10 Biggest Home Buying Misconceptions
#1 Misconception: The New Construction Builders Agent is there to “help” you, the buyer. Not so…
The New construction agent only works for the builder and their primary job is to “sell” you to the community, so you fall in love and want to buy in that community. Their loyalty, and confidentiality is only to the builder, never the buyer. Whatever you tell the builder's representative will be passed along to the builder.
It is never their duty or goal to give you “freebies” or lower the price. They will never disclose the negative facts in the contract or tell you that there is a landfill nearby. Despite the fact that they look professional, smile nicely and act like your best friend, their legal and ethical obligation is ONLY to the builder/seller. Buyer Beware.
#2 Misconception: The institution where you do your banking is going to give a lower rate. Highly unlikely that they will do any favors for you. Unless you are a high net worth individual with $ big bucks $ in their coffers, you will be given the same deal as a stranger off the street will...nothing special.
Sure, it might make a difference if you are related to the bank president, but typically the loan officer for the bank will not be interested in rolling out the red carpet for you. Usually they are paid a salary and have no incentive if you close with them or not. In addition, banks have their narrow guideline slots that you must fit into. On the other hand, mortgage brokers have a choice of lenders that may better fit your borrowing profile.
Mortgage brokers have dozens of lending institutions that they can place your loan with depending upon the specifics of what you need. Mortgage brokers only get paid if you close. It does not cost more to use a mortgage broker. Also, your credit report (FICO Score) is not affected if your credit is pulled several times while you are shopping for a loan from multiple lenders.
Lenders Interest Rate: Until you are under contract to purchase a property, a lender cannot guarantee any interest rate, so don’t believe everything you hear. Only when your loan rate is “locked in” can you rely on what rate you were told and that only happens after you have a mutually accepted contract.
#3 Misconception: Every seller will negotiate the price. Many homebuyers believe there is an automatic discount off the list price. I wish that were true, but it is not. There is no “standard” reduction of price anywhere.
There are many factors that determine how the property is priced. The property may be priced low, priced at market value or overpriced. The seller may need to net a certain amount in order to pay off the mortgage. Or they may need a certain amount of money in order to move out and buy something else. Or the seller may price the property at a bare bones “take it or leave it” price. Sometimes, the seller simply thinks their property is worth a lot more. Sometimes, the listing agent may inflate the value in order to keep the seller happy and get the listing.
...And sometimes you just have a stubborn seller that digs in their heels and is not going to budge a penny. The choice then is yours. You can either pay the price or keep looking.
#4 Misconception: Using an “as is” contract means that if you want the property, you have to buy it with its deficiencies. Not so, but many agents believe that fallacy also. This is a misconception that many brokers want the buyers to believe, in order to avoid renegotiating the contract or bothering with repairs. Don’t be fooled.
An “as is” contract is simply putting the buyer on notice that the seller wants to sell the property “as it is” and does not want to do any repairs. It does not mean the seller really will not fix anything...
If the contract is subject to the buyers inspections, that means the buyer has the right to do inspections and then have the option to say:
- “yes, I will take it’
- “no, I am no longer interested in buying”
- “I will buy, if the seller will fix A, B and C” .
Everything is negotiable, including having the seller fix deficiencies on an “as is” contract.
#5 Misconception: Calling the listing agent will save the buyer money. Wrong, wrong and wrong. If you do...you will probably end up paying more, with less favorable terms. For sure there will be no one in your corner to promote your best interest.
Remember this...the sellers/ listing agent represents the seller and their legal and ethical obligation is to sell the property for the highest price and most favorable terms for the seller. If you divulge how much money you have, or how high you will offer, the listing agent will disclose that to the seller. That is the seller agent's job. They are required to promote the property in the best light and not tell you anything that may make you walk away.
If you think that somehow the listing agent will cut their commission or give you some of it, you are again mistaken. The listing agent will be very happy to get double commission and keep it all in their own pocket. This is a perfect opportunity for the listing agent to simply make more money.
The seller's agent does not owe you any loyalty, confidentiality, or full disclosure and most importantly they have no obligation to save you any money.
#6 Misconception: The bank only wants to break even on a foreclosure. This fallacy is not even close. Banks are greedy, and they will always want to sell for top dollar and get the most money that they can.
Many home buyers think that the bank will sell the foreclosure for whatever the balance owed was. Not true. Whatever mortgage was owed is a moot point and not in consideration. The bank will typically get a couple of appraisals and list it for market value. Many times they will do a cheap rehab...paint and carpet and then want to sell for top dollar.
The only time you may get a bargain price is if the property is seriously distressed, or on the market way too long. The deep discounts are getting harder to find as banks have figured out that if they put a pinch of money into a fix up, they will get a lot more in return. Buyers mistakenly think that a bank foreclosure is always a sweet deal...which is simply another misconception.
#7 Misconception: There is no need for a home inspection on new construction.
Ahhh...there is always a need for a home inspection on new construction. New construction is big business with a shortage of quality workers or project managers.
Sometimes the builders quality control is not adequate and the city inspector does not catch all building mistakes.
Builder mistake examples: Missing hurricane straps, hot water flushing the toilets, kitchen not complete, improper wiring, missing insulation, door locks not fitting, steps not meeting the wall, flawed tile, loose banisters, crooked walls, bathroom drains clogged up, and roof not properly nailed.
There are two choices for new construction inspections:
A phase inspection means that an inspector checks at certain “phases” of construction, which is a more thorough inspection.
A comprehensive inspection done at home completion, before closing.
I am finding more and more builders removing some of their construction responsibilities after closing. In other words, if you don’t find and mention the problem before you close, the builder does not have to fix it after closing.
#8 Misconception: FSBO’s (For Sale by Owner) property will be cheaper. Not a chance. The “FSBO” seller is not interested in giving home buyers a bargain price. They want to sell on their own in order to make more money for their own pocket.
Sometimes, the FSBO seller has already spoken to a listing agent who told them that their house is not worth as much as they think. Sometimes they simply avoid paying any commission, so they can pocket extra money.
I have never seen or heard of a FSBO seller that wants to sell on their own in order for the buyer to pay less. In fact, I have done studies that showed that most FSBO sellers are priced higher than average and unmotivated to sell. If they were motivated, they would list the property with a listing office in order to find a larger pool of buyers and sell quicker.
Which brings me to two more reasons that there are FOR SALE BY OWNER sellers:
They want to deal with unsuspecting/unrepresented home buyers who will believe everything they tell them. Buyers that are looking at FSBO’s have no clue what the property is worth or the terms that they should negotiate in a contract. A buyer without an agent is usually naive and just what the FSBO seller is looking for.
Seller is unable to be reasonable or flexible. They may owe too much debt on the property and must sell for top dollar or at least more than market value. They may also need stringent terms in the contract that are not customary.
#9 Misconception: Using the sellers/listing agent affiliate title company is OK
Here is the untold story: Most listing offices have an “affiliate business relationship” with a title company. They feed the title company their real estate business in exchange for some kind of benefit. While this might be legal, it is NOT in the best interest of the homebuyer.
It is never advisable to use the listing office “partner” or seller's title agent, because they typically favor the seller. When that happens, the title agent will not dig deep for any problems as they do not want to “rock the boat” for the favored side. Instead of fixing a problem, I am seeing more title companies simply exclude the problem from the buyers title insurance policy. I am also seeing these “affiliates” try to have the buyer sign a waiver at closing agreeing that they will not sue the title company over their mistakes.
Often, the buyer is overcharged, or charged for items that the seller should pay. Fees for closing might not be shared equally but split in favor of the seller...Why should the buyer pay more than the seller for the same thing?
Affiliate title companies sometimes omit due diligence details for the buyer...like encroachments on the survey, liens on the property, or requesting a municipal lien search. I have seen many title mistakes and even serious mistakes like not transferring the entire portion of the property to the buyer.
Let's face it, when “favors” are being exchanged that is always an incentive for the title company to cater to the hand that feeds them.
The buyer however does have a choice: Contractually, whoever pays for the buyer's title insurance gets to choose which company does the title work...that is a negotiable item in the contract...and the buyer needs to add that to the negotiations.
When a buyer is spending hundreds of thousands for a home, it is always smart to pay for their own title insurance and have a title attorney (on their side) to create the closing documents and review for any potential problems. That is the only way to avoid a headache and protect your ownership after closing.
#10 Misconception: All agents are the same...so just pick anyone. If you believe that, you are likely to lose money on your home purchase. The fact is that there are different types of broker/agents, different levels of experience and they all have different duties and obligations.
You have the right to interview agents, ask them which side they work for and pick the one that best fits your needs. There are newly licensed agents with no experience, and seasoned agents that understand how to solve problems...you always need someone experienced. Most agents serve a particular niche, so here is a quick summary for Florida:
The only similarity among agents is how they get paid…they all get paid the same…from the listing office or from the seller at closing.
Here is the difference:
Sellers/Listing agent: Represents only the seller to get the highest price and most favorable terms for the home seller.
Transaction Broker: A middle person that facilitates a transaction with no fiduciary duties; no loyalty, no full confidentiality, no full disclosure, no one on your side.
Buyer Agent: Works in a traditional office. May represent the buyer in certain transactions, may also represent sellers, or may work with both parties as a transaction broker.
Exclusive Buyer Agent: Works in an office that only represents home buyers with full fiduciary duties of loyalty, confidentiality, full disclosure. Never represents sellers or practices as a transaction broker or dual agent.
Fact: Home buyers and sellers have opposing interests. The seller wants to sell for more and the buyer wants to pay less. It is impossible to serve two masters.
Homebuyers are best served by using a dedicated Exclusive Buyer Agent whose only focus is the best interest of the home buyer. For Florida home .buying call 727-202-9130.
Hiring the right agent will keep you away from the 10 Biggest Home Buying Misconceptions…