Buyer and Seller Myths about real estate
Throughout the years I have come across a lot of misinformation about the home buying and selling process. Much of this information has been spread around by friends and family not involved in real estate to other people who are in the process of buying or selling a home. Unfortunately these friends aren't full time real estate professionals who have been involved in 100's of real estate transactions who have the knowledge and experience to properly guide a buyer and seller with questions or concerns they have. Here are the most common myths and misconceptions I come across in my business.
Buyer Myth - You can't buy anything with less than 20% down.Not true. FHA loans require only 3.5 percent down and even allow buyers to get a sellers concession to pay the closing costs. The fact of the matter is I see less than 1/2 of the of the buyers in the current real estate market that are putting 20% down for a purchase.
Seller Myth - I can always lower my price later.Sellers often price their home high for a few weeks or months just to test the market. But buyers shop by price bracket and if your house is in the wrong one, you’ll just help sell everyone else’s home while yours sits there overpriced. Reducing your price later in small increments puts you in the position of chasing the market and a recipe for loss. Put your best foot forward when selling which means to price the home right from the beginning so it does not become a stale home later.
Buyer Myth - I have been approved to buy a home with no money down.Buyers need to understand that just because your mortgage broker told you that you "qualify" for a no money down loan, the chances of a seller accepting your bid with no money down on contract is slim to none. Mortgage brokers love to tell you what you can do in "theory" but in practice it just will not happen.
When you put a bid on a home that is accepted there is a good faith down payment that is put in an attorneys escrow account on the signing of the contract. This is to show the seller that you are serious and will not be walking away from the sale. A no money down buyer has zero risk if they walk away from a house because they changed their mind or something else happened that they decided not to buy. A seller will not go to contract with a buyer like this while they have to take their home off the market, lose marketing time and then all of a sudden you change your mind and walk away scott free. The truth is that you will need at least 3.5% - 5% of the sale price to put down on the signing of the contract and that is the lowest most sellers will accept.
Seller Myth - You can't take the 1st offer on your house.Most often the 1st offer turns out to be the best offer. Sellers always feel there may be a better/higher offer out there and often show reluctance when they get an offer sometimes very early of the listing of the home even if it is a pretty decent offer. Sellers also mistakenly think that that buyer will still be around after a few weeks when they decide to accept the offer after no other offers came in during that time. In a buyers market there is a ton of inventory and buyers have lots to choose from, if you do not give them the price they want, someone else will.
Seller Myth- I won't paint rooms or change carpet because buyers are going to paint everything to their choice anyway.
Huge mistake and probably the most common statement I hear from sellers. Even if it is true that a buyer will paint the home a color of their choice which may or may not be the paint color you choose, you must make your home as neutral as possible when selling when getting your home ready to sell. It is all about presentation and if the buyers do not like what they see in pictures on the Internet they will not come look at your home, there is no exception to this rule. The few thousand dollars that it costs to change from that pink carpet to tan and those green walls to beige/tan will save a homeowner 10's of thousands of dollars in future price drops that it may take to get buyers to come see your home. This reminds me of the old car wax commercials of the 1980's where they would show a car before it was waxed and then after and how just the detail job alone increased the cars value. This applies to homes in the same exact way.
Buyer Myth - I will have the seller pay the closing costs.
Many buyers think they can request that a seller pay the closing costs, while this is not entirely false there is more to how it works. There is something that is called a seller's concession where the seller allows the buyer to inflate the price agreed upon to include the closing costs needed just so that the seller can write a check back to the buyer at closing to cover the closing costs. This is completely legal. But the buyer pays for the closing costs not the seller.
The way it works is, on a $400,000 price where a buyer needs $15,000 for closing costs, the actual price on paper will be $415,000. The seller nets the $400,000 at closing, gives you the $15,000 off the $415,000 and that covers your closing costs but your mortgage payments are higher because the buyer is financing the closing costs, the seller is NOT paying them. In addition the house must now appraise for the extra mount. So if the accepted offer price is $400,000 and the closing costs are $15,000, the house must appraise for $415,000 or you will not get the closing costs. If the house only appraises for $405,000 you will only get $5,000 towards your closing costs and still have to buy the home and have to come up with the remaining $10,000 on your own. The attraction of a sellers concession is that it is easier for someone to just pay another $60-$70/month on a mortgage instead of coming up with $15,000 in cash.
Buyer Myth - I want to look at foreclosures.
No you don’t, trust me. First off, there aren’t any foreclosures listed on the MLS with an agent. There are bank owned homes (after the foreclosure process) and there are short sales which are in pre-foreclosure. Short sales can take 6-12 months to close after an offer is put in and bank owned homes need tens if not hundreds of thousands of dollars in repair. A true foreclosure property is sold at the court house steps, you the buyer are involved in a public auction and have to put usually 10% down if your bid is successful then good luck getting into the house you just bought which may or may not be occupied by the people who lost the home from foreclosure. Plus the damage and repairs needed on foreclosure homes can be astronomical.
Buyer Myth - You should never pay asking price for a home.
If the house meets your goals, is within your budget, and is priced competitively, it's a bargain and you should make a strong offer and if the seller wants asking price then pay it. Not every seller plays "the game" and asks 5%-10% higher than they want, some sellers on the advice of a competent Realtor will list their home within a few thousand dollars of their bottom line. If you are aware of the market and prices of similar homes and feel the home is well below market value and still bid 10%+ under the asking price, you will lose the house to a more knowledgeable buyer who sees the value and does not want to waste time turning the seller off with low offers.
I believe if we can clear up some of these common myths and misconceptions we can create a much better buying and selling experience for everyone.