Buying an Existing Home with a Buyer's Agent

Going along with my last post, I've heard of some buyers who don't understand the value of using a buyer's agent. In this case, as opposed to new builds, there are much fewer buyers who try to buy without an agent because it's a lot more work for the buyer. These days all of the homes for sale are online, so buyers have access to information and pictures. The biggest drawback there is that there aren't any websites that allow you to narrow your search as specifically as a Realtor can using the MLS. Having an agent send you all (and only) the houses that meet what you are looking for saves you a lot of time. Second, when you work with one agent the agent gets to know you and your likes and dislikes as you go through several homes. They may be able to recommend a home style or location that you hadn't thought of, but is a great fit.

The biggest savings a Realtor can offer is in the amount of time you will need to research. You need a purchase contract plus all of the other legal documents required to purchase the home. If you don't have a Realtor you'll need a lawyer to make sure you have all of the documents and have them filled out correctly. Then, you'll have to research and select lenders, home warranty service providers, inspectors, contractors and maybe others. All Realtors have people in all of these categories that they recommend to make sure you get the best deal and the best service.

Just like with the new builds, the number one reason that some buyers don't use Realtors is because they think they can keep the 3% that the buyer's agent would receive. Again, this isn't the case. For example, the seller signs a contract with their listing agent saying that upon closing the listing agent will receive a 7% commission. When there is a buyer's agent that agent will receive 3% of the 7%. When there isn't a buyer's agent the contract still states that the seller's agent will receive a 7% commission. So, the seller doesn't keep it and the buyer doesn't get it in the form of a lower price.

Therefore, why would you create so much more work for yourself when you're not saving any money?

Buying a New Build with an Agent

I've heard questions over and over again about whether you need a buyer's agent to purchase a new build and whether it's beneficial for the buyer. I can't believe I haven't written about this topic yet! I've been the builder's representative for three different builders and have been a buyer's agent for another builder so I have a pretty broad overview on the way builders operate.
A builder needs to keep in mind the value of the other homes in the neighborhood when they are designing their incentive programs. In many cases they cannot lower the price of a home without reducing the value of the other homes in the neighborhood or the value of their future sales. For example, if they sell one home for $185,000 they cannot ask $195,000 for the exact same home in a buyer's market like this. Buyers won't pay more for the exact same house.

For this reason, builders often offer incentives, like paid closing costs, flooring upgrades, or free appliances instead of reducing the price.

Also, the lending rules limit the amount of money that sellers (or builders) can give buyers. On a conventional loan the limit is 3% of the sales price while on an FHA loan the limit is 6% of the sales price. So, if the seller is already giving the buyer the maximum amount in the form of closing costs or discount points they cannot give any more money back and looking at the last example, they cannot lower the price any more.

Builders heavily rely on Realtors to sell their homes, so they plan to offer Realtors a commission. Some buyers have the misconception that if they do not have a Realtor they can keep the 3% commission that the agent would have received, but as you can see it's just not possible.

Here's an example with a Realtor. A builder is asking $200,000 for a home. They offer upgraded appliances, a $5000 value, and pay closing costs and points, a $6000 value. They pay the buyer's broker $6000. This particular builder is willing to negotiate on the price (not all are) and they and the buyer agree on a purchase price of $195,000. This leaves the builder with a net of $178,000. The builder is happy because the property value is $195,000 and the buyer is happy because they receive $11,000 in incentives.

A different buyer comes in the model home without a Realtor, interested in the same house. The price is still $200,000. The buyer sees the sign advertising the upgraded appliance package ($5000) and paid closing costs and points ($6000). The builder's representative starts writing up the contract "assuming" a full-price offer. The buyer doesn't know that the last purchaser paid $195,000 and the builder's representative doesn't tell them because they have the builder's best interests in mind. Also, they can't receive the money that would normally go to the buyer's agent because they are already at the 3% allowable contribution limit. So, in this case the builder nets $189,000.

So, what value do Realtors provide? Going back to the first example about the purchase price, you don't want to pay more for your house than your neighbor paid for the exact same home. The Realtors have access to information about recently sold properties in the MLS that the public cannot access. The county auditor sites are public so you can see the sales price, but not the options and upgrades included in those homes.

Realtors also have experience with builders to know how builders work, what questions to ask, and what is negotiable. It depends on the builder, but I have seen buyers with Realtors get better deals than those without because of the Realtor's negotiation skills. Also, sometimes buyers "fall in love" with a home and want it so badly they forget to ask about other development in the area. There could be plans to build a "big box" store with its loading docks facing your backyard where trucks with beeping backup alerts load and unload all night. A Realtor takes the emotion out of it and thinks and negotiates with their mind instead of their heart. A Realtor also knows how builders work to know what is negotiable and what just isn't possible with the construction or because of lender's rules.

Columbus metro parks levy

The May 5th ballot will contain a levy for the Columbus Metro Parks. Although this topic isn't directly related to first-time homebuyers I still think it's important to mention because it makes Columbus a better place to live. I think it's a great and inexpensive way for people to get outside and enjoy nature. The 0.75 mill levy will continue operation of the existing parks and will help acquire land for three new parks:

• Along Rocky Fork Creek in NE Franklin County
• Along Little Walnut Creek new Canal Winchester and Groveport
• Along the Scioto River in southern Franklin County, near Grove City

I support our parks and I hope that you will too!

New listing!

Virtual Tour

I just got a new listing at 868 Village Brook Way! This clean and bright condo has brand new carpet and neutral paint throughout. It has an open and versatile floor plan. The great room features a gas fireplace surrounded by windows. It is open to the dining room with glass doors to the fenced patio with a decorative trellis to provide shade on a sunny day. The kitchen is open to both the dining and great rooms to easily entertain guests. It includes all of the appliances including an over-the-range microwave and plenty of cabinet and counter space. The kitchen has a door to the first-floor utility room including the washer, dryer and storage cabinets. From there you can go into the attached two-car garage with attic storage and pull-down stairs. The first-floor master bedroom has an attached full bathroom and a huge walk-in closet. The second bedroom or den also has an attached full bathroom and large closet. Upstairs, the third loft bedroom has its own half bath plus another large walk-in closet. With all this storage space you won’t miss having to walk down to a basement for storage and laundry facilities!

The condo is located within a mile of Antrim Park and the Olentangy Trail to take a walk, play with your dog, or just enjoy the great outdoors. You’ll have easy access to route 315 and Bethel Road for all of your shopping and dining needs, but the home is so quiet and private you’ll would never realize how close you are from inside the neighborhood.

The best part of this condo is the homeowner’s association! They planned and budgeted for new roofs, but because of storm damage, the complex is getting all new roofs in spring 2009 for the price of the insurance deductible! This leaves a huge budget surplus and a very financially sound condo association. All exterior wood trim will also be repainted in 2009. The neighbors do their part to keep the condo fees low too. There are committees of volunteers who maintain the pool and front entrance flowers. Plenty of social committees organize card games, potlucks, and other events. Everyone does their part to keep the neighborhood looking clean and well-maintained!

The sellers are very motivated to sell this condo right away! They are offering to pay the first six months of condo fees plus a $1000 bonus to the buyer’s agent. Bring an offer and they are willing to negotiate!

Riskiest places to buy a home

Forbes Magazine and Moody's Economy.com surveyed the 200 largest metropolitan areas, adding up the number of loans to low-rated borrowers and dividing that sum by the total number of mortgages. Here are the 10 metro areas with the highest percentages of non-prime mortgages, which makes them susceptible to defaults as unemployment rates continue to rise:

• Mission, Texas


• Detroit, Mich.


• Miami, Fla.


• Brownsville, Texas


• Merced, Calif.


• Lakeland, Fla.


• Bakersfield, Calif.


• Fort Lauderdale, Fla.


• San Bernardino, Calif.


• Visalia, Calif.

Home Showings

Coldwell Banker had a huge spike in the number of home showings last week. In fact, there were more showings last week than in any other week during the last year! Maybe it was the nice weather, maybe the low interest rates or first-time homebuyer credit, or maybe the economy is improving and consumers are becoming more confident. Whatever it is, it's working!

New Earnest Money Policy

The change to Ohio law regarding earnest money took affect yesterday. There used to be a problem deciding what to do with earnest money when the contract fell apart and the buyer and seller couldn't agree about who should get the money.

Normally when the contingencies in the contract are not satisfied or if the seller fails or refuses to perform the buyer would receive the earnest money back. Likewise, if the buyer fails or refuses to perform the seller would receive the earnest money.

Previously, when the parties disagreed, but didn't settle the dispute in court the money would remain in the broker's account indefinitely. Now, if after two years the dispute is not settled the earnest money is automatically returned to the buyer without notice to the seller.

Also, previously the buyer would receive their earnest money back at closing in the form of a check that they could apply to the down payment and closing costs or could keep. Now, the earnest money is automatically applied toward the purchase.

Selling a home? Here are some tips...

The Washington Post had a good article called "4 Tips to Make a Home More Inviting." They interviewed Phyllis Ryan, president of the model-home division of Interior Concepts, a Maryland design firm that specializes in furnishing new homes. Here are some tips that home builders use in their models and you can use when selling a home:

• A stylish kitchen appeals to many buyers. If a seller has upgraded cabinets and granite countertops, that's good. If they don't, it may help to display some stylish touches like an espresso machine, a retro toaster or just some luscious fruit.
• Lots of light makes spaces feel larger. Turn on all the lights even during the day and add a few extra lights if necessary.
• The master bedroom should seduce a buyer. Play soft jazz, pile the bed high with a cushy comforter and pillows. Stack plush towels in the bathroom.
• Add drama to a bottleneck or a dead end space. Prop an oversize mirror against the wall. It visually opens a space and adds drama.