Beginning the Home Buying Process – Part 1

[photopress:matt.jpg,thumb,alignright]My friend “Matt” is a first time buyer beginning his home search/buying process. That is not his picture, or his real name, of course. By giving him anonimity, I can take him through the steps here on RCG, so that others can follow along with us. Think of it like a board game. The “Matt” game. This will be a series that will run up until “Matt” closes escrow, and possibly beyond into his first month or two as a homeowner, and the surprises that may come up after he moves in.

Given a “blog” is a web log, it seems appropriate for a real estate blog to offer a log of real people in the home buying process. So lets log and blog the adventures of “Matt” and his home buying process. I’d love for someone to turn it into a board game at the same time. We can give it to potential homebuyers. Maybe Galen or Robbie. It could be like the game of “Life” and people who are thinking about buying a home, can buy the game and “play” before stepping out into unknown territory.

START: “I’m thinking to buy a home this fall. Likely an (x area) townhome just outside the (x) growth zone. Any advice on what I should be reading/doing to get up to speed for home-hunting?”

Now I am going to make this as transparent as I possibly can, without giving away the identity of “Matt” or the location of the home search, for obvious reasons.

STEP 1: The first step is the most extensive one, as it combines many factors. Home Price, which is determined by monthly payment affordability, cash needed to close, and commission to be paid to the Buyer’s Agent. This is all one big first step, as the Commission Negotiation affects the “cash to close” issue. So let’s do that first.

The target purchase price, as already pre-conceived by the word “townhome”, and specified area in the email, is $295,000 to $495,000. For the purpose of this Step, let’s assume that “Matt” has in mind to purchase something for around $375,000, that he is thinking his monthly payment is going to be about $2,200 and that he has saved $20,000 toward the home purchase. This may or may not be the case, but let’s start with that assumption for now.

The ball is in my court. Since I know that “Matt” works in the Technology Industry, and I believe he is a first time buyer, I have already picked up the phone and called Jennifer Chi at First Tech Credit Union. The number one issue is, do they still have that fabulous first time buyer program that I have not used for awhile, and if so, what is the current interest rate, downpayment requirement, and cost for that program. I am waiting for a call back. Left a message. My expectation is that they require little or no money down, have total lender costs of about $600, and the rate is about 5.75 %. Let’s see how close I am, if in fact that program is even still available.

Some people think the first step is for the buyer to go to “the lender”, without consulting the agent. Not so. As the agent I first want to determine who might be the “best” lender for this particular client, as I have already done. Of course the client can do whatever they want over there on the side, and check out all kinds of lenders and loan programs. But that does not relieve me of the responsibility to seek out the best and special programs, especially when I am already aware of their existince, and the likelihood that he probably qualifies for it.

Next on my “To Do” list is to Negotiate the Commission. Since I already know “Matt”, I don’t have to stick him in my car and interview him to determine the fee. Based on a sale price of $375,000, I would not normally negotiate the fee up front, as in that price range, I need to reserve monies for repairs and other issues. But since we will likely be looking at newer townhomes and he gets that “special friend” treatment, let’s establish a flat fee of $6,000, which should give him an extra $5,250.00 to spend, and still leave me enough to fix a few things and get him a nice housewarming gift πŸ™‚

This is an important first step because if any sellers are offering less than 3%, it becomes “Matt’s problem” and not mine. Everyone makes such a huge big deal about Negotiating Buyer Agent Fees. Look. It is that simple. Matt didn’t even have to put in his $.02. LOL. Of course Matt has other options, but that is my offer and he can take it or leave it or negotiate it back at me. We’ll see what he does.

That’s all we can do until we get that call back from First Tech Credit Union, as we cannot determine the price of property to look for, until we know the monthly payment he can afford, which we cannot know until we know the interest rate and cash requirements for that particular loan, which is the best, if they have it and he can qualify for it. More to come…

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ARDELL is a Managing Broker with Better Properties METRO King County. ARDELL was named one of the Most Influential Real Estate Bloggers in the U.S. by Inman News and has 33+ years experience in Real Estate up and down both Coasts, representing both buyers and sellers of homes in Seattle and on The Eastside. email: cell: 206-910-1000

58 thoughts on “Beginning the Home Buying Process – Part 1

  1. Carol,

    That looks interesting, but I didn’t get your problem with “the Spanish speaking employees” at the escrow company”? Did they not speak English? What wasn’t “right” about hiring Spanish speaking employees?

  2. Hi Ardell,
    There certainly wasn’t anything wrong with hiring Spanish speaking employees! The problem was they released a hard working long-term, non-Spanish speaking employee to keep on the new hires. And… it’s not like they only have one Spanish speaking employee. There are several. It’s reverse discrimination in my book.

  3. I’ve got a couple of questions about this process. One you haven’t touched on and some clarity concerning a statement you make.

    1. Are you going to disclose the commission you are getting from the lender YOU chose to place him with?
    2. “…he gets that β€œspecial friend

  4. Stanley,

    Good questions.

    1) It is illegal for a lender to pay anything to a real estate agent. First Tech Credit Union’s program is a “public service announcement” in that those that qualify for it, if it is still available, reap great benefits. Some companies do own mortgage companies and some agents are also lenders. If that is the case, with me it is not, then a special “affiliated business relationship disclosure” must be signed by the buyer.

    2) What do YOU have to fix??!!

    I’ve fixed lots of things. Very nice newer townhomes often have multiple offers and the seller is not willing to fix things because they have lots of buyers. The buyer who wants nothing fixed is often the one who get the property. So I’ve fixed minor things like a plumbing elbow joint at the hot water tank where the two metals didn’t mix well at the connection. Caulking. Dryer vent connection off in the crawl space. Add GFIs. I just put in a hot water tank. Door trim that was chewed by a dog. Lots of little stuff.

    “Special Friend” deals. Hmmm, well of course my brother would get a special deal and my Mom, etc… Clearly if you were selling a sofa to your best friend you might give him a better deal than if I were buying your sofa. A lot of the “work” involved in selling real estate involves building a relationship, getting to know one another, getting to trust one another. When someone trusts me from the beginning, for whatever reason, I generally deduct for the time not spent on that part of the process. Since I already know the person well, I don’t have to charge for him to get to know me and vice versa.

    Makes sense to me…less time…less cost. Clearly if someone who was NOT your friend offered you a special friend deal, then you should be skeptical. But would you be skeptical if they were in fact your friend?

  5. Ardell,

    It’s funny you mention the affiliated business relationship or ABR disclosure issues.

    Our office has closed transactions that are insured by title companies that have affiliations or is owned in part or wholly by JLS, CBB, etc…

    All ABR’s are signed the day of or just befoe closing. Like that’s really hepful to the consumer. Why don’t these companies disclose ownership interest or ABR’s at the time the consumer starts looking for a home so that they can actually do some shopping?

    I always get a kick out of these ABR’s that the consumer NEVER sees until the day they sign their loan docs.

  6. Tim,

    I haven’t worked for a company with affiliated businesses for a very long time. When I did the affiliate business disclosure was in the Purchase and Sale Agreement prior to the loan being applied for or ancillary services being selected.

    Are you sure they aren’t in the agreement and then re-confirmed at closing?

  7. If we use any affiliated businesses, such as title or escrow, the P/S Agreement is not accepted WITHOUT the ABR disclosure on file in our office. I think the 2nd signing is a reconfirmation at closing, at least at our office. The penalties are too large to fool with it.

  8. Marlow, does the original ABR disclosure get sent to escrow? Maybe not. Maybe it is a uni-lateral disclosure and not officially part of the P&S, which would explain why Tim doesn’t see it up front and only at the end. But I am quite sure that all companies have this up front, by and large.

    As I said, I don’t have any affiliations, but at one time the owner of our CB had an ownership interest in lots of stuff, including three restaurants in town. Heck we had to say our owner may have made some money on that cup of coffee you’re drinking, or the dinner I’m taking you to tonight to celebrate your closing πŸ™‚

  9. Ardell,

    Thanks so much for the response; I appreciate it!

    While I do NOT doubt your word or integrity one bit, I have a hard time believing there’s not a “spif” from lenders for steering business their way. Maybe I’m just a crusty ol’ cynic!

    I now understand what you meant by what repairs you would make to keep the deal from collapsing; makes sense. However, my thought process, and the reason for the question, is based on today’s market; not last year’s or the year before.

    “Special Friend”……that causes red flags to wave and flashing lights to shine. Close friends and family are the WORST people to do business with and, I believe you would agree, all business transactions should be at arm’s length; and some arms need to be stretched as far as is possible. LOL
    What I find interesting is how you base your fee, partly on how long it takes for the client to trust working with you. Inversely, if it takes longer to become comfortable working with an agent, a sliding scale for compensation would be in order.

    If I could pose another question. I’ve read on a number of realtor’s sites about how they are valuable to the process because of their negotiation skills; not beating their own drum, but as general principle. I can’t see how that comes into play because for that to occur, the realtor has to have the authority to make concessions. I give a list of “will do; won’t do” which means the realtor is merely a messenger. To do otherwise is to allow a stranger, no matter how much of a “special friend” they are, to make decisions that might not be in their best interest.
    I’m running on with the question but I guess that begs the question of Dual Agency being acceptable to a buyer. From what I’ve read, anything other than a true buyer’s agent is simply a subagent of the seller….am I right, on have misread?

    Great job, good discussion; you keep writing and I’ll keep reading.

    Best wishes

  10. Stanley,

    I very much appreciate your comments because I go on the theory that back and forthing brings clarity for other readers with the same questions. Like a classroom where one is afraid to ask and learns from one who is not afraid to ask.

    1) Spif from lenders could be leads. Lenders sometimes get the first call before an agent and lender can say “Do you have an agent yet” and so it’s more “one hand washes the other” than monetary exchanges. Lender gives buyer to Realtor one day. Realtor gives buyer to lender another day. That should satisfy your need to find a recompense πŸ™‚

    2) Why would need for money from agent for repairs be market driven? It isn’t. There is always a point where seller and buyer cannot meet on repairs in any market. It is always about the seller and buyer. If seller thinks he could have gotten more for the house, than he will not offer repairs, sometimes to make it fall apart. If buyer thinks they paid top dollar, they will want more repairs. That can happen in any market.

    3) Special friend…actually I am not your average “arms length” type. I treat most clients like friends and family and have never had trouble with my friends and family sales. I have heard others say what you say, but not my personal experience.

    4) I have a sliding scale of commissions for both buyers and sellers. Sale price is the biggest factor, ease of commication is second biggest factor. If a buyer or seller is doing the wrong things it causes their objective to fail, which is not good for anyone. I base my acceptance of a client and fee, in large part, on this factor, second only to price. Someone can be more erratic on a $900,000 purchase than they can on a $250,000 purchase.

    5) When an agent nogotiates it doesn’t become binding on the parties until the parties themselves sign. Our verbal negotiations cannot be started or stopped by the client…it’s an ongoing process and often subtle on the spot stuff. You cannot control that or direct that, as it is an interpersonal communciation. While those negotiations will dramatically affect you, they are not binding decisions on you, and have nothing at all to do with Dual Agency. The negotiations are between the two agents, not the buyer and the seller. The binding end result of all negotiations is by signature of buyer and seller. Where that ends up is often based on the agent to agent negotiations that the buyer and seller are not privy to.

    We do not have subagency here, though there are some agents who do not know that, and Russ would have us be subagents at times, it really is not possible to legally be a subagent here without written consent of the buyer.

    All agents here are agents of the buyer unless they are the one and only listing agent named in the listing contract, who represents the seller singularly. A “working designated broker” would be an exception…but let’s not go there as it is a rarity.

    What State are you in so I can answer for both your State and mine on the latter point.

    My pleasure.

  11. Hi Ardell et al,
    Regarding the special friend rate: I recently gave a special friend a “special friend” rate because they had the buyer… all cash, no contingencies. They figured all I had to do was write up paperwork. Well, I did that and a lot more. In the end… they paid me the “special friend” fee and much much more because they saw how much an agent actually does do! Kind of nice to know we’re appreciated.

  12. Excellent comment Carol. Yes, that has happened to me as well. Last month I had someone who wanted to pay the home inspector more than he was charging. People do surprise you at times. Twice I had someone walk in with a check after the sale was in escrow trying to pay me more than the FULL rate. I framed the first one, but I didn’t cash it.

  13. Stanley,

    Arkansas! I know very little about Arkansas, but you are indeed correct that you are not what we call “A Designated Agency State” and by and large, all agents represent sellers there. It would appear that buyer agency can only be created by written contract in Arkansas. Also, you can’t really know if you will end up in Dual Agency until you pick a house. If you sign an agreement with XYZ agent and end up liking a house listed by XYZ company…you end up with Dual Agency. Arkansas is one of the many states where the Company represents the seller, the WHOLE Company, and not just the listing AGENT. Since you can’t even get Buyer Agency without a written contract, and you don’t know which house you want to buy…it is not the easiest field to maneuver in. Lots of land mines.

    The only way to obtain buyer agency and avoid dual agency, as far as I can see, in Arkansas, is to sign a buyer agency agreement with a company that doesn’t list many houses, or doesn’t list houses at all (Exclusive Buyer Agent). That means the entire Company doesn’t list houses.

    Or you can enter into a Buyer Agency agreement that allows you to cancel if a Dual Agency relationship is the end result based on the house you select.

    You couldn’t come from an EASY State…maybe one of the five I’ve worked in, or at least one I’ve been to…Sheesh! πŸ˜‰ Buyers have it much easier here in WA.

    In your State, it appears that you really do need to sign a buyer agency agreement to be represented, and watch out for yourself at the same time. I wouldn’t give them a do and don’t list. Play your cards closer to your chest and make your decisions one at a time. No big laundry list of what you will do or how far you will go.

    Sorry…maybe you should move πŸ™‚

  14. Stanley,

    I will check and see if Arkansas is planning an Agency change soon. Last I counted, 33 states had gone to Designated Agency, which is much better, at least in theory and law, on buyers.

  15. Ardell,

    I appreciate you taking time to research the info and your advice. I don’t actually live in Arkansas….yet. I sold my house, am flush with cash, and am looking in several states, Arkansas being at the top of the list, to buy my retirement house.

    I’ve got another house so I’m using it as a base of operations during the search. I’m reading a number of real estate sites to build my knowledge base and help make the best decision for my next purchase.

    I do love your site and your approach….it’s refreshing!

    Arkansas is one of the best kept secrets in the nation. Many times the butt of jokes, but a wonderful place; with wonderful people. Please don’t blog about it, otherwise, the secret will leak out and everyone will want to move here too!…..and goodbye inexpensive housing. LOL


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  17. Update: First Tech no longer has funds for the First Time Buyer Program. They ran out in the summer and most of the funds were “used up” by Oregon buyers. Interesting.

    Sources say BECU and Alaska USA, which offered the program as well, may still have funding. So checking that next.

    The benfit of the program is it has up to 100% financing as a first mortgage, with no high rate second mortgage, no PMI and total costs of less than $1,000. Let’s see if we can find an equivalent loan program before proceeding further.

    I selected “my friend Matt” as the subject of this piece, because the goal as stated was to buy “sometime in the fall”, but it may be better/best to move that to closing ASAP after the first of the year, as many accountants recommend for buyers who are currently renting, and have never owned property.

    With the special program, that wouldn’t matter, but if we move to traditional financing, it may. Any accountants reading, please feel free to put in your $.02 on the old rule of thumb, regarding maximizing the first year write offs, by pushing the costs of close into the full year of interest and tax writeoffs.

    The advice used to be, to close ASAP after the first of the year and before June 30, for first time buyers. But that was more important back in the days when the average homebuyer paid three points up front, which is pretty much unheard of these days.

  18. My husband and I just bought a beautiful home and I must say it is a lot of work especially for first timer. There are a lot of things to consider and even after the buying process; there are still a lot of problems waiting to be solve.
    Here is a link which I think is really helpful for first time buyer. It summaries the things that you need to consider before you make that final decision.

    Hope it helps!!!

  19. Thanks May!!

    I don’t have time to go through it at the moment, but peeked at it, and it has some good stuff!

    What kind of “after sale” problems are you having “waiting to be solved”.

  20. And this is exactly why I never hire an agent when buying a property.

    Thanks for reaffirming that thought Ardell.

    It’s people like Matt who get eaten up by you real estate vultures.

  21. RCG is normally such a pleasant place to visit πŸ™‚ that it should be painfully obvious to everyone to ignore someone like Jesse who is not trying to add anything meaningful to the conversations…

  22. Hey, Dustin…we can “take him out and show him who’s boss” LOL Jesse, you are clearly entitled to your opinion and there is absolutely nothing wrong with buying and selling property without any agents at all. As to “reaffirming” your already made up mind on that…glad to be of service.

  23. Rich,

    There is a “recapture of benefits” provision if you sell the property within 9 years. Not sure of the details, but make sure you check into that aspect of the program.

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