you take out a loan and agree to pay X amount of interest, then your payments should include some incremental amount of additional ownership. I look at interest only loans as an easier way for people to buy more house than they can afford. And floating rate loans are a joke when rates are this low. Floating rate loans are for when the rates are HIGH and you can take advantage of a possible DIP in the lending rate.

One of the few (VERY few) times I would recommend an ARM (adjustable rate mortgage) for the corporate ladder-climber who knows that they will be moving every couple of years, and who's company pays all the relocation benefits. The borrower has the benefit of a lower payment while still maintaining a relatively secure interest rate. They are not buying equity as fast, but the offset is that they are not losing equity in the form of closing and moving costs each time they sell, relocate, and buy.

If you are worried about being able to meet the payment demand, then BUY LESS HOUSE. Put it on a 30 year note, then pay on the extra principle when you can. If you can average an extra 15% in principle per year, it will take your 30 year note and make it an 18 year note. This corresponds to about a 60% overall interest savings and still leaves you the safety net of a smaller payment if you need it.

Even though it sounds like I'm bitter, I do like the job. The scheduling flexibility is great, the income is good, and I really do meet a lot of nice people (with some goobers thrown in to make life interesting).

There are good realtors out there. Most of them, in fact. The problem is that a few very visible dunderheads make the rest of us look bad.

Brad

[SalukiFan]

I'd be careful using the Most Referred site. They require your contact information so they can turn around and sell it.

Brad

This information is not required if you just use the site to look up recommended realtors. I just went there and pulled up the most referred realtors in my town without typing in anything.  I never had to submit anything to them to get the information I used - I just contacted the realtors directly.

That said, Brad is right in cautioning people about putting your personal information into websites.  Selling information has become a big business and this is something you have to watch out for...

[Declaration Day]

It sounds like you are wanting to buy right now, but I would recommend looking several months before you plan to buy.

Spend a lot of time on the internet, looking at listings and prices so you get a feel for what homes are worth in your target area.  Look in surrounding cities, even if they aren't your first choice.  Print out some listings you'd be interested in, and go look at them.  Do all of this long before you contact a realtor.  This is what my wife and I did.  Eight months of homework paid off; the house we bought is in far better shape than others we looked at in the same neighborhood for a similar price.

Other than that, I emphasize what others here have said:  Buy what you can AFFORD, not necessarily what you QUALIFY for.  I know so many people who can either 1) afford their house and nothing else, or 2) fell on hard times and had to sell their big expensive home.  The sad part is that most of them bought more than they needed because they felt pressured to "keep up with the Joneses".  Don't fall into this trap, buy what you need and can afford.

[Sindawe]

Late to the party, but thats when the fun REALLY begins.

When I purchased my home 11 years ago, I went through a " Buyer's Broker", one who worked for ME in finding the home that meet my qualifications, and stood by me through out the process.  We meet in his office and went over what I absolutely had to have, what I would would really like, and what was was pretty indifferent to.  Based on those criteria, he compiled a listing of about 15 different homes in the area (Boulder CO and surrounding), and we spent a day driving about looking.  Most were OK, but nothing great.  A few were "EEWWW" with Avacodo appliances and lots of dark wood paneling.  My outlook and mood may be on the dark side, but I like my environs full of light and space.  One of the first sites we looked at, that I was not initially enthoused about turned out to be ideal when it was facing south, rather than north (I have a townhouse).

I also went through a Mortgage Broker, paying her fees to get a mortgage that I could live with (monthly payments no more than $100 higher then my rent at the time), on a fixed rate loan.  I ended up with one that was $150 less than rent, which covered the HOA dues nicely.

1. Make sure the reality is working for YOU, not some seller.

2. Don't buy as much house as you can possibly qualify for, but what you can afford in the lean times.

[The Rabbi]

Get in real estate for several years, average more than 50 transactions a year, and do so with a 98% client satisfaction rating. Then you can advise me on re-examining my business practices.

I'm not the one pissing about bad customers.  Part of being succesful is figuring out your buyers on the front end and weeding out the bad ones.  It isnt fool proof but it isnt hard to do.

You are correct, interest only loads are a way for people to buy a house that could otherwise not afford it. Problem is, purchasing a house with an interest only loan isn't really "purchasing". By definition, interest only means you are buying ZERO equite (ownership) in the home. It's all the negatives of renting combined with all the liabilities of home ownership. Whoopee.

"Old school" is not exactly the term I would have used.
the difference between your loan amount and the property value is the equity in the property, by definition.  So an interest-only loan may or may not have a relationship to equity.  If home values are rising (like now) then your equity increases even as your loan amount stays the same.  If home values are falling then even an amortized loan will still mean a loss of equity.  Yes, interest-only loans can be abused by people with champagne tastes on a beer budget.  But they can also be an effective money management tool for the right person.  As I said, it depends on an individual's situation.  Someone with seasonal income will do quite well taking one.  You always have the option of paying down the loan.  I never saw one that disallowed that.

[The Rabbi]

On today's editorial page of the Wall St Journal is their editorial entitled "Realtor Racket."  They are specifically referring to some recent state laws that make it hard, if not impossible, for discount realtors to make a living.
This has been a brewing issue.  Realtors are essentially conduits of information, much like stock brokers used to be.  Or used car salesmen, to make a more apt comparison.  But in almost every other field where the conduit of information model exists, the fees and prices charged have declined precipitously.  I used to pay over $100 for a stock trade and today it's 5 bucks.
So why should real estate be any different?  It shouldn't.  But the Realtors (a copyrighted term that sounds better than salesmen) have a powerful lobby that insists on keeping and passing legislation that mainly benefits them.  I would include  the mortgage deduction in that mix, btw.
So if anyone can get a copy of the editorial it is well worth it.

[Brad Johnson]

I'm not the one pissing about bad customers.  Part of being succesful is figuring out your buyers on the front end and weeding out the bad ones.  It isnt fool proof but it isnt hard to do.

That's right, it isn't. But it still doesn't take away from the fact that many people will rely on popular myth and decades-old misinformation instead of taking the advice of someone who makes their living in real estate. As for being successful, reread my quote that you posted. I believe I qualify.

On today's editorial page of the Wall St Journal is their editorial entitled "Realtor Racket."  They are specifically referring to some recent state laws that make it hard, if not impossible, for discount realtors to make a living.
This has been a brewing issue.  Realtors are essentially conduits of information, much like stock brokers used to be.  Or used car salesmen, to make a more apt comparison.  But in almost every other field where the conduit of information model exists, the fees and prices charged have declined precipitously.  I used to pay over $100 for a stock trade and today it's 5 bucks. So why should real estate be any different?  It shouldn't.  But the Realtors (a copyrighted term that sounds better than salesmen) have a powerful lobby that insists on keeping and passing legislation that mainly benefits them.  I would include  the mortgage deduction in that mix, btw.

You've intertwined a great many issues in a small statement. Let me see if I can address them....

I haven't seen the "Realtor Racket" article, so I can't comment on it. However... your statement implies that the "realtors" in the form of a national lobby, are responsible for state laws that make it hard for discount realtors to make a living. So, if I am reading your statement correctly, the real estate lobby is trying to make it tougher for real estate agents to make a living. Huh? If that is the way the article actually reads, then I would have great doubts about its veracity, as the situation is patently counter-productive.

You also mention previously paying $100 for a stock trade and now paying only $5. Great! Sounds like capitalism works. And this relates to real estate how?

As far as I know, there isn't a single state that requires you to sell your house through a real estate agent. It's a free country, so go "For Sale By Owner". It won't hurt my feelings at all. In fact, I'm relieved. It means is that I won't have to deal with your animosity and underlying disdain, and can concentrate on more productive things.

Do the realtors have a powerful lobby? Yes. Do coffee growers. Yes. Do farmers? Yes. Do gun owners? Yes. Why does it bother you so much that a special interest group has registered a term that relates to their field of interest? People do it all the time. The NRA has several registered terms and trademarks. I don't see you berating them.

You seem to have a problem with realtors in general. That is evident from the "used car salesman" dig you so obviously included. Okay, it's a free country and you are free to believe what you want. The fact is that market forces are the main control of real estate in this country. Buyers and sellers doing what they do best, buying and selling, are the driving force behind home sales and home sale prices. Complaining that we, the real estate agents, have a stranglehold on something that is way out of our general control is just silly.

As far as getting a copy of the editorial, why don't you cut and past the relevant information here for all to see.

Brad

p.s. - The various state real estate lobbies are the reason that most states don't have a sales tax on real estate transactions. If you'ld like, we will stop lobbying against it.

[The Rabbi]

I am not sure whether you are being disingenuous or not.  In case you aren't here it is:

Currently only "realtors" are allowed to list and sell houses that arent theirs and collect a commission.  Even giving "rebates" to buyers or sellers out of the commission is illegal in some states (and this was one point in the article).  LendingTree.com does give such rebates, effectively lowering the price.  Traditional realtors dont like this so have lobbied to outlaw the practice.  This costs consumers money.  Anytime monopoly power is used to cost consumers money I have an issue with it.  The NRA does not cost consumers money.  On the contrary, they lobby for empowerment of consumers in the ability to buy what suits their needs, not what some  bureaucrat says.  But the Realtors' association doesnt want people to be able to choose who can sell their house for them.  They only want licensed, dues-paying Realtors to be able to do that.  That is called "restraint of trade" and it sucks.

As far as stock commissions:let me 'splain this to you.  In the '70s commissions were set on a universal schedule.  You could not charge less than the schedule and stay in business.  But somewhere someone got the idea that competition would benefit the consumer (sound familiar?) and they did away with the schedule.  With the internet, people did not need high-priced "professionals" advising them and executing trades, which are done mostly via computer anyway.  The actual cost for a transaction is miniscule, not unlike real estate btw.  So market forces have driven down stock broker commissions.  And you are right,Brad, that's great for everyone except stock brokers.  So why shouldnt Realtors be included in the information revolution?  Why is it that if I find a buyer for my neighbor's house I cannot get paid a commission for it?  Why is it mortgage companies and banks cannot sell real estate without getting a license?  Because the mightly realtors' lobby has decreed this.
So dont confuse the issue by saying I can sell my own house or buy my own house.  It is true, but irrelevant.  I cannot buy or sell my neighbor's house or friend's house and get a commission.  That is the issue.
As far as animosity: yes, I have dealt with many many lying sleazebucket former car salesmen masquerading as real estate professionals.  I have dealt with even more plain incompetants doing the same.  There is a reason your field enjoys a reputation somewhere between lawyer and politican for honesty.  I have met maybe 2 or 3 good agents in my time, and that is out of hundreds.

[Guest]

just wanted to thank y'al for the helpful advice, sorry i havent responded to this in a few days having some conectivity issue with my ISP.  you guys rock.  gota read through all this...

[Brad Johnson]

LendingTree.com does give such rebates, effectively lowering the price.

Yep, they give rebates, which come to them in the form of referrals from lenders, who jack up their mortgage products to compensate for the amount. That's why online lenders typically cost 2-3 times as much as a local, non-jickylender.com affiliated lender. So the $1000 you got back as a "rebate" will almost cover the extra $1200-1300 that you paid for the loan in the first place. You haven't saved anything. You've paid more.

Traditional realtors dont like this so have lobbied to outlaw the practice.

That's right, they have. And for good reason. It's call "under the table practices" and it's patently unethical. Call it what you want - rebate, referral, whatever - it's still a bribe to get someone in the door so they can hit them with inflated fees and misc charges buried in an undecipherable sea of numbers.

But the Realtors' association doesnt want people to be able to choose who can sell their house for them.  They only want licensed, dues-paying Realtors to be able to do that.

Again, last time I checked, you always have the option of going For Sale By Owner. And the seperation of realtor and lender is a good thing. You think you have a problem with real estate agents being greedy and underhanded, wait until the agent and lender are the same person....

As far as stock commissions:let me 'splain this to you.  In the '70s commissions were set on a universal schedule.  You could not charge less than the schedule and stay in business.  But somewhere someone got the idea that competition would benefit the consumer (sound familiar?) and they did away with the schedule.  With the internet, people did not need high-priced "professionals" advising them and executing trades, which are done mostly via computer anyway.  The actual cost for a transaction is miniscule, not unlike real estate btw.  So market forces have driven down stock broker commissions.  And you are right,Brad, that's great for everyone except stock brokers.  So why shouldnt Realtors be included in the information revolution?

Realtors have been. You should check around. There is no set commission on real estate. In fact, brokers who talk about commissions among themselves are in direct violation the RICO act. It's called "price-fixing" and it's a federal crime. Are commission structures often similar? Yes. But it's not a "grand conspiracy" of the real estate profession, it's a simple market supply/demand issue. Around here we see commissions from under 4% to in excess of 8%, with listings in all commission brackets. Some brokers have even gone from a percentage commission to a flat fee. Again, market driven. The consumer chooses what they feel is the best option.

And you're right, by the way, the transaction costs nothing. Your commission is buying time and marketing. It's the same as buying an ad in the paper, only on a more grand scale and in anticipation of a faster sale and a greater net return.

Why is it that if I find a buyer for my neighbor's house I cannot get paid a commission for it?

The very reason that agency exists in most states is because there was a time when every Tom, Dick and Harry could call themselves a broker. Because there was no standard of professional behavior, or canons of professional ethics, people were getting screwed left and right. Don't blame the realtors for a situaion the general public created.

If you want to get a commission, get licenced. It's not hard. The Tennessee licensing procedures are not far removed from those in Texas. The classes are available on-line, the license costs very little ($100 every two years here) and you can hook up with a sponsoring broker who will let you hang your shingle under his name and still work from home.

Why is it mortgage companies and banks cannot sell real estate without getting a license?

Like I said above... if you think you have a problem with sleazy agents now, wait until the agent is also your mortgage broker. If you have an issue with the power of the real estate lobby, think what will happen when the real estate lobby and banking lobby combine!

So dont confuse the issue by saying I can sell my own house or buy my own house.  It is true, but irrelevant. I cannot buy or sell my neighbor's house or friend's house and get a commission.  That is the issue.

Now we see the crux of the issue. Money, and easy access to it. Okay, go sell your neighbor's house. Are you prepared to foot the bill for all the marketing, or take any liability for informational discrepancies? Are you willing to present, in writing, your behavioral guidelines? Are you going to carry E&O insurance that will cover problems that arise from your involvement in the transaction. Or do you just want to dig a couple of bucks out of your friend's pockets just because you happened to overhear a guy at the barbershop say that he wanted to buy a house? (intentional satire).

Look, sounds like you've had some bad dealings with real estate agents. Sorry to hear it, and sorry I can't convince you that there are some good eggs out there. Guess we'll just have to agree to disagree on this one...

Brad

[The Rabbi]

The very reason that agency exists in most states is because there was a time when every Tom, Dick and Harry could call themselves a broker. Because there was no standard of professional behavior, or canons of professional ethics, people were getting screwed left and right. Don't blame the realtors for a situaion the general public created.

Ah, government to the rescue to protect the public from the unscrupulous.  And where have we heard this before?  And how well has it worked?
But it is well known that the biggest proponents of licensing are the practitioners themselves.  And it is precisely to eliminate competition.
Being a Realtor is not cheap.  There are continuing ed requirements, MLS fees, licensing fees, E&O insurance, etc etc.  This is why about 80% of the licensees are out of the business after 2 years.

Like I said above... if you think you have a problem with sleazy agents now, wait until the agent is also your mortgage broker. If you have an issue with the power of the real estate lobby, think what will happen when the real estate lobby and banking lobby combine!

And how often has the Realtor kept the buyer from an unscrupulous mortgage broker versus how often has the mortgage lender, unable to approve the loan, saved the buyer from a bad deal that the Realtor was more than happy to see go through?  And there are many cases where agents are also mortgage brokers and I never heard of any issues.  I have heard, and seen, plenty of agents getting disciplined for grossly unethical conduct though.
As I said, I have met and worked with excellent agents.  And she is still active in the field too.

[Brad Johnson]

Well, I tried. Maybe someday you will understand that the world is not out to get you, and that some of us do actually want to help.

Brad

[The Rabbi]

Well, I tried. Maybe someday you will understand that the world is not out to get you, and that some of us do actually want to help.

We're from the government and here to help you.  I feel better already.
Sorry to be so tough on your chosen profession but having worked in and around it for 10 years I have a lot of experience.  There are good, conscientious, knowledgeable realtors out there.  But that isnt the norm, unfortunately.  But even more objectionable is the structure of the industry and its unwillingness to change from its monopoly status.  So caveat emptor.

[Brad Johnson]

Sorry to be so tough on your chosen profession but having worked in and around it for 10 years I have a lot of experience.

If the industry is so bad, why were you in it so long.

Brad