Writtenby: Hans Wydler & Steve Wydler
As Seen In: The Washington Post
Realtorslive a conflicted life. On the one hand, they are salespeople. They only makemoney when their deal closes.
On theother hand, they are consultants. They advise buyers and sellers throughout thedeal process, ideally giving their clients advice that is disinterested fromtheir own financial outcome.
Often,these two objectives are aligned and there is no issue. For example, a listingagent makes more money if he is able to sell a house for a higher amount.However, there are many situations where the right advice for a client is notaligned with the agent’s monetary incentives. For example, a buyer’s agentmakes more money when his buyers buy a house for a higher amount.
Themajority of successful real estate agents are true professionals who take thelong view. Their advice is in their clients’ best interests. Some agents gofurther by being fully transparent when conflicts arise (which they often do)and make certain any conflicts are fully disclosed to their clients.
So howdo you know your agent is doing the right thing and giving you the best advice?Here are 11 things that your agent should be telling (or asking) you:
• Stay put: From a purely financial perspective, youwant to move in life as few times as possible. Let’s face it, moving isexpensive. Once you add up the transaction fees, costs of moving, costs tofurnish your new place, etc., it’s a lot of money. Further, in the early yearsof paying off an amortized mortgage, your monthly payment goes mostly tointerest. As you hold the mortgage longer, your payments increasingly go topaying principal. Staying put is a great forced savings tool.
• More house, more problems:As a buyer, you should try to find the mostmodest home that will make you (and your family) happy. The larger the home youown, the more expenses and headaches you will have. Whether you are looking tobuy a two-bedroom, salt-box house or a 6,000-square-foot, five-bedroom home,one key question you should be considering is whether the house is too big foryour current and future needs.
• Your home is not an investment: A very common question our buyer clientsask us is whether a particular house is a good investment. We subscribe to theRobert Kiyosaki (author of “Rich Dad, Poor Dad”) way of thinking and tell ourbuyers not to consider their home an investment. An investment should generatecash flow. A home does the opposite — it sucks up cash. And the larger thehome, the more expenses it will generate: more taxes, more maintenance, andmore money to furnish it, clean it, etc.
• When buying, think long term: If the time horizon is long enough, almostall real estate will appreciate in value. The problem is, the real estatemarket is cyclical and no one knows when the peaks and valleys will occur. Ifyour time horizon is too short, the likelihood of your getting caught in a downperiod increases. The longer you can anticipate living and being happy in thehome you are purchasing, the safer it will be.
Whenyou are buying, don’t only think of your needs today; think of how they mightchange. If you have teenage kids about to go off to college, will you reallywant the big house with all the bedrooms and the big yard? As a general rule ofthumb, if you are going to be in the house less than three years, it’s probablybest for you to rent. If you’ll be there more than five years, then youprobably should purchase. If it’s 10 or more years, then you certainly shouldbe purchasing. Three to five years is the gray area.
• Selling your home “privately”can be costly: Thereis a huge financial incentive for a listing agent to sell a home withoutanother agent’s involvement. If the listing agent can pull it off, she standsto make the full commission (instead of sharing it with the buyeragent/broker). There are many techniques that agents have developed thatheighten the chance that they sell it themselves.
Themost prevalent (and notorious) is the “private exclusive” listing in which thelisting agent tells her clients she will market the listing privately (note:“privately market” is an oxymoron) for some period of time. If the listingagent is unsuccessful, then, as the strategy goes, “no harm, no foul;” the agentwill then put the property in the multi-listing service and expose it to allbuyers and agents. Another form of this is the long “coming soon” listing.
• Why?: Perhaps the most important question anagent can ask a buyer or seller is why? Truly understanding the motivationsbehind a decision will help make sure that a move is the right course ofaction. Your agent should want to know if it is a push or pull situation. Inother words, is something driving the buyers out of their current livingsituation (for instance, lease expiring, growing out of current house).
Or isthere something that the buyer wants in a different area ( a job transfer,change of commute)? Sometimes, the answer to the why question has nothing atall to do with real estate. For instance, if owners are moving because they are“unhappy” in their current home, the agent should ask if something could bedone to the home to solve their issue. If you are moving because you think anew home will fix all your problems, you should reassess. One thing we’velearned: A great house won’t fix an unhappy marriage.
• A “great deal” and a “great house” arealmost always mutually exclusive: One of the key attributes of a buyer agentis his ability to negotiate. Coupled with that is that buyers want to get thebest deal they can. The truth of the matter is that the better a home is, theless negotiating leverage buyers will have. Too many buyers pass on a greathome because they are not able get the discount they were hoping to get, onlyto end up purchasing an inferior property later.
• Will this house hold its value? Most buyers ask this question whenpurchasing a house. It is a great question to ask. First, you want to considerneighborhood catalysts. Are any major employers moving in or out of the area?Are there any other changes happening (new developments, transportation routes,etc.)? Second, with respect to the house itself, if the house appeals to you,then it most likely will appeal to another buyer when it’s your turn to sell.If your needs/wants are more mainstream, then you will likely have a largerpool of buyers. If your needs/wants are more custom, then you should beprepared to have a harder time to sell when it’s your turn.
• The great deal you think youare getting might not be that great:There are two unique things about realestate. One is that the price you pay for a property is public record. Thesecond thing is that the market assumes you paid the fair market value. So evenwhen you think you are getting a great deal in your purchase price, when it’syour turn to sell, your prospective buyer will benchmark the value off what youpaid for it. So whatever reason there may have been for you getting such a gooddeal (e.g., motivated seller, you are a skilled negotiator, etc), your buyer willwant to capture that discount in his purchase, too.
• Liquidity: An important factor to consider with anyreal estate purchase is time. In other words, how long will it take to sell theproperty when it’s your turn to sell? The more desirable a property is, themore liquid it is. The time to consider liquidity of a home is before you purchase it. If a home has been onthe market for a long time in a hot market, it could be almost impossible tosell in a soft one.
• Your kid is ugly: A key requirement of a consultant’s job isto be completely honest with a client. When advising sellers how to preparetheir home for sale, it can be a very delicate conversation. Owners are oftenextremely emotionally attached to their homes and their stuff. It can beextremely difficult to tell an owner that something in the home is a majordetractor and will negatively affect the value. Your agent is doing you adisservice by not being fully upfront with you.